Roberts & Anor v Fernandez

Factual and Procedural Background

This opinion concerns an appeal by the joint freeholders (Appellants) against a decision of the First-tier Tribunal (Property Chamber) regarding the premium payable by the lessee (Appellee) for an extended lease of a flat known as No. 70 Andace Park Gardens, Bromley. The appeal was granted permission by the Deputy President due to arguable grounds and inconsistent prior decisions on similar properties, leading to uncertainty in lease extension valuations. The valuation date was agreed as 8 April 2013.

Andace Park Gardens consists of two blocks with over 80 flats built circa 1985. The lease for No. 70 was granted for 99 years from 1986, with about 72 years unexpired at valuation. The lease includes an unusual feature requiring the freeholder to receive 1% of the sale price upon assignment. The First-tier Tribunal had determined the premium payable as £10,052.

Legal Issues Presented

1. What is the appropriate relativity to apply for the lease extension premium calculation?
2. Whether an onerous lease supplement or adjustment to marriage value should be applied due to lease terms such as high ground rent and assignment premiums?
3. What is the correct deferment rate to apply in valuing the lease extension premium?
4. What is the correct capitalisation rate for the freehold interest in light of the lease terms and market evidence?

Arguments of the Parties

Appellants' Arguments

• Relativity should be lower (initially 85%, later increased to 88%) reflecting mortgage dependency and market aversion to short leases post-2007 financial crisis.
• Adjustments to marriage value and an onerous lease supplement of £5,000 should be applied due to onerous lease terms including a 1% premium on assignments, high ground rent, and restrictive lease provisions.
• The deferment rate should start at 5% (based on Prime Central London precedent) with no addition for obsolescence or management difficulties, suggesting a preferred rate of 5.25%.
• The capitalisation rate should be 5% or better, reflecting the attractiveness of the freehold investment due to lease terms and amenities.

Appellee's Arguments

• Relativity should be approximately 93.7%, supported by market evidence showing little difference between extended and unextended leases with over 70 years unexpired.
• No onerous lease supplement or marriage value adjustment is warranted as the ground rent is within acceptable limits and amenities add value.
• The deferment rate should be 5.75%, including additions for obsolescence, lower growth prospects compared to Prime Central London, and management risk under service charge regulations.
• The capitalisation rate should be 7%, rejecting reductions based on lease features as the 1% assignment premium continues post-extension and the amenity lease costs do not enhance freehold value.

Table of Precedents Cited

Court's Reasoning and Analysis

The court carefully examined the evidence and submissions on each disputed valuation element. It accepted the First-tier Tribunal’s rejection of the appellant’s lower relativity figures, favoring market evidence and RICS graphs supporting a relativity of 93.7%. The court noted the lack of sufficient data to draw reliable conclusions from some statistical sources and sales evidence.

Regarding onerous lease supplements and adjustments to marriage value, the court found no credible evidence to justify these, relying instead on RICS research which indicated the ground rent was within acceptable ranges and did not depress value.

On deferment rate, the court started from the established Sportelli rate of 5% for Prime Central London flats but rejected the First-tier Tribunal’s additions for obsolescence, long-term growth, and management risk. The court found the evidence for these adjustments insufficient or misplaced, especially given the property’s location and characteristics. It reduced the deferment rate from 5.75% to 5.25% accordingly.

For the capitalisation rate, the court disagreed with the appellant’s proposed lower rate, finding that the lease features cited did not justify a reduced yield. It accepted the appellee’s position that the 1% assignment premium continued post-extension and thus was irrelevant to compensation, and that the amenity lease costs did not enhance value. The court set the capitalisation rate at 7%, higher than the First-tier Tribunal’s 5.5%.

Despite these differences, the overall valuation difference was minimal (£44), leading the court to dismiss the appeal without substituting its own figure for the First-tier Tribunal’s premium.

Holding and Implications

DISMISSED

The court dismissed the appeal, confirming the premium payable for the extended lease of No. 70 Andace Park Gardens as £10,052 as determined by the First-tier Tribunal. Although the court found errors in the deferment and capitalisation rates applied by the First-tier Tribunal, the resulting adjustment to the premium was negligible and did not warrant substituting its own figure. There are no broader precedential implications beyond affirming the careful application of established valuation principles and the evidential weight of market data and authoritative research in lease extension premium calculations.