Hauser v Howard De Walden Estates Ltd

Factual and Procedural Background

This is an appeal against a decision of the Leasehold Valuation Tribunal ("LVT") for the London Rent Assessment Panel dated 23 January 2012, relating to the price payable by the Appellant to the Respondent for the grant of a new lease of a property located at 11 Harley Place ("the subject property"). The price was assessed under schedule 13 to the Leasehold Reform Housing and Urban Development Act 1993 at £343,786.

The parties had agreed several matters including the valuation date (1 April 2011) and the freehold vacant possession ("FHVP") value of the subject property at £1,980,000. The sole issue on appeal was the relativity percentage between the value of the extended leasehold interest (for a term of approximately 138 years at a peppercorn rent) and the agreed FHVP value. The LVT had determined this relativity to be 99%, while the Appellant contended it should be 95%.

The subject property is unusual in that it includes a substantial flying freehold element, with part of the property oversailing an excluded basement area owned separately. This feature affected its classification for enfranchisement purposes and valuation considerations.

The appeal was confined to the question of relativity and proceeded by way of rehearing before the Upper Tribunal (Lands Chamber).

Legal Issues Presented

1. What is the appropriate relativity percentage between the value of the extended leasehold interest of the subject property and the freehold vacant possession value for the purpose of calculating the premium payable under schedule 13 of the Leasehold Reform Housing and Urban Development Act 1993?

Arguments of the Parties

Appellant's Arguments

• The subject property should be considered effectively as a house rather than a flat for valuation purposes, as it appears as a house to the market despite the flying freehold element.
• Freehold houses are available on the Respondent's estate or nearby, giving the hypothetical purchaser a real choice between purchasing a freehold house or a long leasehold house, which should depress the value of the leasehold interest relative to freehold.
• The restrictions and burdens in the proposed lease, including detailed covenants and controls, would be viewed negatively by a hypothetical purchaser, justifying a lower relativity figure.
• Market evidence, including an analysis of 42 transactions of freehold and long leasehold houses in the estate, supports a relativity closer to 95%, with adjusted data showing a range from approximately 87% to 101%, and a more focused subset near 91%.
• Graphs and principled approaches to relativity, while of secondary use, suggest a relativity around 95% at the lease term in question.
• The appellant’s open offer to purchase the freehold interest suggests a relativity range between approximately 94% and 97%.
• The hypothetical purchaser would generally prefer freehold ownership of a house over a long leasehold due to emotional and practical considerations, especially in prime central London.
• Criticism was directed at the respondent’s evidence that the leasehold and freehold values are nearly identical, arguing that it ignores the real choice available in the market.

Respondent's Arguments

• The subject property should be treated as a flat for enfranchisement and valuation purposes due to the substantial flying freehold element, which affects market perception and value.
• The agreed FHVP value already reflects the disadvantage of the flying freehold, so applying a lower relativity derived from standard houses would amount to double counting.
• Market evidence, including expert testimony and graphs, supports a relativity of 99% for very long leases (over 130 years), consistent with established case law and valuation practice.
• There is very limited availability of freehold or enfranchiseable houses on the estate at the valuation date, reducing the hypothetical purchaser’s ability to negotiate a lower price for the leasehold interest.
• Criticism of the appellant’s market evidence was made on the basis of substantial adjustments required, limited comparables close to the valuation date, and lack of properties with similar flying freehold characteristics.
• The respondent relied on matched pair analysis of properties on a different estate, showing relativity near 99% when adjusted appropriately.
• Graphs of relativity, while not a primary valuation tool, all support a figure close to 99% rather than 95% at the relevant term.
• The hypothetical purchaser pool is diverse; while some may discount the leasehold interest, others would pay near freehold value, and the highest bidder would prevail.
• The offer made by the Appellant to purchase the freehold interest was not a reliable indicator of value due to the context of ongoing litigation and the Respondent’s policy not to sell freeholds voluntarily.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court carefully considered the unique characteristics of the subject property, particularly the substantial flying freehold element, which made it atypical compared to a standard house. The FHVP value agreed by the parties already reflected this disadvantage, thus the Court reasoned that applying a reduced relativity figure based on comparisons with standard houses would result in double counting.

The Court evaluated the expert evidence and market data presented by both parties. It acknowledged the appellant’s argument that the hypothetical purchaser would prefer freehold ownership of a house and that freeholds were available in the market, but found that the actual availability of comparable freehold or enfranchiseable houses on the estate was very limited (between one and three).

The Court found significant limitations in the appellant’s market transaction analysis, including the necessity of substantial adjustments, limited comparable properties with flying freehold characteristics, and a relatively small number of transactions close to the valuation date, which undermined the reliability of the 95% relativity figure.

Conversely, the respondent’s evidence, supported by extensive experience, matched pair analysis, and multiple graphs of relativity (including those recognized in previous decisions), consistently supported a relativity of 99% for leases of this length.

The Court also accepted that the hypothetical purchaser pool is varied, with some purchasers willing to pay near freehold value for a long leasehold interest, reflecting market realities in prime central London.

Ultimately, the Court concluded that the evidence favored the 99% relativity figure adopted by the LVT and found the appellant’s figure of 95% insufficiently supported.

Holding and Implications

The Court DISMISSED the appellant’s appeal, confirming that the correct relativity between the value of the extended leasehold interest and the freehold vacant possession value of the subject property is 99%.

This decision affirms the valuation approach taken by the Leasehold Valuation Tribunal and underscores the importance of considering the specific characteristics of the property, including flying freehold elements, when assessing leasehold premiums. The ruling does not establish new legal precedent but clarifies the application of established principles to properties with unusual features.