Hildron Finance Ltd v Greenhill Hampstead Ltd

Factual and Procedural Background

This appeal concerns a collective enfranchisement valuation dispute under section 13 of the Leasehold Reform, Housing and Urban Development Act 1993 relating to a block of flats known as 1 to 138 Greenhill, Prince Arthur Road, Hampstead, London, NW3 5TY. The landlord, Company A, appealed against a decision of the Leasehold Valuation Tribunal (LVT) which had determined the price payable for the freehold interest by the nominee purchaser, Company B. The LVT initially fixed the price at £2,298,172, later amended to £2,089,172, inclusive of £582,000 for intermediate landlords' interests in two flats.

Permission to appeal was granted on issues including valuation date, deferment rate, hope value, and the value of the porter's flat. The appellant contended for a substantially higher price based on different valuation dates and valuation assumptions. The respondent's expert considered the LVT valuation too low but did not seek a lower figure.

The property is a multi-storey block built in the early 1930s, located in a prime residential area outside what is defined as Prime Central London (PCL). It includes a small porter's lodge and various flats with differing lease terms. The parties presented expert valuation evidence but no site inspection was conducted.

Legal Issues Presented

1. What is the correct valuation date for the freehold interest under the 1993 Act in light of disputed terms in the counter-notice and transfer document?
2. What is the appropriate deferment rate to apply in valuing the freehold interest, considering the property’s location, condition, management responsibilities, and relevant precedents?
3. Whether hope value is recoverable in valuations under the 1993 Act.
4. What is the correct valuation of the porter's flat, including whether it is saleable and whether a notional rent can be included in the service charge?

Arguments of the Parties

Appellant's Arguments

• The correct valuation date should be the date of the LVT hearing (31 January 2006), not the date of the landlord's counter-notice (20 January 2005), because the freehold interest's extent and quality were not agreed at the earlier date due to disputed indemnity provisions.
• The deferment rate of 7% applied by the LVT was too high; based on the precedent in Sportelli, a deferment rate of 5% was more appropriate given the property’s characteristics and location.
• Hope value should be recoverable and quantified separately, although the appellant accepted this point could not succeed currently due to binding precedent.
• The porter's flat should be valued at £300,000 based on its market sale value or capitalised notional rent, arguing it is saleable and not subject to an obligation to provide resident porter accommodation.
• The appellant contended that a notional rent was recoverable as part of the service charge for the porter's flat under relevant leases.

Respondent's Arguments

• The correct valuation date is the date of the landlord's counter-notice (20 January 2005), as the disputed indemnity clause did not affect the quality of the freehold interest and the appellant was estopped from asserting otherwise.
• The deferment rate should be higher than that in Sportelli, suggesting 8%, due to management risks, location outside PCL, obsolescence, and termination risks.
• The porter's flat was valued at £50,000 by the LVT because it was not saleable on a long lease and the landlord could not charge a notional rent for it under the old leases; alternative valuations of £100,000 or £150,000 were proposed.
• The notional rent was not recoverable under the first tranche of leases due to lease wording and relevant case law, and the sale of the porter's flat was restricted by lease terms and practical considerations.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by considering the deferment rate, adopting the generic 5% rate established in Sportelli as appropriate for the appeal property. It found that the appellant’s proposed higher rate was unsustainable in light of the Court of Appeal’s judgment in Sportelli and that factors such as obsolescence, location outside PCL, and management risks did not justify deviation from the established rate.

Regarding the valuation date, the court applied the test from Blendcrown and West Hampstead, determining that the date when the freehold interest’s extent and quality were agreed or determined was the date of the landlord’s counter-notice (20 January 2005). The disputed indemnity clause did not affect the quality of the freehold interest substantively, and the appellant was estopped from asserting otherwise due to conduct during proceedings.

On hope value, the court acknowledged the appellant’s desire to argue for its recoverability but accepted that binding precedent from Sportelli precluded recovery under the 1993 Act.

For the porter's flat valuation, the court analyzed lease provisions and relevant case law concerning the recoverability of a notional rent. It concluded that while later tranche leases permitted recovery of notional rent, the first tranche did not. The court found the appellant’s valuation of £300,000 overly optimistic given the practical and legal constraints, and the respondent’s lower valuations too low. Balancing these, the court fixed the value at £200,000, reflecting the flat’s partial saleability and the notional rent issues.

Finally, the court determined the overall price payable by the appellant for the freehold interest, including the agreed intermediate landlords’ interests and the porter's flat value, to be £2,835,255. It noted that if the later valuation date were correct, the figure would increase accordingly, but reaffirmed the earlier valuation date.

Holding and Implications

The court ALLOWED THE APPEAL IN PART and determined the price payable by the appellant for the freehold interest in the appeal property to be £2,835,255, based on a valuation date of 20 January 2005 and a deferment rate of 5%. It fixed the value of the porter's flat at £200,000.

The court rejected the appellant’s submissions for a higher deferment rate and a later valuation date, and confirmed that hope value is not recoverable under the 1993 Act as per existing precedent.

This decision clarifies the application of the deferment rate guidance from Sportelli to properties outside the Prime Central London area and affirms the principles governing valuation date determination in collective enfranchisement cases predating the Commonhold and Leasehold Reform Act 2002 amendments. It also provides detailed analysis of lease provisions regarding notional rent and the valuation of ancillary accommodation such as porter's flats.

No new legal precedent was established beyond the application and confirmation of existing authorities to the facts of this case.