[2025] UKUT 00324 (LC)

In granting permission to appeal we considered that a review was warranted because the determination by the FTT, using heavily adjusted market evidence, gave rise to a relativity of 81.85%, when a graph of relativity which would be used in the absence of market evidence suggests a relativity in the region of 74.37%. The difference between those relativities is significant and we do not consider that that there can be “an accepted margin of tolerance” for a percentage figure which is a ratio of two independent valuation figures. We accept the appellant’s basic point that the result of the FTT’s assessment, which produced a relationship between the value of the existing short lease and the value of the freehold which is so substantially out of the norm, should have given it pause for thought. Where that outcome had been arrived at by giving equal weight to transactions in properties which were so different from the subject that it was necessary to apply multiple adjustments, one of as much as 20%, the need to question the utility of the transactional evidence and the reliability of the FTT’s own adjustments was acute. In short, a simple cross check based on the published graphs ought to have rung alarm bells and, as a matter of good valuation practice, ought to have prompted a more critical examination of the evidence.

On consideration of the appellant’s case on the appeal, a difficulty becomes apparent. It is not suggested, nor could it be, that the FTT was wrong to rely on transactional evidence in the building to determine the two disputed values. Market evidence can legitimately be preferred to the use of relativity graphs if it can be shown that the market evidence is reasonably comparable and does not require extensive manipulation to apply it to the subject valuation (Mallory v Orchidbase Ltd [2016] UKUT 468 (LC)). It was not suggested to the FTT by either party that it should base its determination on a consideration of relativity. The only role of relativity in this case is therefore as a sense check to confirm that the FTT’s valuation conclusions are consistent with what would broadly be expected, or to highlight any significant divergence from the norm which might cast doubt on those conclusions. The surprising relativity demonstrated by the FTT’s two valuations, which is notably inconsistent with the norm represented by the graphs, suggests that something may have gone wrong, but it does not assist in identifying what has gone wrong. Relativity expresses a relationship between two variables and may diverge from what might otherwise have been expected because the value of one or other of the variables is differs from the norm, or because both differ. Relativity can tell us nothing about which of the variables may have been incorrectly assessed. But in this case, the appellant’s challenge is to only one of the variables, the FHVP value, and it has abandoned its original attempt to challenge the existing lease value. The FTT’s determination of existing lease value, which was not materially different from the appellant’s, must therefore be taken to be established. Relativity then has no part to play in a review of the FTT’s determination of FHVP value, which must depend simply on the evidence presented by the parties.

The schedule of comparable evidence included in the FTT’s decision, showing the adjustments made respectively by Mr Cooper, Mr Sharp and the FTT, is a helpful reference point. Taking an overview of the evidence we agree that it is not appropriate to give weight to the two oldest sales since there is sufficient evidence of sales much closer to the valuation date. However, the range of adjusted prices resulting from the six pieces of more recent evidence is very large, and by simply averaging those prices all reasons for difference are lost. Good practice should encourage an effort to understand or explain evidence at the outer edges of the range. If there is no obvious explanation, or if an outlier is significantly different from the subject so as to require significant adjustment, it may be appropriate to give it no weight, or less weight than other more transparent or more directly comparable pieces of evidence.

The technique of averaging values indicated by a number of pieces of evidence is convenient and unobjectionable where the evidence is of sales of very similar properties which require few adjustments to render them comparable. Sales of adjacent properties of similar size, style and condition will often transact at different prices within a range accounted for simply by incidental circumstances or preferences rather than by substantive differences in value. There is no reason why a number of such pieces of evidence may not safely be combined to produce an average figure which can then be applied in valuing the subject property. But where there are more substantial differences between pieces of evidence, such as significant variances in condition, specification, or location, the technique of averaging evidence can be a dangerous substitute for a more considered valuation approach. A wide spread of sales prices is more likely to reflect the different characteristics of the property than the different preferences or negotiating positions of the buyer and seller. It is, of course, possible to make adjustments for particular features or characteristics, but there is often little or no evidence to support such adjustments, which instead depend only on the skill and subjective judgment of the valuer. Where a number of adjustments are required to enable comparison, the adjusted values may become increasingly remote from real world evidence.

The risk in averaging figures drawn from a range of properties which do not share significant features is that particular characteristics of the property to be valued diminish in their influence and are liable to be diluted by the characteristics of other properties which it does not share. By giving more weight to the better pieces of evidence, those most comparable and requiring least adjustment, and less weight, or none at all, to transactions in less comparable properties, the risk of dilution may be diminished.

We note that indexation had been agreed between the experts and that the differences arose from subsequent adjustments to the time adjusted price. The extract from the schedule provided earlier is reproduced below with the evidence sorted in descending order of time adjusted price, with the two dated pieces of evidence omitted. This provides a solid starting point from which the range of prices is clear and reasons for difference can be considered.

The time adjusted prices fall into small clusters at the top and bottom ends of the range, with two individual prices between them. The top two properties, 1H and 1F, were the most useful comparables in terms of size and situation, but were described as refurbished.It was appropriate to place a lower value on the Property to reflect that difference. The FTT made deductions for refurbishment of between 7% and 13%, which is not an impossible range, although the FTT undertook no inspections and was dependent on photographs for its assessment. Flat 10M sold just two months before the valuation date but is notably larger than all the others in the list, so a lower unit price is not surprising. The FTT made further deductions for Flats 1H and 10M of 1% per additional floor level. That level of adjustment would be hard to discern in the market, and the adoption of a consistent adjustment for floor level across a range of different properties without regard to other influences may be too mechanistic. Based simply on the time adjusted prices, adjusted for refurbished condition to the extent considered appropriate by the FTT, the top three sales would suggest a value for the Property of around £1,000 psf.

The time adjusted values of the three remaining sales seem to put them in a different category. Flat 4C was also refurbished, but had been sold 17 months earlier for £922 psf and the fall in the market over that period produced a time adjusted price sitting well below the top three sales. The FTT adjusted by 4% for its less desirable situation at raised ground floor level but did not consider what other reasons there might be for its significantly lower price. Doubt had been cast on the sale evidence by Mr Sharp but the FTT described “the attack” as not sustainable since it relied on settlement evidence. Nonetheless, we consider that there were good reasons for the FTT not to give equal weight to this evidence within an averaging exercise, including its late introduction and apparent lack of marketing.

Flats 9G and 12F were notable in being sold at distinctly similar very low prices, even though both were described as modernised, which suggests that they may have been sold into a different market and therefore provide less useful evidence. The closeness of the prices was subsequently masked by the range of adjustments made by the FTT. Flat 12F was located on the 4^th floor, without a lift, but was also refurbished, for which adjustments were made of +3%, -20% and +8% respectively, giving an overall adjustment of +9%. This degree of manipulation, based only on subjective impression, is unlikely to provide a reliable end figure. Flat 9G was adjusted down by 6%, deducting 1% for floor level, and 5% for refurbished condition, which provided an even more strikingly low figure. The FTT chose to give these adjusted low prices equal weight in an averaging exercise with sales of more obviously comparable properties which had transacted at prices up to 60% higher.