[2025] UKUT 00324 (LC)

Before the FTT the parties agreed that the current value of the respondent’s right to receive the ground rents for the remainder of the term was £6,000. They also agreed that the appropriate deferment rate to be applied to the FHVP to arrive at the current value of the appellant’s right to vacant possession at the end of the term was 5%. In their joint statement the experts referred to the fact that the Property had sold twice in recent years, in February 2021 for £990,000, and again in February 2024 for £1,170,00. They also drew the FTT’s attention to what they called the “Zucconi rate (if applicable)” which was 74.37% (that being the relationship, or relativity, between the value of a lease of 54.71 years and FHVP value as shown on the standard graphs).

The parties did not agree the value of the existing lease or the FHVP value and the FTT was required to determine them.

A hearing took place at which the parties were each represented by Chartered Surveyors, the respondent by Mr D C Cooper MRICS, and the appellant by Mr R D Sharp FRICS.

The relative positions of the parties’ experts and the FTT determination on the critical values (expressed both in total figures and at a rate per square foot for easier comparison) are shown in the table below:

The FTT took the sale of the Property in February 2024, five months after the valuation date, for £1,170,000 (£813/sq ft) as its starting point for the determination of the value of the existing lease. It is of note that this starting point appears to have been agreed. The FTT recorded in its decision, at [12], that “Mr Sharp appeared to accept the sale in February 2024 at £1,170,000, although he had not been able to trace any estate agent’s particulars.”

The FTT adjusted the February 2024 sale figure down by 5.85% to reflect the statutory assumption that the interest being valued enjoys no “Act rights” and would therefore be less valuable than the actual lease which was sold with the benefit of the right to an extended lease on payment of the premium. It made a second adjustment for the general change in property values over the time which elapsed between the valuation date and the date of the sale. By this route it arrived at a value for the current lease on the valuation date, without Act rights, of £1,053,700, which represents £732 per square foot. This figure differed from the figure of £1,054,018 proposed by Mr Sharp in his evidence only because Mr Sharp had used 6%, rather than 5.85%, when adjusting for the value of Act rights. The FTT later described this difference as “trivial”.

The FTT next addressed the FHVP value. To arrive at their view of the value of the extended lease and, by adjustment, the FHVP the experts relied on evidence of the sales of similar flats in the same block whose leases had already been extended. The FTT appended to its decision a schedule of eight sales of flats at Hyde Park Mansions which it had received in evidence. It disregarded two which had been relied on by Mr Sharp, the appellant’s expert (sales of Flats 1M and 1F in 2018 and 2019) on the grounds that the sales occurred too long before the valuation date to be useful. It used the remaining six transactions to reach its own figure for the value of the extended lease. The relevant entries in the schedule are summarised below, with the transactions as listed by the FTT in reverse date order, beginning with the most recent.

Of the six flats taken into account by the FTT only one was on the first floor (1F), one was on the raised ground floor (4C), two were on the second floor (9G and 1H) and two were on the fourth floor (12F and 10M).

Mr Sharp had placed no weight on three transactions relied on by Mr Cooper. He disregarded the sale of Flat 12F for two reasons: it was a fourth floor flat with no lift, so required too much adjustment (Mr Cooper had made an adjustment of 20% for this factor alone); and because the price per square foot paid for the existing lease of the Property (£813/sq ft) was higher than the extended lease value of 12F. He disregarded the sale of Flat 4C for a number of separate reasons which collectively cast doubt on the reliability of the reported sale price: the extended lease had been granted by agreement in November 2020 at a premium which implied a much higher extended lease value; and it had been marketed at much higher levels in the year before the June 2022 sale. Finally, Mr Sharp disregarded the sale of Flat 9G as unreliable because, again, the sale of the extended lease of that flat was at a price less than the price paid for the existing short lease of the Property.

The FTT did not adopt Mr Sharp’s approach to these three disregarded comparables and instead arrived at an average rate per square foot taking all six transactions into account and giving them equal weight.

At paragraph 21 of its decision the FTT commented on the explanation given by Mr Sharp for disregarding Flats 12F and 9G, saying this:

“21.

Mr Sharp put an argument forward that where comparable properties have a lesser value for the short lease than the long lease [sic], they should be disregard[ed]. We agreed with Mr Cooper when questioned about this, that this is a reflection of the market at the valuation date. It could also be that the housing crisis in London has resulted in this phenomenon and furthermore that buyers are more aware of their ability to extend leases and accordingly the shorter lease is of a lesser concern to them now and are willing to pay more to have the opportunity to extend the lease in the future.”

We find these comments puzzling and problematic but we assume that the comparison in the first sentence was intended to be reversed. We will return to the general proposition about the relative value of short leases and extended leases later.

The FTT made other adjustments to the transactional evidence to render it comparable to the subject Property. The most substantial of these was an adjustment of 20% to the value of Flat 12F because it was a fourth floor flat without a lift. Flats which appeared from marketing particulars to have had been modernised or to be well decorated attracted various adjustments of 5%, 7%, 8%, 10% and 13%. The raised ground floor Flat 4C was taken to be 4% less valuable than the Property on the first floor; flats on floors above the first floor were taken to be 1% more valuable than the Property for each additional floor on the grounds of outlook and privacy (Mr Cooper had applied an adjustment of 2% per floor for this factor in his own valuation, whereas Mr Sharp had made none).