The 47 Philimore Gardens decision raises some interesting questions about relativity and they are discussed in some more detail here. As mentioned earlier the website www.graphsofrelativity.co.uk can be used to show the impact that differing percentage relativities will have and is worth a look if you are interested in this issue, or a valuer looking at the comparable impacts of choice of relativities in a calculation.

As the Kosta decision shows however, graphs are not necessarily the last word in relativity.

The debate about relativity rages on as can be seen from the decision of the Upper Tribunal in this case…

1.1              The single biggest variable factor that will determine the price that the enfranchising tenant will pay to buy their freehold or extend their lease in a valuation calculation with marriage value is the so-called ‘relativity.’ This percentage represents the proportion of the freehold vacant possession value of the property that the existing (short) lease bears to it and can only be calculated by estimating or looking at accepted trends based on market evidence of the likely differential.

1.2              The traditional way to assess this is by the use of graphs of relativity which show the trend as lease length diminishes and the likely percentage of the freehold value that the short lease represents. The graphs in general follow a similar shape, but traditionally landlord advisors have preferred graphs that tend to a lower level of relativity and tenants the reverse. It is worth bearing in mind in this discussion that the higher the relativity, the better the outcome for the tenant as the ‘gap’ that then must be divided between landlord and tenant on a 50/50 basis when assessing the marriage value is thereby diminished.

1.3              For a view of the various competing graphs of relativity the website www.graphsofrelativity.co.uk shows very visibly the general trend of the relativity curve but also allows valuers to compare the impact of different graphs, given varying lease lengths. A picture of a comparison of the various relativity graphs applicable to Prime Central London (plotted on the same axes) appears in the image below. The figure shows the general trend, but the debate rages as to which graph is ‘correct.’

1.4 see in particular the overall graph that appears on the home page of www.graphsofrelativity.co.uk

1.5              Because of its significance and the difficulty in pinning it down exactly (matters of valuation are as the tribunal itself said in this case ‘an art not a science’), the question of relativity has been under debate for some time and there have been numerous examinations of the best approach to calculating relativity, including the decision in Nailrile v Cadogan [2009] 2 E.G.L.R. 151 in which the Lands Tribunal clearly stated that graphs of relativity should not be used in preference to reliable open market evidence. In other words the concept of relativity can be very much case specific. Indeed, following the decision in Arrowdell Limited v Coniston Court (North) Hove Ltd (LRA/72/2005) the Lands Tribunal expressed the hope that it might be possible to produce standardised graphs of relativity. Indeed, following on from this the RICS produced a study on relativities, however, it was not possible to for the RICS working party to agree upon definitive graphs and professional views on how relativity should be calculated remain disparate.

1.6              The facts in 47 Phillimore Gardens concerned an enfranchisement under the Leasehold Reform Act 1967, of a house with 52.45 years unexpired on the lease as at the valuation date. The LVT had determined that the enfranchisement price to be £16,138,743. The valuation being carried out under Section 9(1D).

1.7              The case concerned in particular the expert evidence of Dr Bracke (a professor of economics), who also now has his own research company dedicated specifically to research in this area. He deployed a detailed and significant statistical analysis of data held by the Central London agents John D Wood relating to transactions prior to the 1993 Act, in an attempt to find a methodology of calculating relativity and evidence of it that was truly from a ‘no act world’ – as this is one of the valuation assumptions when assessing this.

1.8              Dr Bracke had carried out significant research and deployed a ‘hedonic regression’ model to the data to produce, what he said was an accurate means of determining relativity for a lease of 52.45 years unexpired term at the valuation date. His figure was some 87%.

1.9              The Respondents (the Phillimore Estate), perhaps unsurprisingly preferred the relativity figures that would be arrived at by use of the more traditional graphs of relativity such as the Gerald Eve, Knight Frank and Cluttons graphs which led to a relativity figure of some 76%.

1.10           Because of the technical nature of Dr Bracke’s arguments, the Respondents also called an economics and statistical expert, Professor Lizieri. The tribunal considered the matter and the evidence and remarked that whilst it was bound to decide the matter on the arguments before it, neither side had adduced valuation evidence in the Upper Tribunal and had instead confined in the main their arguments solely to the consideration of the means by which relativity should be calculated.

1.11           After considering the matter at some length the Upper Tribunal declined to interfere with the decision of the LVT (as it then was) at first instance that the relativity figure in this case should be 76%.

MARK CHICK

This article being general in nature is not a substitute for legal advice. If you require legal advice please visit www.bishopandsewell.co.uk or email: leasehold@bishopandsewell.co.uk

In an article that I recently published on this site looking at relativity and the 47 Philimore Gardens decision see http://www.leaseholdreformnews.com/latifa-kosta-v-the-trustees-of-the-phillimore-estate-2014-ukut-0319-lc-47-phillimore-gardens/ I made a reference to graphs of relativity and the site www.graphsofrelativity.co.uk to show the general shape of the relativity curve.

I have noticed that the link did not appear in the article properly and so it is posted again here so that the link can be more easily accessed www.graphsofrelativity.co.uk

The case of Westbrook Dolphin Square (see http://www.leaseholdreformnews.com/westbrook-dolphin-square-ltd-v-friends-life-ltd-2014-ewhc-2433-ch/)  is a long decision of the High Court and has been appealed by the landlord on what might be termed the ‘policy point’ – i.e the question of whether the creation of a scheme that successfully avoids Section 5 of the 1993 Act actually offends public policy. We will have to see how this particular aspect plays out.

What is more interesting and in my view the most interesting aspect of the case is the discussion of what constitutes a ‘valid’ offer figure for the purposes of a notice of claim. The Court was at pains to point out (and as the decision shows) that there is not an ‘objective’ benchmark of what constitutes a reasonable offer. Rather it must be an offer that is a genuine opening shot in negotiations. It is acceptable for the tenant to view this as being a figure that will be ‘knocked back’ but it cannot be a purely nominal figure.

For all of the unique features of the Dolphin Square case this is the point that is likely to have the widest effect in practice.

It was interesting to hear the views of opposing valuers in the discussion at the 15th ALEP Conference (http://www.alep.org.uk) on 21st October 2014, in a debate that I was pleased to chair.

Mark Chick

Mark Chick is a solicitor dealing with leasehold issues. This note (being very general in its nature) is not a complete statement of the law in this area.  It is therefore not a substitute for legal advice from a suitably qualified professional and should not be relied upon as such. No liability can therefore be accepted for any actions based on reliance upon it.

If you require legal advice please visit www.bishopandsewell.co.uk or email leasehold@bishopandsewell.co.uk

This was the question posed by Philip Rainey QC in his case update at the 15th ALEP Conference at the Royal Institution on 21st October 2014.

The case of Jewelcraft v Pressland (see http://www.leaseholdreformnews.com/jewelcraft-v-pressland/) does somewhat leave that question open. The facts of this case were very similar to Henley v Cohen (shop with flat above, no internal access). The landlord won at first instance and the tenants have now appealed to the Court of Appeal. More on this in the new year.