David Holgate QC and Thomas Jefferies acted for the tenants of a block of flats in Cadogan Square in an appeal to the Lands Tribunal. The tenants are seeking to buy the freehold of their block from the Cadogan Estate under the leasehold enfranchisement legislation. The only issue in the case was what deferment or discount rate should be used for determining the current value of the freehold interest, the main part of the price payable by the tenants. The deferment rate represents the return an investor would require on the price paid for the reversion today to reflect the risks of the investment and the likely capital growth.
This was an issue of such importance to landlords and tenants of flats and houses throughout the country, that a full three member panel of the Tribunal was brought together for the first time for some years to hear a number of appeals relating to the same issue together. The Tribunal heard evidence from 4 expert economists and 4 valuers over 11 days. The landlords’ experts’ views of the correct rate supported a claim for a rate of 3.5% which represented a price payable by the tenants of £5 million. The tenants’ experts views supported a rate between 5.5% and 6.5%,. representing a price payable of around £1million.
In a landmark ruling designed to provide guidance for all enfranchisement cases throughout the country, the Tribunal determined that the appropriate deferment rate for all houses should be 4.75%, and for all flats should be 5%. In reaching its decision it relied heavily on the evidence of the experts called by the Cadogan tenants. The Tribunal also accepted the arguments of the tenants that no further allowance should be made for “hope value” of deals with tenants, save in valuations under s9(1A).