In a recent decision the Upper Tribunal has provided guidance on the correct method of valuing the freehold during leasehold enfranchisement of a dwelling house under s9(1) of the Leasehold Reform Act 1967 and confirmed the limit scope of correction certificates.
In determining the price to be paid for the freehold interest of a dwelling house the LVT had applied a two stage valuation, valuing the landlord's reversion on the basis of the section 15 rent in perpetuity. The Appellant contended that this was incorrect and that the three stage process known as the "Haresign addition" should have been used. As set out in Haresign v St John's College, Oxford (1980) 255 EG 711 this would have quantified separately an addition to represent the present value of the landlord's reversion to the standing house value after the expiry of the 50 year extension to the term.
The Upper Tribunal (Lands Tribunal) acknowledged that the two stage valuation process had previously been endorsed as the standard valuation practice - the Haresign addition being treated as an exception. However, as a result of the substantial increase in real terms of house prices and the lower deferment rates that are applied as a result of the Sportelli decision, there is now (unlike when the two-stage process became standard practice) a much greater likelihood that the ultimate reversion will have a significant value. Accordingly, the three-stage approach should be preferred. "As a matter of good valuation practice, where a price has to be determined, every element of value should in general be separately assessed unless there is some good reason not to do so... The only relevant question is whether the reversion does have a significant value. In future, therefore, we consider that the appropriate approach will be to capitalise the section 15 rent to the end of the 50-year extension and to assess the value (if any) of the ultimate reversion".
The decision also confirmed that correction certificates only have limited scope (analogous to correcting a slip) and could not be used to rewrite substantive parts of a decision.
Elizabeth Haggerty / 2nd Feb 2012
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