Recently the Leasehold Valuation Tribunal accepted a departure from the “Sportelli doctrine”, namely the general rule that, in applying deferment yield in calculations of lease enfranchisement valuations, a rate of 5% should be used for flats to reflect the increased risk to freeholders of flats as opposed to houses, for which the rate is 4.75%.
In Sportelli, an attempt was made by the Court of Appeal to set the deferment yield for flats and houses when calculating leasehold enfranchisement at 4.75% for houses while –
“…an adjustment needs to be made to reflect the management problems [inherent in flats], although we do not consider it appropriate to differentiate between flats that are the subject of headleases and those which are not. Nor do we think that the management concerns are necessarily so much less for a single flat than for a block to warrant a different adjustment. Even where flats are efficiently managed, service charge and repairs problems inevitably occur, and the management exercise in itself is, we feel, sufficiently more complex to warrant a generalised 0.25% addition for flats.”
Their lordships left open the possibility that “there could be a case for an additional allowance where exceptional difficulties are in prospect”, and this caveat has successfully been used in some instances to argue for a higher deferment yield (as a result of more risk to the freeholder).
However, in a recent case, the freeholder had granted a headlease by which it said it retained no management duties whatsoever, had no responsibility for service charges or the collection of service charges, and retained no responsibility for repairs. As a result, it was said, the reversion was entirely without management liability and problems, and was in reality no different to being a “big house.”
The LVT accepted my submission, and held that, in the particular circumstances of that case, the freeholder had no management liability, and so the reversion was “no different to that of a house.” The Tribunal accordingly considered a deferment rate of 4.75% to be correct.
/ 1st Oct 2011
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