In a vital ruling for freehold owners, the Court of Appeal has given guidance on the correct method of calculating deferment rates and ‘hope value’ when assessing the value of reversionary interests in land.
The owners of a London block of flats were engaged in dispute with nominee purchasers who exercised their right to buy the freehold of the property under the Leasehold Reform, Housing and Urban Development Act 1993.
In valuing the freehold interest, the Upper Tribunal had taken into account ’hope value’ in relation to flats let on leases with unexpired terms of less than 80 years where the tenants concerned were not participating in the freehold purchase.
In assessing the value of the freehold interest in relation to flats subject to leases with unexpired terms of less than five years, the tribunal also applied a deferment rate, which it described as the annual discount applied, on a compound basis, to an anticipated future receipt, assessed at current prices, to arrive at its market value at an earlier date.
The nominee purchasers challenged the tribunal’s method of valuing the freehold interest at the Court of Appeal, but had their arguments dismissed by Mr Justice Morgan, sitting with Lords Justice Pill and Rimer.
Rejecting criticisms of the tribunal’s ruling as ‘without foundation’, the judge said: ‘What the tribunal was doing was to build up its value for the single freehold interest by assessing the contribution to that single value made by the value of individual components.’
Also rejecting arguments that the tribunal’s approach had been inconsistent, the judge concluded: ‘The percentages it selected for hope value were plainly open to it on the evidence before it and the Upper Tribunal did not commit any error of law’.