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England and Wales Lands Tribunal
You are here: BAILII >> Databases >> England and Wales Lands Tribunal >> Ulterra Ltd v Glenbarr (RTE) Company Ltd [2007] EWLands LRA_149_2006 (13 November 2007)
URL: http://www.bailii.org/ew/cases/EWLands/2007/LRA_149_2006.html
Cite as: [2007] EWLands LRA_149_2006, [2008] 1 EGLR 103

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LRA/149/2006
LANDS TRIBUNAL ACT 1949
Leasehold enfranchisement - terms of transfer - retained land - deferment rate
IN THE MATTER OF AN APPEAL FROM THE LEASEHOLD VALUATION
TRIBUNAL FOR THE EASTERN RENT ASSESSMENT PANEL
BETWEEN
ULTERRA LIMITED
and
GLENBARR (RTE) COMPANY LIMITED
Appellant
Respondent
Re: 62-67 Armadale Court
Westcote Road
Reading
Berks
Before: His Honour Judge Reid QC
Sitting at Procession House, 110 New Bridge Street, London EC4V 6JL
on 7 November 2006
Mr Stephen Murch of counsel instructed by Rokeby Johnson Barrs LLP solicitors for the appellant.
The respondent was not represented.
The following cases are referred to in this decision:
Shortdean Place (Eastbourne) Residents Association v Lynari Properties [2003] 3 EGLR 147 (LT)
Cadogan v Sportelli
Arbib v Cadogan [2005] 3 EGLR 139
© CROWN COPYRIGHT 2007
1
DECISION
Introduction
1.      This is an appeal from a decision of the Leasehold Valuation Tribunal for the Eastern
Rent Assessment Panel given on 27 June 2006 following a hearing on 27 April 2006. The
matter related to 62-79 Armadale Court, Westcote Road, Reading and an application pursuant
to section 24 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”).
2.      The property is a purpose built block of flats of brick and pitched tile construction in
large grounds. There are three entrance hallways and stairwells, each providing access to two
flats on the ground floor, two flats on the first floor and two flats on the second floor. In each
of the top floor flats there is a small loft space that houses a water tank for the exclusive use of
the flat. The communal area at the top of each stairwell provides further access to the roof void
and houses the water tanks serving the four flats on the lower floors. The property has frontage
onto Bath Road and there is a pedestrian access to the front. At the rear of the development
there are two blocks of garages and a communal parking area. There is a bin store and a drying
area for use by all the flat occupiers.
3.      On 26 February 2005, a notice was served on the landlords, Ulterra, under section 13 of
the Act. A counter-notice dated 26th May 2005 was served that, inter alia, recognised the
Applicants' right to collectively enfranchise but limited the extent of the property to be
purchased to the "specified premises" and offered rights over the “retained land” in order to
comply with the provisions of Section 1(4) of the Act. The “specified premises” were defined
to relate to the actual buildings in which the flats, together with the garages and refuse area.
The remainder of the property was the “retained land”.
4.      By the time of the hearing the issues in dispute between the parties related to (1) the
extent of the premises to be collectively enfranchised and of the premises to be retained by
Ulterra, (2) dependent upon the extent of the premises to be enfranchised, the extent of
Ulterra's right over the enfranchised land and (3) the premium to be paid on the
enfranchisement. By the hearing date the majority of the valuation issues had been agreed date
between the two surveyors and the only issues that needed to be addressed by the LVT were
the level of yield to be adopted and the question of any development or hope value.
5.      The LVT decided these issues and it is against two of their findings that Ulterra now
appeals with the permission of the President. The issues on the appeal are (1) whether the LVT
was right in its determination that the transfer should include the “retained land” and (2)
whether it was correct in fixing the yield at 7 per cent in assessing the premium to be paid. The
appeal was conducted by way of review.
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6. Ulterra was represented by counsel on the hearing of the appeal. The respondent
nominee purchaser put in a reply to the appeal but was not represented at the hearing.
The “retained land” point
7. Under section l (4)(a) of the 1993 Act, the freeholder is entitled to retain land which the
tenant might otherwise be able to acquire under the Act. The section provides, so far as relevant:
“The right of acquisition in respect of the freehold of any such property as is
mentioned in subsection (3)(b) shall, however, be taken to be satisfied with respect to
that property if, on the acquisition of the relevant premises in pursuance of this
Chapter
(a) there are granted by the person who owns the freehold of that property -
(i) over that property, or
(ii) over any other property
such permanent rights as will ensure that thereafter the occupier of the flat referred to in
that provision has as nearly as may be the same rights as those enjoyed in relation to that
property on the relevant date by the qualifying tenant under the terms of his lease.”
8. If the rights which Ulterra sought to grant satisfied that test, The LVT was obliged to permit it
to retain the land in question: Shortdean Place (Eastbourne) Residents Association v Lynari
Properties [2003] 3 EGLR 147 (LT), where Mr Peter H Clarke said at paragraph 63:
“In my judgment, if the permanent rights offered satisfy the test under section
l(4)(a)(i), the LVT had no power to determine that the freehold of the common use
property should be transferred to the nominee purchaser. Section 1(4) is in mandatory
terms: the right of acquisition of the freehold "shall, however, be taken to be satisfied"
if permanent rights to satisfy the subsection are granted by the freeholder. An LVT is
not bound to accept the proposals in a landlord's counternotice with regard to property
used in common. If the permanent rights offered do not satisfy the test in section l
(4)(a)(i), the tribunal has a discretion. If, however, the rights offered do satisfy the
test, section 1(4) requires that the right of acquisition of the freehold shall be satisfied
by the grant of the permanent rights and the LVT has no power or discretion to order
the transfer of the freehold of the land. It has determined the matters in dispute, and
the right of acquisition must be taken to be satisfied in accordance with section 1(4) of
the 1993 Act.”
9. Ulterra submitted that in this case the LVT accepted that the terms offered by Ulterra
satisfied the test. It relied on a passage at paragraph 8.3 of the LVT decision:
“The Tribunal closely examined and compared the relevant provisions in the leases
and those rights offered and the rights reserved to the landlord in paragraphs 5 and 6 of
the counter notice. Some differences in the wording would in all practical effect render
the leaseholders in the same or nearly the same position as they are currently
enjoying.”
3
10.    This, in the submission of Ulterra, should have been an end to the matter. Because the
LVT had held that section l (4)(a) was satisfied so the LVT had no discretion as to whether to
permit the land to be retained, and the LVT fell into error by proceeding to consider the effect of
rights which Ulterra sought to retain for itself under section 21(3)(d). This, it was submitted, was
apparent from the remainder of paragraph 8.3 of the decision which demonstrated that the LVT was
conflating two different tests on two different points and so erred in law. The remainder of paragraph
8.3 reads:
“However, the right reserved to the landlord to “rebuild build on or alter buildings or
land forming any part of the retained land” affects the rights to be offered to the
leaseholders and as such, is in our opinion a significant difference to the current
position. Accordingly we are of the opinion that the test in paragraph 1(4) is not
satisfied. That being so then the tribunal has some discretion over the extent of the
premises to be included in the enfranchisement. We determine that all the land
including the “retained land” is to be included in the transfer to the Applicant”
11.    In my judgment Ulterra’s submission is not correct.
12.    By paragraph 6 of its counternotice Ulterra was setting out “the rights [it] desires to
retain for itself and those authorised by it and all others having a like right over the Specified
Premises pursuant to Section 21(3)(d) of the Act”. That subsection provides that the
counternotice must:
“(d) state which rights (if any) the person who owns the freehold of the specified
premises, or any other relevant landlord, desires to retain—
(i) over any property in which he has any interest which is included in the
proposed acquisition by the nominee purchaser, or
(ii) over any property in which he has any interest which the nominee
purchaser is to be required to acquire in accordance with subsection (4) below,
on the grounds that the rights are necessary for the proper management or
maintenance of property in which he is to retain a freehold or leasehold interest.”
13.    Thus paragraph 6 of the counternotice was concerned to identify the rights which Ulterra
would have in respect of the land which it was transferring to the nominee purchaser. The
object of the right sought by clause 6(iv) of the counternotice was to enable Ulterra to do things
on the retained land which would affect the specified land and which it might not have been
able to do without the retained right: for example, if it built on a part of the retained land in
pursuance of the reserved right, the new building might be objectionable as infringing a right to
light or making the path from the flats to the garages substantially less convenient, things
which the landlord could not do under the existing leases.
14.    What Ulterra asked the LVT to do was to look at clause 5 of its counternotice in isolation
from the remainder of the notice. This is what the LVT, rightly, would not do. It had to
construe “the permanent rights [offered] to satisfy the subsection” in the context of the
4
Ulterra’s proposals taken as a whole. It had to determine whether there were to be granted
“such permanent rights as [would] ensure that thereafter the occupier of the flat referred to in
that provision ha[d] as nearly as may be the same rights as those enjoyed in relation to that
property on the relevant date by the qualifying tenant under the terms of the lease.” In doing
that it was not confined to looking only at clause 5 without reference to the remainder of the
counternotice.
15.    A landlord cannot say that he has satisfied the subsection if he proposes to grant rights
with the one hand and take them back or modify them to an unacceptable extent with the other.
The LVT’s view was that this was what Ulterra was proposing to do by its proposal as to the
rights it intended should be reserved rights over the retained land. Those rights affected the
rights offered so as to create a significant difference from the current position and therefore
section 1(4)(a) of the Act was not satisfied. In so concluding the LVT did not err in law and
reached a conclusion to which it was entitled to come.
Yield
16.    The LVT was asked to determine the “yield to be adopted in the valuation”. The hearing
took place and the decision was given before the decision in Cadogan v Sportelli
(LRA/50/2005) in the Lands Tribunal and long before that decision was upheld by the Court of
Appeal at [2007] EWCA 1042. The LVT and the valuers giving evidence did, however, have
the benefit of the decision in Arbib v Cadogan [2005] 3 EGLR 139.
17.    The LVT was presented with evidence from valuers on each side. The expert for the
Applicants adopted a yield of 7.5 per cent and the expert for Ulterra adopted a figure of 6 per
cent. The LVT carefully examined their respective approaches and concluded that in this
particular case the proper figure for yield was 7 per cent. As is clear from the calculations each
of the valuers produced to the LVT each of them was using the word “yield” in the sense of
“deferment rate”. That is clearly how the LVT understood the position and also how the
President understood the position in giving permission for this appeal.
18.    The Respondent submitted in its written submission that the appeal was limited to yield
and not deferment rate and therefore Ulterra did not have the right to argue any question
relating to deferment rate on the appeal and therefore the Sportelli decisions were immaterial.
This was clearly incorrect.
19.    Ulterra put its submission on the question of deferment rate very simply. The decision of
the Lands Tribunal in Sportelli had been confirmed by the Court of Appeal. The decision of the
Lands Tribunal had been expressed to applicable both to properties in the prime central London
area and to properties elsewhere. In those circumstances, the decision of the LVT could not
stand. The rate of 5% held in that case to be the applicable rate of deferment for flats in the
Prime Central London area should be applied. There was no evidence, it was said, before the
Lands Tribunal which justified departing from that rate. The position was the same as if the Court of
Appeal or the House of Lords had handed down a decision which was perceived to effect an alteration
5
in the law between a hearing at first instance and the hearing of the appeal from it. In such a case the
appellate court would apply the “new” law on the basis that it declared what had in fact always been the
law, though not previously properly appreciated.
20. The decisions in Sportelli all related to properties in the Prime Central London area. The
property in this case does not. What Carnwarth LJ (with whom the other two members of the
Court agreed) said in the Court of Appeal about the applicability of the Sportelli decision to
properties outside that area was as follows:
“100. The cases before the Tribunals related entirely to properties within the Prime
Central London area, and the evidence was directed principally to the market within
that area. It seems that the Tribunal of its own motion invited the experts to say
whether the deferment rate would vary with location (para 86). A variety of views
was offered. For example Mr Dumas and Professor Lizieri thought there would be
no variation “since the compounding effects of different growth rates would
eventually lead to differences in value that were unsustainable and would
accordingly correct themselves”. On the other hand, Mr Clark accepted that
different deferment rates might apply in different locations in London and in other
parts of the country “having regard to local prospect for growth and local factors
affecting risk”. Both Mr Orr-Ewing and Mr Beckett thought that location would
make a difference, but could not provide evidence or "statistical justification" for such
differences (para 86-7).
101.   The Tribunal concluded:
“While we accept the view of the valuers that the deferment rate could require
adjustment for location, on the evidence before us we see no justification for making
any adjustment to reflect regional or local considerations either generally or in
relation to the particular cases before us. The evidence of the financial experts
suggests that no adjustment to the real growth rate is appropriate given the long-term
basis of the deferment rate, and locational differences of a local nature are, in the
absence of clear evidence suggesting otherwise, to be assumed to be properly reflected
in the freehold vacant possession value.” (para 88, emphasis added)
102.   The Tribunal’s later comments on the significance of their guidance do not
distinguish in terms between the PCL area and other parts of London or the country.
However, there must in my view be an implicit distinction. The issues within the PCL were
fully examined in a fully contested dispute between directly interested parties. The same
cannot be said in respect of other areas. The judgment that the same deferment rate
should apply outside the PCL area was made, and could only be made, on the evidence
then available. That must leave the way open to the possibility of further evidence being
called by other parties in other cases directly concerned with different areas. The deferment
rate adopted by the Tribunal will no doubt be the starting point; and their conclusions on
the methodology, including the limitations of market evidence, are likely to remain
valid. However, it is possible to envisage other evidence being called, for example, on
issues relevant to the risk premium for residential property in different areas. That will
be a matter for those advising future parties, and for the tribunals, to consider as such issues
arise.”
6
21.    The starting point in considering Ulterra’s argument must be to look at what is before the
Lands Tribunal. This is an appeal by way of review rather than re-hearing. Ulterra did not
seek to adduce any evidence at the hearing, and did not produce either the reports of the
experts which were before the LVT or any transcript of the oral evidence given by the experts.
It now seeks to establish a lower deferment rate than that for which its own expert contended
before the LVT.
22.    What the Lands Tribunal is being asked to do is to disregard whatever evidence there
was below (without knowing in any detail what it was). The Lands Tribunal is asked to
assume from the decisions in Sportelli that the LVT must have been wrong in its conclusion, to
hold that the LVT should have disregarded the evidence before it and to conclude that it should
have fixed on the 5 per cent figure emanating from the Sportelli decisions. The Lands Tribunal
is being asked, notwithstanding the “the possibility of further evidence being called by other
parties in other cases directly concerned with different areas”, to accept that because “the
deferment rate adopted by the Tribunal [is] no doubt the starting point” that must have been the
correct finishing point in this case.
23.    In my judgment the Lands Tribunal cannot properly do that on an appeal by way of
review. It is not conducting a re-hearing and it is not receiving fresh evidence. It is not being
asked to apply the law as it always has been (though previously misunderstood). It is being
asked to overturn the decision of the LVT on the evidence it heard, to reject that evidence, and
(without the benefit of any evidence) to adopt as correct in this particular case the expressions
of expert opinion accepted in another case. In my judgment that goes beyond what the Lands
Tribunal can do on an appeal by way of review.
24.    It was for Ulterra to show that the decision of the LVT as to the deferment rate was
wrong in this particular case and in my view it has failed to do so.
Conclusion
25.    It follows that Ulterra fails on both issues in the appeal and the appeal will be dismissed.
Dated 13 November 2007
His Honour Judge Reid QC
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