Current Lease Value As A Fraction of Relativity

Valuers have their own opinions and some have their own graphical analysis of relativity. There is a lot of evidence and it is the case of valuers doing ‘the best they can ... they may have regard to graphs of relativity’ - Arrowdel Ltd v Coniston Court (North) Hove Ltd.

However, in the case of comparable evidence of a sale of a flat with a short lease, where a S42 Notice of Claim has been served by the former owner, the position on ‘relativity’ may be easier to determine but could be in conflict with ‘relativity’ graph lines.

Consider a flat on the third floor of a popular block in a London suburb close to shops buses etc... This flat has three bedrooms, two bathrooms, a reception room and a lift; the unexpired term is 60 years. There is a resident porter. The purchaser is a cash buyer who pays £485,000 for the flat. His solicitor makes sure that a S42 notice of claim has been served before exchange of contracts. However, the flat with the benefit of a long lease would not be worth more than £500,000 (FHVP). The ‘relativity’ is 97% (£485,000/£500,000).

In this scenario, we must strip out the benefit to the claimant of ’93 Act. This could be difficult as the ’93 Act has been with us now for twenty years but...we must do the best we can.

Fortunately, the Upper Tribunal (UT) developed a helpful formula in Cadogan v Cadogan Square Ltd UT which is based on the 2002 Savills enfranchisable graph (post ’93 Act) and the Gerald Eve/John D Wood 1996 Graph (pre ’93 Act) as follows: 

‘Relativity’
Savills – 2002 – 60 years unexpired: 85.20%

Less:
Gerald Eve ’96 – 60 years unexpired: 81.00%

Difference: 4.2%

So: 4.2/85.2 = 4.9295%

Therefore the deduction for ’93 Act rights in this case is, say 5%

Thus, the price the purchaser would have paid for this three bedroom flat, if ’93 Act rights were stripped, would have been £460,000 - [£500,000 X 92% - [97%-5%]]. If put another way, the value to the flat owner of rights conferred to him under the ’93 Act is circa £25,000.

There is no fixed formula of or for ‘relativity’.

Comparable evidence is best because this might give us ‘relativity’ but in the absence of comparable evidence we can do more than ... ‘do the best we can’.