In a decision which post-dated Sloane Stanley v Mundy, the Upper Tribunal, arrived at relativity by making a deduction from the Gerald Eve graph on the basis that the graph “might overstate relativities” and accepted, on the material before it, that there was a “slight differential between properties in PCL and properties just outside it”.
The case concerned a flat on Needham Road, a short link street between Artesian Road and Westbourne Grove in Notting Hill. The lease of the flat had an unexpired term of 43.37 years as at the valuation date of 13th August 2013.
The issue (inter alia) was the correct relativity of the lease without Act rights at the valuation date.
Permission to appeal had been given by way of rehearing and the decision therefore does not set out the decision of the lower tribunal.
Decision on appeal
The Upper Tribunal (HHJ Huskinson) held as follows:
“76. In Sloane Stanley, the Tribunal had the benefit of extensive evidence in respect of the various relativity graphs that featured in the RICS report which was not available to us in Kosta. We have no hesitation in endorsing the Tribunal’s approach in Sloane Stanley. It is apparent from Mr Lee’s evidence [valuer for the tenant], and the evidence before the Tribunal in Sloane Stanley, that the market only began to take a relativity figure from an average of the graphs in the RICS report following our decision in Kosta, which was issued in July 2014. It would not have been available to the parties at the valuation date in this case. We are satisfied that, at that time, the Gerald Eve graph would have been the starting point. . . We endorse the Tribunal’s comments (Appendix C, paragraph 64) in Sloane Stanley that the Gerald Eve graph might overstate relativities.
77. Another approach from Sloane Stanley would be to use the Savills 2002 enfranchiseable graph, and make an adjustment for Act rights. The Savills 2002 graph has relativity at 75.2% for a 40-year unexpired term, and 78.1 % for 45 years. We estimate that for 43.37 years the relativity would be something in the order of 77%. A ten percent deduction for Act rights would arrive at a relativity of 70%. We follow the Tribunal’s approach in Sloane Stanley in considering that to be too high, as relativity is likely to have fallen since 2002.
78. Based on the material before us, we accept Mr Lee’s evidence that there is a slight differential between properties in PCL and properties just outside it. However, we also endorse the Tribunal’s findings in Sloane Stanley, that whilst the Gerald Eve graph is the most reliable (or, the least least reliable graph), it is only a starting point. Doing the best we can, we consider that the correct relativity at the valuation date for an unexpired term of 43.37 years, without Act rights, was 67.7%, arrived at by reducing the figure from the Gerald Eve graph by 1%. With a discount to reflect the unusual lease terms, agreed at 1.55, the relativity reduces to 66.2%.”
There is a logical inconsistency between this case and the case it purports to follow. The valuation date in this case was August 2013. So it was prior to the decisions in Kosta and Mundy. According to Mundy the market at that time was following the GE graph. But it was suggested in Mundy (Appendix C ) that the GE graph may overstate relativity as relativity is likely to have fallen since 2002. So in this case the Tribunal reduced GE derived relativity by 1%.
The ratio of Mundy is to the effect that the Tribunal must follow the market, but rather than follow the market (i.e. GE derived relativity) this decision follows dicta in Mundy which as at the valuation date had not yet come out.
There are two other interesting points. First the Tribunal accepted that Notting Hill is not in PCL. Second it accepted that on the evidence before it that there was a differential between PCL and areas just outside it. Mr Lee’s evidence was to the effect that he had agreed settlements out of PCL, but close to it at 1% or sometimes higher that the figures indicated in the GE graph. As that evidence was accepted, it suggests that had the property been in PCL the deduction from GE derived relativity might have been greater.