…. with the words of Mr David Bowie ringing in my ears, I bring you a decison of the Upper Tribunal (Lands Chamber) all about changes and how and when to make them. In Re: 167 Kingshurst Road [2012] UKUT 4 (LC), the Upper Tribunal was dealing with an appeal against a decision of the Midland LVT  in a case under the Leasehold Reform Act 1967. As you’ll know, the 1967 Act lets certain long leaseholders of houses either acquire the freehold or purchase an extended lease. In the present case, the LVT determined that the price payable for the freehold purchase would be £10,878.

The landlord was dissatisfied with that decision and sought to appeal to the Upper Tribunal. After the appeal had been lodged (but shortly before permission was given), the LVT issued what it termed a “correction certificate”, in which it deleted a number of paragraphs from the original decision, inserted wholly new ones and, as a result, changed the deferment rate which it had used to calculate the purchase price and, this, increasing the price. The landlord also sought permission to challenge this development.

The Upper Tribunal allowed the appeal. The LVT was only empowered to correct “clerical mistakes” or “errors arising… from an accidental slip or omission.” (Reg.18, LVT (Procedure) (England) Regulations 2003). That power was akin to the slip rule in CPR 40.12 which, as is well know, exists to correct accidental errors and not to change the basis of the decision. The LVT “manifestly” had no power to alter its decision in the way it did. The power to correct under reg.18 was a limited and restricted rule.  In addition to having no power to make the changes that it did, it had done so without giving the parties the right to make submissions, this was a second failing and a serious procedural irregularity.

The Upper Tribunal then went on to consider what the purchase price should be. They noted that Hague on Leasehold Enfranchisement suggested that the purchase price under the 1967 Act should be calculated in three stages: first, the capitalised vlaue of the rent payable from the date of the Notice of Claim to the end of the term; secondly, the capitalised value of the s.15 rent (basically, modern ground rent) from the original term date until the expiry of the 50 year extension; and, thirdly, the reversionary value of the house. This had not always been the accepted practice, with some valuers (and, hence, decided cases) failing to make seperate provision for the reversionary value of the house, but, instead, factoring that in to the s.15 rent as if the landlord was to get that rent in perpetuity.

The Upper Tribunal rejected this older approach; in their view, valuations under the 1967 Act should take the three stage approach adopted by Hague. All elements of a valuation should be valued separately. That was not to say that the reversion would always have a significant (or any) value, but that value could not be assessed as part of the capitalised value of the rent, but had to be assessed separately.

As to the deferment rate, the decision in Sportelli (Cadogan v Sportelli [2008] 1 WLR 2142 CA; [2006] RVR 382) had determined that the starting point of 4.75% was appropriate for houses; on the evidence, capital grown prospects in the West Midlands were weaker than in London, so that should be increased to 5,5%.

So: (1) don’t make substantive changes under the slip rule (I can’t believe I have to write that; what was the LVT thinking?); (2) take a three-stage approach to valuation under the 1967 Act (and not the old 2 stage process) and, if you’re going to depart from Sportelli, have some evidence as to why.