Deritend Investments (Birkdale) Limited v Fung Tai Engineering Company Limited

This is an appeal against a decision of the First Tier Tribunal (Property Chamber) (“FTT”) dated 13 January 2025 determining the premium payable for the extension of a leasehold interest with 54.71 years unexpired in Flat 2E, Hyde Park Mansions, Chapel Street, London NW1 5BL (“the Property”).

The appellant is the landlord, Deritend Investments (Birkdale) Limited and the lessee, Fung Tai Engineering Company Limited, is the respondent.

Before the FTT the appellant relied on expert evidence supporting a premium of £279,105, while the respondent’s expert considered the figure should be £143,000. For two valuations of an unexceptional property in a relatively busy market to diverge to that extent cannot be explained by a difference in valuation judgment alone. The FTT determined a premium of £159,000, which cannot be seen as an endorsement of the views of either expert. Enfranchisement valuation is complex, but it is important that there be clarity and consistency in the approach to be taken and this Tribunal gave permission to appeal on the grounds that it was arguable that the FTT had wrongly applied relevant principles of valuation practice or had erred in its appreciation of the evidence. The FTT did not undertake an inspection of the subject property or comparables and although the expert witnesses gave their evidence in person and were cross examined, the substance of that evidence was contained in written reports. The appeal therefore takes the form of a review of the FTT’s decision and has been conducted on the basis of the parties’ written representations.

Ms Nicola Muir made representations on behalf of the appellant and Mr Benedict Uzor of Topstone Solicitors did so on behalf of the respondent.

Chapter II of Part I of the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) confers on the tenant of a flat who satisfies specified conditions the right to acquire a new lease for an additional term of 90 years beginning on the expiry of the current lease on payment of a premium calculated in accordance with Schedule 13 (sections 39(1) and 56(1) of the Act).

Under paragraph 2 of Schedule 13, the premium payable for the new lease is the aggregate of three sums: the diminution in the value of the landlord’s interest in the tenant’s flat resulting from the grant, calculated in accordance with paragraph 3; the landlord’s 50% share of the marriage value arising from the grant of the extended lease, calculated in accordance with paragraph 4; and any amount of compensation payable to the landlord under paragraph 5 (not applicable in this case).

Ascertaining the diminution in value of the landlord’s interest in the tenant’s flat under paragraph 3 of Schedule 13 requires a comparison between the current value of the landlord’s interest and its value after the acquisition of the new lease. The current value of the landlord’s interest comprises the current value of the right to receive the ground rent for the remainder of the term plus the current value of the freehold interest in the flat with vacant possession at the end of the current term in 54.71 years. No ground rent is payable under the new lease, so the value of the landlord’s interest after the acquisition of that lease is simply the current value of the freehold interest in the flat with vacant possession deferred for 144.71 years (the original unexpired term plus the additional 90 years under the new lease).

The ascertainment of the landlord’s share of the marriage value, calculated in accordance with paragraph 4, requires that the combined value of the freehold and leasehold interests before the acquisition of the new lease be deducted from the combined value of the freehold and leasehold interests as it will be after the grant of the new lease.

To determine each of the two components of the premium it is therefore necessary to know both the current value of the tenant’s interest in the flat, which is a lease with 54.71 years unexpired, and the value of the freehold interest in the flat unencumbered by the lease and with vacant possession (the freehold vacant possession value, or “FHVP”). As flats are not generally sold freehold, and as a freeholder enjoys advantages which a leaseholder does not, FHVP is usually arrived at by adjusting the value of the extended lease upwards (often by 1%).

Both FHVP and the value of the tenant’s interest in the unextended lease are determined by reference to the value which they would realise on a sale in the open market, subject to certain assumptions specified in the Act (one such assumption being that the Act does not confer any right to acquire a new lease of the flat or any other premises in the same building). The determination of those values requires the application of valuation judgment to evidence of transactions in the market, making the adjustments necessary to take account of differences between those real world transactions and the terms of the hypothetical sale required by the Act.

The relationship between the value of a short lease and FHVP is referred to in the jargon of enfranchisement valuation as “relativity”. Relativity can be a useful tool in determining the value of a short leasehold interest where there is reliable evidence of the value of long leases of comparable properties, from which FHVP can be derived. A number of graphs of relativity are published, based on substantial bodies of settlement evidence in which premiums payable for extended leases have been agreed, and the smaller number of tribunal decisions in which premiums have been determined. The relativity shown by such graphs has been referred to in these proceedings as the “Zucconi rate”, a reference to the Savills 2016 and Gerald Eve 2016 graphs of relativity which were endorsed by the Tribunal (Mr Andy Trott FRICS) in The Trustees of Barry and Peggy High Foundation v Claudio Zucconi & Anor [2019] UKUT 242 (LC).

Under section 48 of the Act, the terms of the acquisition of the new lease, including the amount of the premium, are determined by the FTT in the event of a dispute.

The Property is a self-contained flat on the first floor of a part 6, part 7 storey Victorian mansion block near Edgeware Road station in Central London. The gross internal floor area of the Property is 1,439 sq ft, and it comprises five rooms (three or four bedrooms and one or two reception rooms), together with a kitchen, bathroom and additional WC. It was described by the FTT as a “well presented property that appears to be maintained nicely and decorated to a good standard”. The building is served by a lift.

Previous tenants had acquired the Property on 26 February 2021 at a price of £990,000. Neither they nor any predecessor of theirs had carried out improvements which the Act would require to be disregarded, and the required valuations are therefore of the Property in its actual condition at the valuation date.

That valuation date is 6 October 2023, the date on which the previous lessee gave notice exercising the right to acquire the new lease. At that date 54.71 years remained of the original term of 99 year lease granted in 1979. The notice proposed a premium of £180,720.

The appellant admitted the lessee’s right but proposed a premium of £399,690 for the grant of the new lease.

The current lease of the Property was then sold by the previous lessee to the respondent on 9 February 2024 for £1,170,000, with the benefit of the admitted right to a new lease on terms yet to be agreed or determined.

On 25 April 2024 the respondent applied to the FTT for a determination of the premium payable for the new lease.

Before the FTT the parties agreed that the current value of the respondent’s right to receive the ground rents for the remainder of the term was £6,000. They also agreed that the appropriate deferment rate to be applied to the FHVP to arrive at the current value of the appellant’s right to vacant possession at the end of the term was 5%. In their joint statement the experts referred to the fact that the Property had sold twice in recent years, in February 2021 for £990,000, and again in February 2024 for £1,170,00. They also drew the FTT’s attention to what they called the “Zucconi rate (if applicable)” which was 74.37% (that being the relationship, or relativity, between the value of a lease of 54.71 years and FHVP value as shown on the standard graphs).

The parties did not agree the value of the existing lease or the FHVP value and the FTT was required to determine them.

A hearing took place at which the parties were each represented by Chartered Surveyors, the respondent by Mr D C Cooper MRICS, and the appellant by Mr R D Sharp FRICS.

The relative positions of the parties’ experts and the FTT determination on the critical values (expressed both in total figures and at a rate per square foot for easier comparison) are shown in the table below:

The FTT took the sale of the Property in February 2024, five months after the valuation date, for £1,170,000 (£813/sq ft) as its starting point for the determination of the value of the existing lease. It is of note that this starting point appears to have been agreed. The FTT recorded in its decision, at [12], that “Mr Sharp appeared to accept the sale in February 2024 at £1,170,000, although he had not been able to trace any estate agent’s particulars.”

The FTT adjusted the February 2024 sale figure down by 5.85% to reflect the statutory assumption that the interest being valued enjoys no “Act rights” and would therefore be less valuable than the actual lease which was sold with the benefit of the right to an extended lease on payment of the premium. It made a second adjustment for the general change in property values over the time which elapsed between the valuation date and the date of the sale. By this route it arrived at a value for the current lease on the valuation date, without Act rights, of £1,053,700, which represents £732 per square foot. This figure differed from the figure of £1,054,018 proposed by Mr Sharp in his evidence only because Mr Sharp had used 6%, rather than 5.85%, when adjusting for the value of Act rights. The FTT later described this difference as “trivial”.

The FTT next addressed the FHVP value. To arrive at their view of the value of the extended lease and, by adjustment, the FHVP the experts relied on evidence of the sales of similar flats in the same block whose leases had already been extended. The FTT appended to its decision a schedule of eight sales of flats at Hyde Park Mansions which it had received in evidence. It disregarded two which had been relied on by Mr Sharp, the appellant’s expert (sales of Flats 1M and 1F in 2018 and 2019) on the grounds that the sales occurred too long before the valuation date to be useful. It used the remaining six transactions to reach its own figure for the value of the extended lease. The relevant entries in the schedule are summarised below, with the transactions as listed by the FTT in reverse date order, beginning with the most recent.

Of the six flats taken into account by the FTT only one was on the first floor (1F), one was on the raised ground floor (4C), two were on the second floor (9G and 1H) and two were on the fourth floor (12F and 10M).

Mr Sharp had placed no weight on three transactions relied on by Mr Cooper. He disregarded the sale of Flat 12F for two reasons: it was a fourth floor flat with no lift, so required too much adjustment (Mr Cooper had made an adjustment of 20% for this factor alone); and because the price per square foot paid for the existing lease of the Property (£813/sq ft) was higher than the extended lease value of 12F. He disregarded the sale of Flat 4C for a number of separate reasons which collectively cast doubt on the reliability of the reported sale price: the extended lease had been granted by agreement in November 2020 at a premium which implied a much higher extended lease value; and it had been marketed at much higher levels in the year before the June 2022 sale. Finally, Mr Sharp disregarded the sale of Flat 9G as unreliable because, again, the sale of the extended lease of that flat was at a price less than the price paid for the existing short lease of the Property.

The FTT did not adopt Mr Sharp’s approach to these three disregarded comparables and instead arrived at an average rate per square foot taking all six transactions into account and giving them equal weight.

At paragraph 21 of its decision the FTT commented on the explanation given by Mr Sharp for disregarding Flats 12F and 9G, saying this:

“21.

Mr Sharp put an argument forward that where comparable properties have a lesser value for the short lease than the long lease [sic], they should be disregard[ed]. We agreed with Mr Cooper when questioned about this, that this is a reflection of the market at the valuation date. It could also be that the housing crisis in London has resulted in this phenomenon and furthermore that buyers are more aware of their ability to extend leases and accordingly the shorter lease is of a lesser concern to them now and are willing to pay more to have the opportunity to extend the lease in the future.”

We find these comments puzzling and problematic but we assume that the comparison in the first sentence was intended to be reversed. We will return to the general proposition about the relative value of short leases and extended leases later.

The FTT made other adjustments to the transactional evidence to render it comparable to the subject Property. The most substantial of these was an adjustment of 20% to the value of Flat 12F because it was a fourth floor flat without a lift. Flats which appeared from marketing particulars to have had been modernised or to be well decorated attracted various adjustments of 5%, 7%, 8%, 10% and 13%. The raised ground floor Flat 4C was taken to be 4% less valuable than the Property on the first floor; flats on floors above the first floor were taken to be 1% more valuable than the Property for each additional floor on the grounds of outlook and privacy (Mr Cooper had applied an adjustment of 2% per floor for this factor in his own valuation, whereas Mr Sharp had made none).

The appellant asked the FTT for permission to appeal on two separate grounds, challenging first its assessment of the value of the existing lease and, secondly, its determination of the FHVP value. It asserted that the FTT’s determination of FHVP was too low and that its determination of existing lease value was too high.

In draft grounds of appeal submitted to the FTT, which were settled by Ms Muir, the appellant proposed a challenge to the FTT’s acceptance of the February 2024 sale of the Property at a price of £1,170,000 as a reliable basis for ascertaining the value of the existing lease. It suggested that “Mr Sharp disputed […] that this was an open market sale or that the price represented the market value.” It asserted that Mr Cooper had not produced any estate agent’s particulars and that “[i]t has now transpired that estate agent’s particulars were available and that the asking price was £1.1 million”.

In its refusal of permission to appeal on both grounds the FTT expressed some puzzlement about these assertions, saying this:

“We are unsure what the complaint is. [Mr Sharp] used the relativity shown at tab 8 of his report. He applied 6%. We applied 5.85% taken from the very case [Mr Sharp] referred us to. The difference between [Mr Sharp’s] value for this element and our assessment is de minimis. It should be remembered that the sale price in February 2024 was agreed at £1,700,000 [sic] as set out in the statement of agreed issues. The introduction of later evidence as to the estimated sale price of £1.1M is inappropriate and in any event irrelevant.”

There is a typographical error in this passage as the sale price in February 2024 was agreed to have been £1,170,000. The FTT presumably also meant to refer to the “adjustment for Act rights” shown at tab 8 of Mr Sharp’s report, not relativity. But the FTT’s point is clear. It refused permission to appeal on the basis that its own figure for the value of the existing lease was based on the same evidence as had been used by Mr Sharp, the appellant’s own expert, and that the divergence between his figure and its figure was trivial. It considered it was too late to introduce evidence casting doubt on the bona fides of that transaction (remembering that it is in the interest of the landlord for the existing lease to have a lower rather than a higher value).

In his written evidence to the FTT Mr Sharp had relied on the sale price of £1,170,000 (which was an agreed fact) but he commented that Mr Cooper “advised that the property was marketed although I have not been able to find estate agent’s particulars.” He noted that, when compared to his own assessment of value of the freehold interest in the Property “the relativity produced is 69.46% which is reasonably close to the average 74.37% produced by the Gerald Eve and Savills 2016 graphs”. He added “[t]hat relativity so produced is less than that indicated by graphs is not unusual on this estate”. We have not been provided with any note of the oral evidence given to the FTT but from the terms in which it refused permission to appeal we assume that Mr Sharp did not retreat from using the February 2024 sale figure as the basis of an (almost) agreed existing lease value.

When it applied to this Tribunal for permission to appeal, the appellant did not challenge the FTT’s assessment of the existing lease value. The first ground for which the FTT’s permission had been sought was omitted and the only challenge was to the assessment of FHVP value. As a result, it is not open to the appellant to challenge that aspect of the FTT’s decision.

The basic case on behalf of the appellant is that the FTT’s valuation is wrong because it reflects a relativity (the relationship between the value of the short lease and FHVP value) of 81.85%, which is substantially out of step with the 74.37% relativity which the parties agree it would have been appropriate to adopt in the absence of suitable comparable evidence.

Ms Muir acknowledged that the FTT is not bound to follow the relativity endorsed in Zucconi, but cited the words of the Tribunal (Judge Cooke and Mr Mark Higgin FRICS) in Daejan Investments Ltd v Collins [2024] UKUT 26 (LC), at [71]:

“…if the value calculated without the use of graphs is adrift from the value in the tables then something may have gone awry and it may be worth looking again at the adjustments.”

Ms Muir submitted that the very marked divergence from the graphs demonstrated by the FTT’s figure strongly suggested that something had gone awry in the FTT’s determination. The FTT’s relativity was the result of a valuation arrived at after applying a series of subjective valuation adjustments to the transactional evidence, some of them very large indeed, for which there was no underlying market evidence. The resulting premium was only as reliable as those subjective adjustments and where the outcome was so substantially inconsistent with the norm evidenced by the relativity graphs the FTT ought to have questioned the outcome and the individual steps which had led to it. Its failure to do so was an error of valuation approach which justified intervention by this Tribunal.

Ms Muir argued that of the six sales of flats at Hyde Park Mansions analysed by the FTT, the sales of Flats 1F and 1H were clearly the best comparables because they were most similar in size and situation to the Property and therefore required the least adjustment. By contrast Flats 9G, 12F and 4C required adjustment for floor level (all), condition (all) and lack of a lift (12F). Ms Muir submitted that adjustments were also required for size and the number of bedrooms, but neither expert had done this and nor had the FTT. The more adjustments required, the less reliable the comparable. By including the other inappropriate comparables the FTT had arrived at too low a figure and an illogical outcome.

In particular Ms Muir submitted that the FTT erred in considering Flat 12F as a useful comparable. It has five bedrooms, is considerably larger than the Property but has the disadvantage of being on the fourth floor with no lift available. She submitted that the time adjusted price of £745 psf paid for the long lease in January 2024 was less than the price of £813 psf paid for the existing short lease of the Property in February 2024 which supported the view that it was not a good comparable. Even after the FTT’s adjustments (including 20% for the absence of a lift) its assessment of the value of the long lease was £812 psf, no different from the value of the lease of the Property which was 900 years shorter, meaning either the adjustments were wrong or the comparable should have been ignored or given lower weighting.

Ms Muir also criticised the FTT’s reliance on Flat 9G, a five bedroom flat on the second floor which she described as considerably larger than the Property. She noted that the FTT’s adjusted price for the sale of the long lease of Flat 9G (£714 psf) was once again lower than the price paid for the existing lease of the Property and lower than the value determined by the FTT for the existing lease. Therefore, either the tenant had overpaid for a short lease or Flat 9G was not a suitable comparable because it attracted a different market. She submitted that the FTT had erred in saying (at paragraph 21, see [29] above) that this discrepancy could be explained by the market. Flats selling for between £1.2 million and £2.45 million are largely investor owned, as the FTT had commented, and their purchasers would be unlikely to be affected by the housing crisis. Moreover, theopportunity the Act provided to extend a short lease, which the FTT suggested mightmake having a long lease less important, needed (in Ms Muir’s submission) to be ignored in determining the premium payable.

Finally, the FTT had given no weight to uncertainty cast by Mr Sharp on the reliability of the assumed sale price of Flat 4C. Mr Sharp had produced a supplemental report to deal with Flat 4C, which had been introduced by Mr Cooper at a late stage after the experts had exchanged details of the comparables they intended to rely on. In his supplemental report Mr Sharp suggested there was uncertainty over the sale price, which was stated by Mr Cooper to have been £1,457,500, whereas Zoopla and Rightmove recorded a sale price of £1,477,000. Moreover, the lease of Flat 4C had been extended by negotiation in November 2020 on the basis that the value of the long lease was £1,531,300. Adjusted for the passage of time this equated to £1,813,510 by June 2022 when the reported sale took place, casting further doubt on the later transaction. Ms Muir applied Mr Cooper’s adjustments of -11% to Mr Sharp’s time adjusted sale price to demonstrate a price of £1,008/sq ft, in line with Mr Sharp’s view of the value of the extended lease of the Property.

Mr Uzor submitted on behalf of the respondent that in determining figures at a relativity of 81.85%, 7.48% above the Zucconi rate of 74.37%, the FTT was within “the accepted margin of tolerance for valuations generally”. He made the point that the FTT is not bound by the relativity shown in graphs and is entitled to prefer market evidence.

Mr Uzor disputed that the sales of Flats 1F and 1H provided the best evidence. Both had been refurbished and one was on a different floor. He contended that four out of six pieces of evidence – of which three are disputed by the appellant – were less likely to be out of kilter with the market than the two out of six which had been “cherry-picked” to support the appellant’s objective of a higher premium.

Regarding Flat 12F, he contended that it should be considered because the sale took place less than three months after the valuation date and the price could be adjusted for the different floor and lack of lift. Its size, at 1,624 sq ft, was 12.8% larger than the Property, which was not “considerably larger” as claimed by the appellant.

Again, for Flat 9G, Mr Uzor submitted that its size at 1,634 sq ft, or 13.5% larger than the property, did not make it “considerably larger”. It sold four months after the valuation date and is on the second floor, in modernised condition, so the price requires few adjustments. The fact that Flats 12F and 9G sold for similar prices (time adjusted) supports their inclusion. He suggested it was disingenuous for the appellant to suggest that the market is “wrong” and their expert is right. Even if the housing crisis does not adequately explain why the market should pay less (£ psf) for an extended lease than a short lease, the appellant had failed to offer any alternative explanation. When the FTT commented that “It could also be that … buyers are more aware of their ability to extend leases and accordingly the shorter lease is of a lesser concern to them now and are willing to pay more to have the opportunity to extend the lease in the future.” it was referring to an opportunity to extend the lease outside of the remit of the Act, by way of amicable negotiation.

Regarding Flat 4C the respondent supported the FTT in rejecting Mr Sharp’s analysis of the evidence of the price paid for the agreed extension in 2020 to dispute Mr Cooper’s analysis of the sale.

In granting permission to appeal we considered that a review was warranted because the determination by the FTT, using heavily adjusted market evidence, gave rise to a relativity of 81.85%, when a graph of relativity which would be used in the absence of market evidence suggests a relativity in the region of 74.37%. The difference between those relativities is significant and we do not consider that that there can be “an accepted margin of tolerance” for a percentage figure which is a ratio of two independent valuation figures. We accept the appellant’s basic point that the result of the FTT’s assessment, which produced a relationship between the value of the existing short lease and the value of the freehold which is so substantially out of the norm, should have given it pause for thought. Where that outcome had been arrived at by giving equal weight to transactions in properties which were so different from the subject that it was necessary to apply multiple adjustments, one of as much as 20%, the need to question the utility of the transactional evidence and the reliability of the FTT’s own adjustments was acute. In short, a simple cross check based on the published graphs ought to have rung alarm bells and, as a matter of good valuation practice, ought to have prompted a more critical examination of the evidence.

On consideration of the appellant’s case on the appeal, a difficulty becomes apparent. It is not suggested, nor could it be, that the FTT was wrong to rely on transactional evidence in the building to determine the two disputed values. Market evidence can legitimately be preferred to the use of relativity graphs if it can be shown that the market evidence is reasonably comparable and does not require extensive manipulation to apply it to the subject valuation (Mallory v Orchidbase Ltd [2016] UKUT 468 (LC)). It was not suggested to the FTT by either party that it should base its determination on a consideration of relativity. The only role of relativity in this case is therefore as a sense check to confirm that the FTT’s valuation conclusions are consistent with what would broadly be expected, or to highlight any significant divergence from the norm which might cast doubt on those conclusions. The surprising relativity demonstrated by the FTT’s two valuations, which is notably inconsistent with the norm represented by the graphs, suggests that something may have gone wrong, but it does not assist in identifying what has gone wrong. Relativity expresses a relationship between two variables and may diverge from what might otherwise have been expected because the value of one or other of the variables is differs from the norm, or because both differ. Relativity can tell us nothing about which of the variables may have been incorrectly assessed. But in this case, the appellant’s challenge is to only one of the variables, the FHVP value, and it has abandoned its original attempt to challenge the existing lease value. The FTT’s determination of existing lease value, which was not materially different from the appellant’s, must therefore be taken to be established. Relativity then has no part to play in a review of the FTT’s determination of FHVP value, which must depend simply on the evidence presented by the parties.

The schedule of comparable evidence included in the FTT’s decision, showing the adjustments made respectively by Mr Cooper, Mr Sharp and the FTT, is a helpful reference point. Taking an overview of the evidence we agree that it is not appropriate to give weight to the two oldest sales since there is sufficient evidence of sales much closer to the valuation date. However, the range of adjusted prices resulting from the six pieces of more recent evidence is very large, and by simply averaging those prices all reasons for difference are lost. Good practice should encourage an effort to understand or explain evidence at the outer edges of the range. If there is no obvious explanation, or if an outlier is significantly different from the subject so as to require significant adjustment, it may be appropriate to give it no weight, or less weight than other more transparent or more directly comparable pieces of evidence.

The technique of averaging values indicated by a number of pieces of evidence is convenient and unobjectionable where the evidence is of sales of very similar properties which require few adjustments to render them comparable. Sales of adjacent properties of similar size, style and condition will often transact at different prices within a range accounted for simply by incidental circumstances or preferences rather than by substantive differences in value. There is no reason why a number of such pieces of evidence may not safely be combined to produce an average figure which can then be applied in valuing the subject property. But where there are more substantial differences between pieces of evidence, such as significant variances in condition, specification, or location, the technique of averaging evidence can be a dangerous substitute for a more considered valuation approach. A wide spread of sales prices is more likely to reflect the different characteristics of the property than the different preferences or negotiating positions of the buyer and seller. It is, of course, possible to make adjustments for particular features or characteristics, but there is often little or no evidence to support such adjustments, which instead depend only on the skill and subjective judgment of the valuer. Where a number of adjustments are required to enable comparison, the adjusted values may become increasingly remote from real world evidence.

The risk in averaging figures drawn from a range of properties which do not share significant features is that particular characteristics of the property to be valued diminish in their influence and are liable to be diluted by the characteristics of other properties which it does not share. By giving more weight to the better pieces of evidence, those most comparable and requiring least adjustment, and less weight, or none at all, to transactions in less comparable properties, the risk of dilution may be diminished.

We note that indexation had been agreed between the experts and that the differences arose from subsequent adjustments to the time adjusted price. The extract from the schedule provided earlier is reproduced below with the evidence sorted in descending order of time adjusted price, with the two dated pieces of evidence omitted. This provides a solid starting point from which the range of prices is clear and reasons for difference can be considered.

The time adjusted prices fall into small clusters at the top and bottom ends of the range, with two individual prices between them. The top two properties, 1H and 1F, were the most useful comparables in terms of size and situation, but were described as refurbished.It was appropriate to place a lower value on the Property to reflect that difference. The FTT made deductions for refurbishment of between 7% and 13%, which is not an impossible range, although the FTT undertook no inspections and was dependent on photographs for its assessment. Flat 10M sold just two months before the valuation date but is notably larger than all the others in the list, so a lower unit price is not surprising. The FTT made further deductions for Flats 1H and 10M of 1% per additional floor level. That level of adjustment would be hard to discern in the market, and the adoption of a consistent adjustment for floor level across a range of different properties without regard to other influences may be too mechanistic. Based simply on the time adjusted prices, adjusted for refurbished condition to the extent considered appropriate by the FTT, the top three sales would suggest a value for the Property of around £1,000 psf.

The time adjusted values of the three remaining sales seem to put them in a different category. Flat 4C was also refurbished, but had been sold 17 months earlier for £922 psf and the fall in the market over that period produced a time adjusted price sitting well below the top three sales. The FTT adjusted by 4% for its less desirable situation at raised ground floor level but did not consider what other reasons there might be for its significantly lower price. Doubt had been cast on the sale evidence by Mr Sharp but the FTT described “the attack” as not sustainable since it relied on settlement evidence. Nonetheless, we consider that there were good reasons for the FTT not to give equal weight to this evidence within an averaging exercise, including its late introduction and apparent lack of marketing.

Flats 9G and 12F were notable in being sold at distinctly similar very low prices, even though both were described as modernised, which suggests that they may have been sold into a different market and therefore provide less useful evidence. The closeness of the prices was subsequently masked by the range of adjustments made by the FTT. Flat 12F was located on the 4^th floor, without a lift, but was also refurbished, for which adjustments were made of +3%, -20% and +8% respectively, giving an overall adjustment of +9%. This degree of manipulation, based only on subjective impression, is unlikely to provide a reliable end figure. Flat 9G was adjusted down by 6%, deducting 1% for floor level, and 5% for refurbished condition, which provided an even more strikingly low figure. The FTT chose to give these adjusted low prices equal weight in an averaging exercise with sales of more obviously comparable properties which had transacted at prices up to 60% higher.

We consider that the FTT could quite reasonably have determined a value for the property of £950 psf or above, giving most weight to the top three pieces of evidence which require the least adjustment. That would have produced an extended lease value of £1,367,050 and a FHVP value of £1,380,859. As a cross-check, that would have reflected a relativity of 76.31% with the determined existing lease value of £1,053,709.

However, before we could allow this appeal we would have to be satisfied that the FTT had wrongly applied relevant principles of valuation practice or erred in its appreciation of the valuation evidence. We do not consider that we can go that far. We have not had the advantage of hearing the expert witnesses explain their views, or comment on the weighting of the evidence or whether it would be appropriate. The FTT did not adopt an approach all of its own. Both experts had undertaken an adjustment exercise followed by an averaging exercise, and the FTT did the same, adopting Mr Cooper’s preferred evidence but using its own more cautious adjustments. There was clearly a consensus in favour of this relatively crude approach which may have been the product of discussions between the experts to which we are not privy. We recognise the comfort that can be derived from averaging disparate prices and values, but professional valuers have the skills and experience which should enable them to avoid that shortcut and to adopt a more considered approach. We commend that more considered approach to witnesses and tribunals, especially where the end figure looks inconsistent with other aspects of the valuation.

Although we feel uneasy with the result in this case, we do not feel able to say that the FTT’s approach was wrong in principle. The appeal is therefore dismissed.