Summary

The decision in Daejan Investments Ltd v Benson [2013] UKSC 14, [2013] 1 W.L.R. 854 established that the risk profile for landlords managing owner-occupied flats had changed considerably since the Leasehold Valuation Tribunal's decision in Zuckerman v Calthorpe Estates Trustees [2009] UKUT 235 (LC), [2011] L. & T.R. 12 making provision for an additional 0.25 per cent uplift to the five per cent generic deferment rate for flats established in Earl Cadogan v Sportelli [2007] 1 E.G.L.R. 153 to reflect the additional risks of managing flats. A Zuckerman addition was no longer justified.

Facts

The appellant (V) appealed against a decision of the Leasehold Valuation Tribunal as to the appropriate deferment rate in valuing a reversion.

The tribunal had been required to determine the terms of acquisition of a new lease of flats under the Leasehold Reform, Housing and Urban Development Act 1993 s.48. All the terms of the lease were agreed in the course of the hearing apart from the premium payable to the respondent landlords (G). V had proposed that the 0.25 per cent uplift to the generic deferment rate of 4.75 per cent, made by the tribunal in Earl Cadogan v Sportelli [2007] 1 E.G.L.R. 153 to reflect the difference between houses and blocks of flats, should be increased by a further 0.25 per cent to reflect the additional, inherent management risks of investing in owner-occupied blocks of flats, as had occurred in Zuckerman v Calthorpe Estates Trustees [2009] UKUT 235 (LC), [2011] L. & T.R. 12, as endorsed by City & County Properties Ltd v Yeats [2012] UKUT 227 (LC), [2013] R.V.R. 47. The tribunal declined to do so, and determined the premium payable to G accordingly.

V submitted that the "normal" upward adjustment to the Sportelli generic rate in the case of flats was now 0.5 per cent because of the difficulties in managing owner occupied flats arising from the multiple Rules and Regulations governing service charges, and his proposed addition of a further 0.25 per cent to the deferment rate was justified. G contended that the decision in Daejan Investments Ltd v Benson [2013] UKSC 14, [2013] 1 W.L.R. 854 established that the risk profile for landlords which had formed the basis of the tribunal's decisions in Zuckerman and Yeats to increase the deferment rate by an additional 0.25 per cent had changed considerably. They submitted that although landlords of flats remained at risk, the level of risk was adequately covered by the existing uplift of 0.25 per cent in the deferment rate that had been established in Sportelli.

Held

The difficulties identified by V as justifying the Zuckerman addition were, with one exception, in existence and would have been taken into account by the tribunal when it decided in Sportelli that there was a need to make a 0.25 per cent uplift to the generic deferment rate of 4.75 per cent for houses to reflect the more complex management problems that were associated with flats. The one exception was, as the tribunal had concluded in Zuckerman, that the market had become much more aware of the dangers posed by the Service Charges (Consultation Requirements) (England) Regulations 2003 than was the case in Sportelli. The market's awareness that the Regulations posed dangers for landlords of flats did not, in the tribunal's view in Zuckerman, stem from the fact that the consultation regime under the Regulations was more elaborate and prescriptive than earlier consultation requirements, but from the fact that, on the law as it was then understood to be, a failure to comply with the strict procedural requirements imposed by the Regulations could leave landlords unable to recover a large proportion of the cost of repairs, Zuckerman considered. That it was the market's awareness post-Sportelli of the potential severity of the consequences for a landlord of a failure to comply with the Regulations, rather than a perception that compliance with them was unduly difficult, that was the basis for the additional 0.25 per cent management allowance in Zuckerman was confirmed by the tribunal's decision in Yeats, Yeats considered. The decision in Daejan had removed the basis on which the tribunal reached its conclusion in Zuckerman and Yeats that post-Sportelli there was a raised level of concern about possible management problems which would be reflected in the market: the potential effects of the legislation for the landlord of an efficiently-managed block of flats could no longer be considered draconian, Daejan followed. Accordingly, although there was still an element of risk in managing flats, the level of risk was adequately covered by the 0.25 per cent uplift in the deferment rate which was established in Sportelli, Sportelli applied. There was, therefore, no justification for a Zuckerman addition (see paras 66-70, 73-74 of judgment).

Appeal dismissed