Assessing value: of property and evidence

Leasehold enfranchisement

One of the problems with the process of carrying out valuations for leasehold enfranchisement has been the difficulty of valuing ‘leasehold relativity’, which is the value of a dwelling held on an existing lease at any given unexpired term divided by the value of the same dwelling in possession to the freeholder, expressed as a percentage. The difficulty derives from assumptions which have to be made which create a hypothetical world in which the valuation is undertaken.

 

To resolve that problem among valuers a variety of graphs have been created in an attempt to provide some consistency and guidance. The graphs do not, however, all tell the same story.

In its decision in Arrowdell Ltd v Coniston Court (North) Hove Ltd 2006, LRA/72/2005 (the Arrowdell case), the Lands Tribunal observed: “As we have said above, we have been acutely aware of the difficulty of reaching a satisfactory conclusion on relativity in the light of the inadequacy of the available evidence, and it is clear that this is a problem that is liable to confront LVTs in all such cases. The likelihood is that decisions will be varied and inconsistent, while if local perceptions of relativities are built up as the result of decisions and settlements it is improbable that these will properly reflect no-Act values.

Against this background we consider that graphs of relativity are capable of providing the most useful guidance.”

The Lands Tribunal went on to say that it felt the RICS may find itself able to carry out an exercise to produce guidance in the form of standard graphs that can readily be applied by valuers in carrying out enfranchisement valuations. The working group set up by the RICS has now reported that it has not been possible for its members to agree upon definitive graphs that could be used for that purpose.

The report does, however, draw together the various graphs of relativity that are in existence in the hope that this will provide useful guidance to practitioners considering them.

• Valuation expert evidence

The duty of an expert to give unbiased evidence to the court was reinforced recently in a compensation case before the Upper Tribunal (Lands Chamber), where compensation was being assessed for the compulsory acquisition of a house by the local authority. The valuer acting for the local authority was a chartered surveyor of long standing and had been involved in acquisitions and negotiations in connection with a number of schemes in the locality.

The member, however, indicated that he had some reservations regarding the council valuer's schedule of comparables and felt that he had been “selective to a considerable degree”.

The member felt that, had a more comprehensive schedule been produced by the council’s valuer for one of the areas in which comparable evidence could be found, the resulting average of the evidence would have been higher and in those circumstances the strength of the council valuer's evidence must be in question. That also meant that the member was not satisfied that the settlements reached previously provided grounds for agreeing the valuer’s appraisal. Compensation was determined at £52,000 as against the council valuer’s opinion of £36,500.

• Expert advice in a recession

The current downturn in economic activity has particularly affected companies involved in property matters, with transactional work being severely affected. However, although some of the main areas of work for surveyors have reduced, the demand for expert witness work is on the increase. Banks and building societies are now revisiting valuations obtained at the peak of the market in an attempt to recover losses currently being sustained on sales due to bankruptcy and repossession. It is possible that the increase in expert witness work, combined with the decrease in general valuation work, will lead to a migration to expert witness work with expert reports being prepared by personnel with little previous expert witness experience.

In other areas of expert witness work within the profession the current slowdown may mean that the traditional sources of instructions begins to dry up. There is in those circumstances the temptation for experts to accept work which may be outside their immediate area of knowledge.

The effect of that is to increase the number of experts available for a range of instructions, which in turn creates pressure to reduce fees to maintain market share. The danger of this is, of course, that the standard of reporting may be reduced in line with the reduction in fee level.