In my June blog, I commented about whether it was right for a landlord to profit from a windfall purchase if it can be proven that the transaction was NOT a true reflection of market value by applying a lower lease value that in turn will produce a lower relativity and a larger share of the resulting marriage value of which the landlord will receive a half which will increase the premium payable.
My client, on my advice, took counsels opinion. Counsel’s advice was clear that – on the basis of the facts surrounding the purchase – the transaction was not a true refection of market value. So:-
Was the sale a true reflection of market value?
The RICS definition of market value is “The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”
Was the sale good evidence of market value?
- No advice
A reasonable lay vendor would normally take advice from one or more agents and especially where a similar flat in the block on a similar unexpired lease in unmodernised condition had sold some 6 months previously.
- Lack of agents / proper channels of marketing
Most residential property is sold by private treaty through estate agents who will advertise on all the residential portals (such as Right Move, On the Market.com, Lonres.Com & Zoopla); in the correct press that brings established results (e.g.Weekend FT) and through all office of the agency instructed including overseas if an international firm is instructed.
- The vendor only laced a quarter page ad in the EG – a media only read by property professionals, traders and possibly developers. It is not aimed at or usually read by lay owner occupiers – the effect of which excludes a large art of the market.
- Lack of proper advertising
No full particulars were produced. There were no internal photographs, floor plans nor description. No price was indicated so that potential purchasers would not know if the property might be relevant to them.
- Length of marketing
Only one month was allowed which does not leave long for viewing, pre-purchase investigation and time for bids to be received.
A peaceful settlement has been reached with the landlord accepting that far more weight (approx. 78%) needs to be given to the sale of the unmodernised flat sold through normal marketing channels 6 months prior (duly adjusted to the valuation date) than the purchase price of the subject flat itself (approx. 22%.) Net result a further saving of around £96,000 from the premium payable IF the purchase transaction had been deemed a “true reflection of market value.”