This year, in what must be a first for the central London leasehold market, I secured a settlement on a client’s leasehold extension that was not only £1.8 million below the landlord’s starting price (a saving of almost 36 per cent), but almost £200,000 below my client’s initial offer.
For all my clients, I leave no stone unturned to reach the best possible settlement, but this case was extraordinary even for me. The rare – possibly unique – result was achieved because I pursued, doggedly and rapidly, evidence that other valuers would not have been able to produce.
The extraordinary case
A previous client of mine was seeking to renew a lease on his Belgravia flat. Having already served his S42 Notice, based on a prior desktop valuation, and received a counter offer from his landlord, he then sought a full professional valuation from a well-respected firm of enfranchisement valuers. They produced a recommended target settlement premium of some 90 per cent of the landlord’s quoting premium.
However, remembering the service and support that he had received from me in the past, and aware of the average savings I have achieved of around 25 per cent overall, the client instructed me to give a second opinion as to my own view of the narrower settlement premium range.
In giving him a second opinion, I would need to start from scratch and report with my usual full analysis of premium range, supported by comparable evidence, all duly adjusted back to the valuation date. Further, this client had submitted the S42 Notice nine months earlier, so I had to work very fast against the timetable already imposed by the FtT (First-tier Tribunal), to swap valuations within a couple of weeks. The client asked me to go ahead.
Finding my former neighbour
Among all the factors I considered bringing to bear, an essential plank of my argument would be to produce the historical evidence of my extension of a similar unexpired lease term, on my own flat, back in 1991. But in order to use this as evidence, I would first have to obtain the file, my copy of which I had disposed of in 1993 when I sold the flat.
More in hope than expectation, I attempted to contact a former neighbour, who had extended her lease ‘collectively’ with me and two other leaseholders in the building. I established that she was still at that address – though now quite elderly and frail – and was able to arrange to visit her, at a time when her chaperone could be present. To my delight she still had the complete file holding the crucial evidence.
At that time, prior to the 1993 Leasehold Reform Act, our landlord (another of the great estates) was of course not in the business of selling freeholds, and would grant no longer than 65-year leases (but valued a 65-year lease as equal to freehold value). And prior to the Act, the settled short lease relativity (that is, the value of the short lease as a percentage of the freehold value – the higher the better for the leaseholder) was not tarnished by the deduction for the “value of rights”. Therefore, as I would argue, it was the “pure” value for the lease.
Our landlord’s valuation showed a relativity in excess of 50 per cent, on average, for the sub-12-year leases. Applying this principle to my client’s case would have a huge effect on relativity, despite his unexpired lease, at below eight years, being even shorter than mine had been. It would still be significantly more valuable, as a proportion of the freehold value, than his previous valuation had assumed: 29.5 per cent compared with less than 12 per cent.
Using my historic evidence, my quoting premium emerged at under two-thirds of the previous valuer’s recommendation, and at a figure significantly lower than that already offered by the leaseholder on his S42 Notice.
The race to the result
I quickly sought legal advice to establish that I was not required to start at the figure entered in the Notice, as I had not advised the client to offer that premium.
I delivered my comprehensive report (including a recommended negotiating range for the premium) to my client before the end of the week in which he had instructed me. I explained the breakthrough on relativity, but warned him that the landlord was unlikely to agree. Nevertheless, he asked me to open first-round negotiations.
That first round went extremely well for my client! The landlord’s valuer acknowledged my relativity approach as to the existing lease value, opening the way for a new bid, lower than that already on the table. However, given that the higher offer made in the notice was already on the table, the landlord could accept that offer at any moment. So, as soon as I reached the pavement outside the landlord’s valuers’ offices, I called my client’s solicitor and asked her to withdraw the original offer immediately. This she promptly did.
We ultimately settled at £186,000 below my client’s opening offer, achieving a total saving on the landlord’s starting position of 35.63 per cent.