40 Chelsea Square - Knight Frank

obtained from the less secure investment but his takes no account of capital growth or loss. DB
41 shows total yields from equities trailing conventional gilts, but PCL yields exceed those
from equities. We think that the deferment rate of 4½% to which Messrs Cullum, Clark and
Gibbs have all spoken makes a sufficient differential for a reversion in a high value house on
the Cadogan Estate as compared with index-linked gilts. We will apply that norm by reference
to the specific qualities and circumstances of the four properties the subject of the Cadogan
cases in the last section of this part of our decision.
153. We are assisted in testing this conclusion by Mr Gibbs’ exercise in discounted cash flow
in DB61. He first tested his deferment rate of 4½% against conventional gilts. He found that
he could equalise the internal rate of return with an annual nominal rate of return of only 0.28%
against a long term rate of growth of capital values from1986 of 8%. We have said why we are
not prepared to adopt that figure as a reliable forecast of future growth or market expectations
of such growth, and do not rely on that comparison. We prefer to compare that figure with RPI
over the same period, which we have concluded that the market could reasonably expect to
match. Mr Gibbs puts the annualised figure at 2½%. The difference between that figure and
0.28% still leaves room for an allowance for costs and any comparative unattractiveness of an
investment in reversions, and indeed makes the actual figure of 4½% a more reasonable
answer. His further comparison between investment in rack-rented property and his deferment
rate gives support to such modest reliance as we have felt able to place on the significance of
the very low yields achieved or accepted in that market.
154. On the basis of such general rate we will turn to consider more specific factors which
should determine in respect of any property within the same broad location what, if any,
deviation should be made from such norm. The concept of a norm is based on our conclusion
that the risks attached to investment in a freehold reversion on the Cadogan Estate are broadly
similar. It follows that any deviation will arise because of some factor which markedly
increases or reduces the risk as compared with other properties of a quality and value which
prevails across the Estate. In considering further the circumstances of 32 Rosary Gardens we
will address such evidence as we have as to how far locational differences, more marked than
are to be found within the Estate, may affect the appropriate norm.
Specific factors
Differences between types of property
(a) Statutory assumptions
155. In determining the price to be paid for the freehold of a house under the 1967Act, section
9(1A) requires the assumption:-
“(c) .. that the tenant has no liability to carry out any repairs, maintenance or
redecorations under the terms of the tenancy or Part I of the Landlord and Tenant Act
1954”
No such assumption is to be made on collective enfranchisement or lease extension under the
1993 Act. The Tribunal therefore asked the valuers who had given evidence in the Cadogan
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