40 Chelsea Square - Knight Frank

178. Mr Maunder Taylor, in his evidence before this Tribunal, has adopted what he describes
as a “contractor’s method” of valuation, by which he has considered what an investor would
have to pay to enable him to borrow in order to purchase a reversion and what profit he would
require to persuade him to do so. This does not seem to us to be the exercise upon which we
should be engaged in assessing the appropriate deferment rate for assessing a price to be paid
in the market for the capital value to be realised at the end of the term, although, as we have
said at paragraph – above, it may have relevance to the circumstances of a very short unexpired
term. We have accepted the view that deferment rates are appropriately assessed by
consideration of the return to a risk-free investment, appropriately adjusted for assessed risk,
rather than being derived from borrowing rates, although, no doubt, the two rates will be
linked. Borrowing rates, as represented by the Repo rate, are, however, policy determined in
reaction to market factors, they are moved in fixed gradations, more or less frequently as the
market reacts to changes. DB62 shows graphically the greater volatility of mortgage rates, as
compared with the comparatively stable rate of return to long term index-linked gilts. In the
period in question the latter continued a downward trend whilst the Repo rate was rising. This
deviation in trend is, no doubt because of the long term nature of such investments, which, in
our judgement, makes it a better comparator to investment in freehold reversions than shortterm
borrowing rates.
179. In our judgement, it is not until a change in the trend in risk-free yields has been
established over a period of years, so that it is recognisable in the market for long term
investments, or the continuance of the trend establishes a new level of yields, as can be seen in
yields to conventional zero coupon gilts since the 1990s, that there will be changes that can
properly be reflected by step gradations in deferment rates, assessed for the purpose upon
which we are engaged. Changing yields in the property market, such as we have commented
on above, would be helpful in identifying the time for adjustment of deferment rates once
credibly established, but short term fluctuations should be discounted in making use of what we
have identified as a valuation tool. For these reasons we make no adjustment for the dates of
the valuations in these cases.
Summary
180. We are now able to give our decisions on the deferment rate for each property but before
doing so we summarise our general conclusions as follows:-
(1) The no-Act assumption in the statutory provisions regarding price and value
excludes any assumption that the market would take into account the probability
that Parliament might legislate in the future to confer the rights excluded
(para 82).
(2) Although market evidence is usually the best evidence of value, the extent of the
right to enfranchise or to a lease extension is now so wide that there is unlikely
to be dependable market evidence in any particular case. There is none in these
appeals (paras 99 and 109).
(3) There is not, and has never been, a binding “convention” that a fixed and
constant deferment rate of 6% should be universally used. The deferment rate in
each case must be individually determined on the evidence (para 112).
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