Enfranchisement valuation – an auction price does not determine the value
In Properties AY&U Ltd v Barham House Freehold Ltd the Upper Tribunal (Lands Chamber) considered an appeal concerning the valuation of the premium payable for the freehold by the leaseholders in a collective enfranchisement claim.
The leaseholders made a claim to acquire the freehold in June 2020 just four months after the freeholder had purchased the freehold at auction in February 2020. The auction price paid was £91,000 (against a guide price of £15,000) whereas the leaseholders offered £18,000.
The First Tier Tribunal (Property Chamber) (FTT) had determined a premium payable of £30,000 for the freehold. The freeholder appealed on the basis that the decision had not taken proper account of the auction price paid and that in principle the price achieved on the sale of the subject property shortly before its valuation date indicated its proper value.
The Upper Tribunal determined that the FTT was correct in its approach. The open market value of the freehold on the valuation date was a valuation judgement, not necessarily to be determined by an auction price. It was noted that the freeholder's own expert valuer did not consider the auction price to be a relevant factor and had given no evidence about why his client had paid such a high price.
Auctions create a unique selling environment and, especially given tenants' enfranchisement rights, caution should be exercised when considering the purchase of freehold assets subject to leases.
If you would like further information or advice about enfranchisement in general, please contact our enfranchisement specialist, William Bethune.