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Valuation (deferment rates and hope value)

This page deals with deferment rates and hope value - Cadogan Estates Ltd v Sportelli and subsequent cases.

Deferment rates and hope value

Valuing the landlord's interest - deferment rates - hope value

Cadogan Estates Limited v Sportelli
Lands Tribunal
15 September 2006
LRA 50 2005

(Note that elements of this case were appealed to the CA and this case report needs to be read in light of the CA decision, which is reported immediately below. There was a further appeal on "hope value" which went to the House of Lords, the decision of which is also dealt with below).


This case was concerned with valuing the landlord's interest for 1967 and 1993 Act purposes. Both Acts require the ascertainment, upon certain assumptions "of the amount which at the valuation date [the freeholder's] interest might be expected to realise if sold on the open market by a willing seller". The Tribunal identified three elements of value in the landlord's interest that need to be considered:
  • the right to receive the ground rent,

  • the right to vacant possession at term, and

  • "hope value" that is the option of realising a share of the marriage value by an earlier sale to a tenant.
Valuation of the right to receive ground rent (and the rate used to capitalise that right) was not in issue, but the other two elements were. The greater part of the decision dealt with the methodology for valuing the right to vacant possession at the end of the term of the lease. The latter is valued by ascertaining the open market value of the freehold interest with vacant possession as at the valuation date and then adjusting that value to reflect the fact that vacant possession will not be available until the end of the term. The adjusting factor is called the "deferment rate". It is the annual discount applied, on a compound basis, to an anticipated future receipt (assessed at current prices) to arrive at its market value at an earlier date [that is to say the valuation date].

In Arbib v Earl Cadogan (Lands Tribunal, 15 September 2005) [2005] 3 EGLR 139 the tribunal rejected the established rate of 6%. It allowed financial market evidence, in the absence of reliable property market evidence, took as a starting point a risk-free rate r ... THIS IS AN EXTRACT OF THE FULL TEXT. TO GET THE FULL TEXT, SEE BELOW

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