A guide to deferment rates 

The Sportelli decision was an aggregated number of appeals to the Lands Tribunal concerning Prime Central London (PCL) Leasehold Valuation Tribunal (LVT) decisions where the deferment rate was in dispute. For the first time evidence from financial experts, in addition to Valuers, was relied upon in determining the deferment rate which was based on a formula comprising the components Risk Premium, Risk Free Rate and Real Growth Rate.

The deferment rates as set out in the Sportelli decision were set as the rates to be applied in the PCL areas and as the starting point for applications to the LVT for lease extension and collective enfranchisement claims in all other parts of the country. The Court of Appeal did not set down strict guidelines but differentiated between properties located within PCL and elsewhere.

Leaseholders outside the PCL area have since been arguing for a rate to reflect their location. For example the Lands Tribunal decision of Zuckerman & Others v The Trustees of the Calthorpe Estates in 2009 (also known as the Kelton Court decision), which related to a block of flats in Birmingham and where a deferment rate of 6% was applied. In this case it was determined there is scope to argue for a higher deferment rate to reflect the greater risk of deterioration and obsolescence (+0.25%) and the prospect of lower capital growth (+0.5%) compared to PCL. It was further determined that in all areas including PCL, there is scope to argue a higher deferment rate to reflect the increasingly onerous management burden and liability associated with flats compared to houses (+0.25%). Whilst this decision has proved that it is possible to achieve a higher deferment rate subject to producing sufficient evidence, many experts do not consider it reasonable to rely on this decision as a precedent outside of the region its immediately relates to, unlike Sportelli which is presently seen as the basis for determining deferment rate and so the onus must be on the leaseholder to produce and successfully argue new evidence.

 The future of the deferment rate is likely to see further LVT cases ending up at the Lands Tribunal. This might lead to further arguments for the RICS to produce a research study to help determine the appropriate deferment rate depending on location and type of leasehold property.