Deferment rate in the spotlight at ALEP Lecture 2022

The topic of this year’s lecture was the ‘deferment rate’; a key component of the calculation used to determine the cost of leasehold enfranchisement. The discussion looked in detail at the Upper Tribunal decision in Llangewydd Court, and the possibility of a future challenge to the deferment rate, as well as developments in case law since Sportelli, which effectively set a deferment rate of 5% nationally, for flats.

Mark Chick, ALEP Director, said: “ALEP events are always specific to our membership and this lecture is no different, providing useful guidance and practical notes for legal and valuation professionals. 

“We were delighted to welcome our members back to an in-person event, and there was a tangible sense of delight from delegates as they were able to meet face to face for the first time in two years. 

“The topic of deferment rate is particularly germane, given that it very arguable that this rate should be re-set because of the historic fall in the ‘risk free rate’ – one of the key elements in the Sportelli calculation –  but also because of the question of rates more generally and what these might be in the context of wider reforms in this area. 

“For instance, were government to prescribe ‘market rates’ as it has indicated that it might, the question would arise (and as was debated during the afternoon) as to what particular ‘market’ this might be?. This is a discussion that ALEP is keen to carry on and which may also evolve in case law.”  

ALEP welcomed a line-up of expert speakers who considered the deferment rate issue from the points of view of the law, valuation, the economy, the wider property market and financial institutions.

Barrister Mark Loveday of Tanfield Chambers started the afternoon’s lecture with an introduction to the context and relevance of the Sportelli decision and assessed the impact of recent case law. Piers Harrison, also of Tanfield Chambers then provided an update on the implications of the Upper Tribunal’s recent decision regarding Llangewydd Court.

Economic expert Mohammed Khalil of Oxera Consulting explored the economic context and potential impact of any change to the deferment rate through a presentation and Q&A, before Chris Buckle of Savills Research outlined key market data and analysis. 

The lecture concluded with an expert panel debate, including Piers Harrison and Mark Chick, who were joined by Fiona Haggett, Head of Valuation at Barclays UK, and Henrietta Hammonds of valuers Beckett and Kay. In a lively discussion, the panel debated whether considering a challenge to the deferment rate is in fact a moot point, given impending reforms to the leasehold enfranchisement system.

Mark Chick concluded: “We are very grateful to all the speakers for giving their time and sharing their knowledge with our members. The deferment rate is a highly relevant topic, particularly given the proposed reforms and also in light of recent changes to equivalent rates in other areas of the law, for example the rates applied in personal injury compensation cases.”