Neutral Citation Number: [2012] EWCA Civ 1181
Case No: Appeal Reference: C3/2011/3318

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM 
THE UPPER TRIBUNAL (LANDS CHAMBER)
LRA/86/2009
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 03/09/2012
Before :

LORD JUSTICE PILL
LORD JUSTICE RIMER
and
MR JUSTICE MORGAN
- - - - - - - - - - - - - - - - - - - - -
Between :

	(1)	CHARLES CAREY-MORGAN
(2)	JOHN MATTHEW STEPHENSON	Appellants	
	- and -		
	TRUSTEES OF THE SLOANE STANLEY ESTATE	
Respondents	
- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - -

Mr T C Dutton (instructed by Bircham Dyson Bell LLP) for the Appellants
Mr K S Munro (instructed by Pemberton Greenish LLP) for the Respondents

Hearing dates : 11 July 2012
- - - - - - - - - - - - - - - - - - - - -
Judgment

Mr Justice Morgan: 
Introduction
1.	This is an appeal against a decision of the Upper Tribunal (Lands Chamber) dated 10th October 2011; the decision is now reported at [2012] RVR 92. The tribunal judges were the President of the Lands Chamber (Mr George Bartlett QC) and Mr Paul Francis FRICS. The decision of the Upper Tribunal was in respect of an appeal from a decision and a supplementary decision, dated respectively 16th December 2008 and 24th April 2009, of the Leasehold Valuation Tribunal for the London Rent Assessment Panel (“the LVT”). There were two hearings before the LVT, together extending to 5 days. The appeal to the Upper Tribunal was by way of a re-hearing in relation to the issues which remained in dispute and the Upper Tribunal itself heard evidence of fact and expert evidence. The hearing before the Upper Tribunal lasted 3 days. Permission for a second appeal to this court was granted by Arden LJ on 27th February 2012.
2.	The application to the LVT was made, pursuant to section 24 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”), by the Trustees of the Sloane Stanley Estate as “the reversioner” within section 9 of the 1993 Act. The respondents to that application were Mr Carey-Morgan and Mr Stephenson who were together “the nominee purchaser” within section 15 of the 1993 Act. The reversioner asked the LVT to determine the terms on which the nominee purchaser was to be entitled to acquire the freehold of a block of flats known as Vale Court, Mallord Street, London, SW3. The principal term in dispute was the price to be paid for the freehold which was to be determined pursuant to section 32 of the 1993 Act (giving effect to the detailed provisions contained in schedule 6 to the 1993 Act).
3.	Following the LVT’s determination of the price to be paid for the freehold of the block, the reversioner appealed to the Upper Tribunal against certain parts of that determination. The issues which came before the Upper Tribunal in relation to the price to be paid were as follows: (1) the vacant possession values of the leases of some of the flats in the block; (2) whether there was potential for the freehold owner of the block to undertake a development of the roof of the block and, if so, the value of that potential; (3) hope value in relation to flats let on leases with unexpired terms of less than 80 years and where the leases were held by tenants who were not participating tenants within section 14 of the 1993 Act; (4) the deferment rate to be used in valuing the freehold interest in relation to flats subject to leases with unexpired terms of less than 5 years.
4.	The only parts of the decision of the Upper Tribunal which have been challenged on this appeal relate to the deferment rate and hope value. The nominee purchaser submits that the Upper Tribunal was wrong in law in relation to its treatment of both the deferment rate and hope value and it further contends that the conclusions reached separately as to the deferment rate and hope value reveal inconsistencies or even double counting and cannot stand with each other.
5.	On this appeal, Mr Dutton appeared on behalf of the nominee purchaser; he did not appear in the Upper Tribunal. Mr Munro appeared for the reversioner on this appeal, as he did in the Upper Tribunal.
The statutory provisions
6.	Section 32(1) of the 1993 Act gives effect to schedule 6, where the detailed provisions as to the price payable for the freehold are to be found. The provisions which matter for present purposes are those in paragraphs 2 and 3 of schedule 6 which are in these terms:
Part II 
Freehold of Specified Premises
Price payable for freehold of specified premises
2.- (1)     Subject to the provisions of this paragraph where the freehold of the whole of the specified premises is owned by the same person, the price payable by the nominee purchaser for the freehold of those premises shall be the aggregate of—
(a)     the value of the freeholder's interest in the premises as determined in accordance with paragraph 3,
(b)     the freeholder's share of the marriage value as determined in accordance with paragraph 4, and
(c)     any amount of compensation payable to the freeholder under paragraph 5.
(2)     Where the amount arrived at in accordance with sub-paragraph (1) is a negative amount, the price payable by the nominee purchaser for the freehold shall be nil.
Value of freeholder's interest
3.- (1)     Subject to the provisions of this paragraph, the value of the freeholder's interest in the specified premises is the amount which at the relevant date that interest might be expected to realise if sold on the open market by a willing seller (with no person who falls with sub-paragraph (1A) buying or seeking to buy) on the following assumptions—
(a)     on the assumption that the vendor is selling for an estate in fee simple—
(i)     subject to any leases subject to which the freeholder's interest in the premises is to be acquired by the nominee purchaser, but
(ii)     subject also to any intermediate or other leasehold interests in the premises which are to be acquired by the nominee purchaser;
(b)     on the assumption that this Chapter and Chapter II confer no right to acquire any interest in the specified premises or to acquire any new lease (except that this shall not preclude the taking into account of a notice given under section 42 with respect to a flat contained in the specified premises where it is given by a person other than a participating tenant);
(c)     on the assumption that any increase in the value of any flat held by a participating tenant which is attributable to an improvement carried out at his own expense by the tenant or by any predecessor in title is to be disregarded; and
(d)     on the assumption that (subject to paragraphs (a) and (b)) the vendor is selling with and subject to the rights and burdens with and subject to which the conveyance to the nominee purchaser of the freeholder's interest is to be made, and in particular with and subject to such permanent or extended rights and burdens as are to be created in order to give effect to Schedule 7.
(1A)     A person falls within this sub-paragraph if he is—
(a)     the nominee purchaser, or
(b)     a tenant of premises contained in the specified premises, or
(ba)     an owner of an interest which the nominee purchaser is to acquire in pursuance of section 1(2)(a), or
(c)     an owner of an interest which the nominee purchaser is to acquire in pursuance of section 2(1)(b).]
(2)     It is hereby declared that the fact that sub-paragraph (1) requires assumptions to be made as to the matters specified in paragraphs (a) to (d) of that sub-paragraph does not preclude the making of assumptions as to other matters where those assumptions are appropriate for determining the amount which at the relevant date the freeholder's interest in the specified premises might be expected to realise if sold as mentioned in that sub-paragraph.
(3)     In determining that amount there shall be made such deduction (if any) in respect of any defect in title as on a sale of the interest on the open market might be expected to be allowed between a willing seller and a willing buyer.
(4)     Where a lease of any flat or other unit contained in the specified premises is to be granted to the freeholder in accordance with section 36 and Schedule 9, the value of his interest in those premises at the relevant date so far as relating to that flat or other unit shall be taken to be the difference as at that date between—
(a)     the value of his freehold interest in it, and
(b)     the value of his interest in it under that lease, assuming it to have been granted to him at that date;
and each of those values shall, so far as is appropriate, be determined in like manner as the value of the freeholder's interest in the whole of the specified premises is determined for the purposes of paragraph 2(1)(a).
(5)     The value of the freeholder's interest in the specified premises shall not be increased by reason of—
(a)     any transaction which—
(i)     is entered into on or after the date of the passing of this Act (otherwise than in pursuance of a contract entered into before that date), and
(ii)     involves the creation or transfer of an interest superior to (whether or not preceding) any interest held by a qualifying tenant of a flat contained in the specified premises; or
(b)     any alteration on or after that date of the terms on which any such superior interest is held.
(6)     Sub-paragraph (5) shall not have the effect of preventing an increase in value of the freeholder's interest in the specified premises in a case where the increase is attributable to any such leasehold interest with a negative value as is mentioned in paragraph 14(2).
7.	Paragraph 4 of schedule 6 deals with the freeholder’s share of marriage value and paragraph 5 of schedule 6 deals with compensation for loss resulting from enfranchisement. It is not necessary to set out those provisions although I will refer to the concept of marriage value later in this judgment.
Comment on the statutory provisions
8.	Paragraph 3 of schedule 6 directs that certain valuation assumptions are to be made for the purpose of determining the value of the freeholder’s interest. One assumption that is relevant in the present case is that specified in paragraph 3(1)(b), namely, that Chapter I (dealing with collective enfranchisement by tenants of flats) and Chapter II (dealing with the right of a tenant of a flat to a new lease) of the 1993 Act do not confer a right to acquire any interest in the specified premises or to acquire any new lease. This is often referred to as a "no-Act world" assumption, but it can also be described as a "no-Act building" assumption, as it is an assumption that the rights under Chapters I and II do not apply to the tenants in the building that is the subject of the collective enfranchisement claim (referred to as "the specified premises": see section 13). 
9.	Paragraph 3(1) of schedule 6 defines the value of the freeholder's interest as "the amount which at the valuation date that interest might be expected to realise if sold on the open market by a willing seller…". Where the freeholder’s interest is subject to a lease or leases, there will be a value to a purchaser of the freehold in acquiring, first, the right to receive the rent under those lease(s) during the term(s) of those lease(s) and, secondly, the right to possession of the property when the term(s) of the lease(s) expire. It is conventional for valuers to refer to the first element as the value of “the term” and to the second as the value of "the reversion".   The value of the "term" is calculated by capitalising the rent. The value of the "reversion" is normally calculated by taking the estimated vacant possession value of the relevant premises and then discounting it at an appropriate rate of interest to arrive at the value today of the freeholder's right to possession at some point in the future. This rate of interest is called the deferment rate. 
10.	Before considering the decision of the Upper Tribunal which is under appeal in this case, it is necessary to discuss the issue of deferment rate in a little more detail. It is also helpful to refer to three other topics, namely marriage value, hope value and the possible application of the Local Government and Housing Act 1989, schedule 10, before addressing the decision under appeal and the grounds of the appeal.
Deferment rate
11.	The deferment rate was described by the Lands Tribunal in Earl Cadogan v Sportelli [2007] 1 EGLR 153 at [2] as "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". The purpose of selecting a particular deferment rate is to enable one to assess how much someone would pay at the valuation date for the right to receive a sum of money at a future date. This depends on the rate of compound interest which he wants in return for parting with his money at the valuation date and getting his money back only at a future date. The formula for calculating the present value of a right to receive a future payment, using a given compound interest rate is: 
Future payment/(1+i)n  
(where i is the compound rate of interest and n is the number of years until deferment).
12.	The use of this formula shows that an investor who wishes to purchase a right to a sum of £1m in 5 years time and who wants a compound rate of return of 5%, would be prepared to pay £783,526, because £1m/(1 + 0.05)5 = £783,526. If he had invested that sum at 5% compound interest, then at the end of five years he would have £1m. If one applies this approach to the case of a purchaser of a freehold reversion, where the value of that freehold with vacant possession “assessed at current prices” is £1m, using this formula and a deferment rate of 5%, one would conclude that the purchaser would be prepared to pay £783,526 for the reversion (ignoring the value of the right to receive the rent(s) under the lease(s) in the intervening 5 years). On this basis the present value of such a reversion would be considered to be £783,526. (The analysis of a purchase of a property reversion is not as straightforward as the example of an investor buying a right to a fixed sum of money payable at a future date. The value of the property may change between the date of the purchase and the later date when the leases expire, when the purchaser becomes entitled to vacant possession. In valuation terms, this is dealt with by taking the current value of the freehold with vacant possession and reflecting the possibility of changes in property values in the deferment rate.)
						
13.	The amount of the deferment rate can have a very important bearing on the value of the reversion. Over the years, many cases concerning the deferment rate have been fought in the LVT and in the Lands Tribunal. The Lands Tribunal considered that it would be helpful to give guidance as to the right approach to the determination of a deferment rate. Eventually, a number of cases were collected together to enable the Lands Tribunal to give such guidance. The decision of the Lands Tribunal in those combined cases is reported as Earl Cadogan v Sportelli [2007] 1 EGLR 153. Certain issues in that case were considered by the Court of Appeal (see [2008] 1 WLR 2142) and later by the House of Lords (see [2010] 1 AC 226). I will refer to this case at the different levels of decision as “Sportelli”. 
14.	For present purposes, it is not necessary to describe in detail the many considerations which are discussed by the Lands Tribunal in its decision in Sportelli. The Lands Tribunal concluded, following earlier authority, that in the case of leases with unexpired terms of 20 years or more the right approach was to use a formula expressed as follows:  Deferment Rate = Risk Free Rate (“RFR”) + Risk Premium (“RP”) – Real Growth Rate (“RGR”). Those terms are explained in detail in that case and need not be explained again here. The Lands Tribunal further concluded in Sportelli that the components in the formula were to be given the following values:  RFR = 2.25%, RP = 4.5% and RGR = 2% giving a Deferment Rate of 4.75%. It was held that this rate was appropriate for cases where the property was a house. In a case where the property consisted of a flat or flats, a further 0.25% should be added giving a Deferment Rate of 5.0%. The Lands Tribunal concluded that these rates should be regarded as generic deferment rates which could be adopted for leases with unexpired terms of 20 years and above but which may need to be adjusted by reference to the facts of individual cases. 	
15.	Some parts of the Lands Tribunal’s decision in Sportelli were the subject of an appeal to the Court of Appeal. In particular, the nominee purchaser appealed in relation to the deferment rate. That appeal was dismissed: [2008] 1 WLR 2142. The Court of Appeal agreed with the Tribunal that it was an important part of its role to promote consistent practice in land valuation matters and that it was entirely appropriate for the Tribunal to offer the guidance which it had done, although that guidance should be confined to properties in prime central London.
16.	The Lands Tribunal in Sportelli had not sought to identify a generic deferment rate for leases with unexpired terms of below 20 years. Instead, it indicated that with unexpired terms of below 20 years the rate would need to have regard to the property cycle at the date of the valuation. Before long, a case where the unexpired terms were below 20 years came before the Upper Tribunal. That case was Cadogan Square Properties Ltd v Earl Cadogan [2011] 1 EGLR 155. The Upper Tribunal followed the guidance given by the Lands Tribunal in Sportelli in adopting the formula of Deferment Rate = RFR + RP – RGR. In view of its findings as to the property cycle at the dates of the relevant valuations, the Upper Tribunal adopted values for RGR of 1.75% (for two valuation dates in 2005) and 1.5% (for three valuation dates in 2007) in place of the 2% adopted in Sportelli. The Upper Tribunal adopted the same values for RFR and RP as were adopted in Sportelli. These conclusions produced deferment rates of 5.25% (for the two valuation dates in 2005) and 5.5% (for the three valuation dates in 2007). The Upper Tribunal stated that in relation to unexpired terms from 10 years up to (but not including 20 years) certain parts of its decision should have the same effect in future cases as the guidelines in Sportelli itself. The Upper Tribunal added that as regards unexpired terms of less than 10 years, the method used in its decision should be a starting point for the determination of the deferment rate but that for very short unexpired terms the possibility of using net rental yields as a guide to the deferment rate should be examined more closely. As will be seen, the Upper Tribunal in the present case had to grapple with that question.
Marriage value
17.	There is no issue as to marriage value which needs to be addressed in this appeal. However, a brief statement of what marriage value is may assist when I later describe the issue which does arise in relation to hope value. The concept of marriage value is relatively straightforward in the case of a long lessee acquiring the freehold reversion on his lease (e.g. where the premises comprise a house). If the value of the freehold reversion (ignoring any bid for it by the existing lessee) is £X, if the value of the existing lease is £Y and if the value of the freehold with vacant possession is £Z, then it will often be the case that X + Y is less than Z. The degree of difference between X + Y on the one hand and Z on the other will depend on a number of factors, in particular, the length of the unexpired term of the lease. The difference is called the marriage value; so called because the extra value is released by marrying the freehold reversion with the existing lease. Thus, if the existing lessee, who owns a lease with a value of £Y, were to be able to buy the freehold reversion for £X, he would obtain a freehold with vacant possession with a value of £Z and would secure all of the marriage value for himself. In the open market, free from statutory assumptions, it is to be expected that the freeholder would only agree to sell the freehold reversion to the existing lessee on the basis that the marriage value is shared between the freeholder vendor and the lessee purchaser. Marriage value was described in Sportelli by Carnwath LJ in the Court of Appeal ([2008] 1 WLR 2142 at [4]) and by Lords Hoffmann and Neuberger in the House of Lords ([2010] AC 226 at [3] and [58] - [63] respectively).
18.	The concept of marriage value is a little more complex where one is concerned not with the purchase of a freehold reversion but instead with the grant of a new long lease or an extended lease to the existing lessee. In the latter type of case, marriage value is the subject of an elaborate definition in paragraph 4 of schedule 6 to the 1993 Act. Where the unexpired term of the existing lease exceeds 80 years, marriage value is ignored. Paragraph 4(1) provides that the freeholder’s share of marriage value is 50%.
Hope value
19.	A detailed description of the concept of hope value and the approach to be adopted in relation to it is to be found in the decision of the House of Lords in Sportelli (reported at [2010] 1 AC 226), in particular, in the speech of Lord Neuberger of Abbotsbury. Although Lord Hoffmann dissented in the result as to hope value, his description of the concept at [2] – [4] is very clear and helpful. Happily, for the purposes of determining the present appeal, it is not necessary to do more than provide a brief summary of this subject. 
20.	The statutory provisions require one to assume that no tenant of any premises contained in the building, which is the subject of the collective enfranchisement, is seeking to buy the freehold of the building. Further, one must assume that no tenant is entitled under Chapter I or Chapter II of the 1993 Act to acquire any interest in the building or to acquire any new lease. Nonetheless, where the freeholder is selling his interest, even when the tenants are not then in the market, a potential purchaser might think that, in addition to its investment value, the freehold interest carries with it the potential benefit of being able to charge a premium for the possible future grant of a long lease to a tenant of a flat in the building, such lease being granted prior to the end of the term of the existing lease. In accordance with the statutory assumptions, these possible future grants will be a matter for negotiation and not a matter of entitlement under Chapter II of the 1993 Act. This potential benefit to a purchaser means that the value of the freehold might be greater than the aggregate of the capitalised rental stream and the deferred right to possession at the end of the term(s). Accordingly, in assessing the value of the freehold, something should be added for the possibility of the freeholder purchaser benefiting in this way. This something is known as “hope value”. 
21.	On a collective enfranchisement, it is often the case that not all of the qualifying tenants (defined in section 5 of the 1993 Act) in the building join in the giving of the notice to purchase the freehold. The qualifying tenants who do join in are called the “participating tenants” (defined in section 14 of the 1993 Act). Other tenants in the building can be referred to as the “non-participating tenants”. As explained earlier, paragraph 2 of schedule 6 to the 1993 Act provides that the price payable for the freehold includes not only the value of the freeholder’s interest, assessed in accordance with paragraph 3 of schedule 6, but also the freeholder’s share of certain marriage value, assessed in accordance with paragraph 4 of schedule 6. It is not necessary to refer to the detail of paragraph 4 of schedule 6 but it is relevant to explain that the marriage value calculation is limited to considering the release of marriage value by reference to the leasehold interests under the control of the participating tenants. The result is that there is no consideration in paragraph 4 of schedule 6 of any hope value in relation to the interests of the non-participating tenants. Against this statutory background, the House of Lords in Sportelli held that hope value could be taken into account, as part of the value of the freehold pursuant to paragraph 3 of schedule 6, in so far as it is attributable to the possibility of non-participating tenants seeking new leases of their respective flats by negotiation but not, of course, as of right under Chapter II (because the 1993 Act required one to assume that they did not have such a right under Chapter II).
Local Government and Housing Act 1989
22.	Section 186 of the Local Government and Housing Act 1989 (“the 1989 Act”) gives effect to schedule 10 to that Act. Schedule 10 confers a form of security of tenure on certain tenants of dwelling houses (including flats). The tenancy in question must be a long tenancy at a low rent which satisfies “the qualifying condition”. It is not necessary to discuss what is meant by “a long tenancy”. In order to determine whether a tenancy is at a low rent, in the case of a tenancy entered into before 1st April 1990 (where the dwelling house had a rateable value on 31st March 1990), one asks whether the maximum rent payable at any time under the tenancy was less than two-thirds of the rateable value on 31st March 1990. The qualifying condition is that the circumstances as respects the property let under the tenancy, the use of that property and all other relevant matters are such that, if the tenancy were not at a low rent, it would at that time be an assured tenancy within the meaning of Part I of the Housing Act 1988. For this purpose, in relation to a tenancy which was entered into before 1st April 1980, the rateable value of the dwelling house as at 31st March 1990 must not exceed £1,500. Further, the tenant must occupy the dwelling house as his only or principal home.
23.	A tenancy which, immediately before its term date, is within schedule 10 to the 1989 Act does not come to an end on that date except by being terminated under the provisions of schedule 10. The tenancy continues until it is so terminated. While a tenancy continues pursuant to the 1989 Act, it continues at the same rent and in all other respects on the same terms as before the term date save that, in some circumstances, the landlord may apply for an interim rent. Where such a tenancy is terminated by a landlord’s notice proposing an assured tenancy within Part I of the Housing Act 1988, then eventually when the statutory procedures are gone through the tenant will be entitled, subject to one qualification, to remain as an assured periodic tenant at a rent established in accordance with the statutory procedures. The qualification which needs to be mentioned arises from the fact that, at the time relevant to this appeal, a tenancy entered into on or after 1st April 1990 under which the rent payable exceeded £25,000 per year could not be an assured tenancy: see Housing Act 1988, section 1(2) and schedule 1, paragraph 2. Thus, if the operation of the statutory procedures produced a tenancy under which the rent exceeded £25,000 per year, the tenancy so produced would not be an assured tenancy and would lack statutory security of tenure under Part 1 of the Housing Act 1988. (In his written submissions, Mr Dutton referred to the possibility of the application of the Rent Act 1977 or the Housing Act 1988 as well as the possibility of the application of the 1989 Act. In his oral submissions, Mr Dutton focussed on the position under the 1989 Act. I do not consider that it is necessary in this case to describe the operation of the Rent Act 1977 or the Housing Act 1988. In this case, those statutes do not give rise to any additional matters over and above those which I will consider in relation to the 1989 Act.)
Deferment rate: the decision under appeal
24.	In the present case, the Upper Tribunal adopted a conventional valuation approach. It sought to build up to the aggregate value of the freeholder’s interest in accordance with paragraph 3 of schedule 6 to the 1993 Act by including the value of the terms (i.e. the right to receive the rent payable under the lease during the unexpired terms of the leases) and the value of the reversions to vacant possession at the end of the terms, as well as other valuation inputs. The valuation of the term in relation to each flat assumed that the rent payable during the unexpired term would cease at the end of that term. In relation to the value of the reversion at the end of the unexpired term, the valuation proceeded on the basis that the freeholder would be entitled to possession of the relevant flat at the end of the unexpired term. Accordingly, the Upper Tribunal proceeded to assess the value, at the valuation date, of the relevant flat with vacant possession and then determined the appropriate deferment rate. The deferment rate was then applied for the period of the unexpired term; this was consistent with the basis of the valuation which was that the vacant possession value of the flat would be available to the freeholder at that point. 
25.	The Upper Tribunal then considered the deferment rate which they should adopt. As already explained, two earlier cases (Sportelli and Cadogan Square Properties Ltd v Earl Cadogan) had discussed the approach to be adopted when determining the deferment rate for (1) unexpired terms of 20 years or more; and (2) for unexpired terms of between 10 and 20 years. In the present case, the unexpired lease terms were of various lengths. Where the unexpired lease terms exceeded 20 years, the Upper Tribunal applied the Sportelli guidance. However, there were six leases where the unexpired lease term was 4.74 years. Those terms were not within the guidance in the earlier cases and the Upper Tribunal adopted an approach which was different from that adopted earlier. In summary, it held that the deferment rate for reversions of less than 5 years should be the net rental yield which the evidence showed to be appropriate for the property in question and, in addition, that there should be an end allowance which, in the absence of evidence establishing some other percentage, should be 5%. In the present case, the Upper Tribunal held that the appropriate net rental yield was 3.25%. 
Deferment rate: the appeal
26.	The principal point raised by the nominee purchaser on this appeal in relation to deferment rate is to question the assumption made by the Upper Tribunal that the freeholder would be entitled to vacant possession of the relevant flat at the end of the unexpired term of the relevant lease. It is submitted that this assumption ignores the possible application of schedule 10 to the 1989 Act. If it should emerge that a particular flat was within the rateable value limits of the 1989 Act and if the lessee under the lease were (at the end of the term) to be in occupation of the flat as his only or principal home, then because the lease in question would have been a long lease at a low rent, that lessee would be entitled to remain in occupation under the 1989 Act. If the freeholder were to take steps to terminate those rights under the 1989 Act there would eventually be a tenancy which would be an assured periodic tenancy, if the rent payable under that tenancy did not exceed £25,000 per year. Accordingly, it was submitted that the Upper Tribunal approached the case on an incorrect legal basis.
27.	The submission as to the possible application of the 1989 Act was put forward for the purpose of challenging the deferment rate adopted by the Upper Tribunal in relation to the six leases with unexpired terms of 4.74 years. The nominee purchaser appeared ready to accept that the possible application of the 1989 Act was not material in relation to the other leases. As regards the six leases in question, it was submitted that this court should simply substitute the deferment rate arrived at by the Lands Tribunal in Sportelli for the rate adopted in the decision under appeal. It was not suggested that, when valuing the term, one should capitalise the rent payable during the unexpired term granted by the lease and also the rent payable after the end of that term, whether during a period of continuation under the 1989 Act or under any subsequent assured tenancy. It seemed to be accepted that if this challenge based on the possible application of the 1989 Act failed, then the general approach adopted by the Upper Tribunal was not open to challenge on this appeal. 
28.	The nominee purchaser accepts that the point taken by it on this appeal, as to the possible application of the 1989 Act, was not taken before the LVT nor the Upper Tribunal. In order to consider whether the point can be effectively taken on this appeal, I need to describe the course which was taken before the Upper Tribunal.
29.	The valuers who were called by the parties appear to have adopted a conventional term and reversion method of valuation. They therefore capitalised the rent payable during the unexpired terms. They did not seek to capitalise any rent payable after the end of the unexpired terms. They assessed the vacant possession value of the relevant flats and then applied a deferment rate to that vacant possession value for the period of the unexpired terms. At the hearing before the Upper Tribunal there was considerable disagreement between the valuers as to the correct approach to be adopted to determine the deferment rate.
30.	Following the hearing, the Upper Tribunal sent a detailed note to the parties in which it set out the approach which it favoured in relation to the deferment rate for the reversions with unexpired terms of less than 5 years. It invited submissions and/or evidence in response. Paragraph 3 of the note, referring to these reversions, stated that “their key characteristic is that they contain the guarantee of the early enjoyment of possession” (i.e. at the end of the fixed term of less than 5 years). Other parts of the note commented on the significance of this characteristic of the reversions being considered.
31.	Both sides replied to the invitation to make submissions and put in evidence. It is relevant to refer to the response from the nominee purchaser’s side. The advocate for the nominee purchaser who was then acting (not Mr Dutton who appeared on the appeal to this court) expressly replied to paragraph 3 of the Upper Tribunal’s note. He wrote:
“We would certainly agree with the statement made herein that there is a short term certainty both as to realisation and cost of holding until the term ends … ”
He added that he agreed with a further paragraph in the Upper Tribunal’s note where the Upper Tribunal had described how the “short term reversions” were akin to freehold interests in possession, subject only to a period of deferment. He then commented on the choice of deferment rate in those circumstances.
32.	Accordingly, the Upper Tribunal having clearly stated to the parties its provisional view as to how the deferment rate should be determined and explaining the significance, as the Upper Tribunal saw it, that the freeholder had the certainty of being entitled to possession at the end of the term, the nominee purchaser expressly agreed that that was a correct statement of the position.
33.	On the appeal to this court, it was submitted on behalf of the reversioner that the advocate for the nominee purchaser had gone even further, in his response to the note from the Upper Tribunal, to concede that the possibility of assured tenancies following the end of the term was irrelevant. The advocate’s note stated that the valuer for the nominee purchaser had raised “the issue of Assured Tenancies”. The court asked counsel for the parties to show the court where the valuer had raised this issue and how he had dealt with it. We were told that the valuer had not raised it in his written evidence but that he had made some reference to it when giving oral evidence. The advocate’s note continued by referring to the possibility that the £25,000 ceiling as regards rent might be lifted. Although the note is not wholly clear, the point seems to have been that tenancies of any flats which were let at market rents above £25,000 might, as a result of a change in the law, come within the Housing Act 1988. The advocate then added:
“However, this does not seem to have any relevance to the specific property but should be borne in mind for any formula or methodology.”
34.	In my judgment, the various responses from the advocate for the nominee purchaser make it clear that the nominee purchaser accepted that the Upper Tribunal could act on the basis identified by it that the freeholder had the guarantee of the enjoyment of possession at the end of the terms of the leases. As regards the further comment referring to assured tenancies, this seems a clear acceptance that whatever point the advocate had in mind was irrelevant. There is a lack of clarity as to what the advocate meant when he said that something “should be borne in mind for any formula or methodology”. Overall, my interpretation of the nominee purchaser’s position was that it accepted the Upper Tribunal’s approach based on a guarantee of the early enjoyment of possession.
35.	Mr Dutton submitted to us that the Upper Tribunal should not have acted upon the nominee purchaser’s acceptance of its approach. He suggested that the reason that the nominee purchaser had accepted that there was a guarantee of early possession was because the valuer for the nominee purchaser, when he was considering the value of the unexpired leasehold interests, had given evidence that the flats had a high rental value which would have taken the market rents of the flats above the £25,000 ceiling for the purposes of the Housing Act 1988. It was in the interests of the nominee purchaser to put forward evidence which supported higher values for the leasehold interests. If the valuer had not given that evidence but had instead stated that the market rental value of the flats was below £25,000 per year, then it would have been open to the nominee purchaser to raise the point that the 1989 Act might potentially apply at the end of the unexpired terms. It was further submitted that if one analysed the valuations carried out by the Upper Tribunal and focussed on its figures for the value of the leasehold interests (which were not arrived at by considering rental values) one could deduce that the Upper Tribunal would have found (if it had been asked to do so) that the market rental value of some (but not all) of the six flats with unexpired terms of 4.74 years was, after all, below £25,000. Based on these considerations, it was submitted that the right thing for the Upper Tribunal to have done was to reject the concession made by the nominee purchaser as to the guarantee of early possession and instead to work out that there might have been a possibility of the 1989 Act applying to some (although probably not all) of the six flats and then to abandon its approach to the determination of the deferment rate.
36.	I am not able to accept the suggested criticism of the Upper Tribunal which I have set out in the last paragraph. It involves considerable speculation as to the case which the nominee purchaser might have put forward in other circumstances. It also involves some speculation as to what the Upper Tribunal would have concluded were the market rental values of some of the six flats. I consider that the Upper Tribunal was fully entitled to act upon the clear stance adopted by the nominee purchaser in its response to the note from the Upper Tribunal. If the nominee purchaser had wanted to put forward an alternative argument along the lines advanced by Mr Dutton on this appeal, it should have done so and should not have expressed an unqualified acceptance of the Upper Tribunal’s approach. 
37.	It follows that the Upper Tribunal was entitled to decide the case in the way in which it did. Nonetheless, Mr Dutton submits that the possible application of the 1989 Act is a pure point of law, that the Upper Tribunal left out of account that possibility, that it thereby (however excusably) erred in law and this court should allow an appeal against that decision.
38.	Mr Dutton accepted that the approach which should be adopted to the new point in relation to the 1989 Act is the approach described by Nourse LJ giving the judgment of the court in Pittalis v Grant [1989] 1 QB 605 at 611 C-F, as follows:
“The stance which an appellate court should take towards a point not raised at the trial is in general well settled: see Macdougall v Knight (1889) 14 App. Cas. 184 and The Tasmania (1890) 15 App. Cas. 223. It is perhaps best stated in Ex parte Firth, In re Cowburn (1882) 19 Ch. D. 419, 429, per Sir George Jessel M.R.: 
"the rule is that, if a point was not taken before the tribunal which hears the evidence, and evidence could have been adduced which by any possibility would prevent the point from succeeding, it cannot be taken afterwards. You are bound to take the point in the first instance, so as to enable the other party to give evidence."
 Even if the point is a pure point of law, the appellate court retains a discretion to exclude it. But where we can be confident, first, that the other party has had opportunity enough to meet it, secondly, that he has not acted to his detriment on the faith of the earlier omission to raise it and, thirdly, that he can be adequately protected in costs, our usual practice is to allow a pure point of law not raised below to be taken in this court. Otherwise, in the name of doing justice to the other party, we might, through visiting the sins of the adviser on the client, do an injustice to the party who seeks to raise it.”
39.	Mr Dutton submitted that the point as to the possible application of the 1989 Act is a pure point of law. This court should allow the nominee purchaser to take the point and should further hold that there was a possibility that a tenant of one or more of the relevant six flats would have been able to claim the benefit of schedule 10 to the 1989 Act. This court should therefore hold that the Upper Tribunal was wrong in law. He then submitted that because the Upper Tribunal gave the guarantee of early possession as its reason for not adopting the generic deferment rate laid down by the Lands Tribunal in Sportelli, and the decision of this court would invalidate that reason, it would inevitably follow that the correct approach should have been to adopt the Sportelli rate. 
40.	I am unable to accept Mr Dutton’s submission. If the nominee purchaser had suggested that it was appropriate to take into account the possibility that the 1989 Act might have applied at the end of the terms, then a number of questions of fact and opinion would have arisen. Without attempting an exhaustive statement of all of the implications of the point being taken it seems to me to be obvious that the valuers and the Upper Tribunal would have had to consider matters such as: (1) did the rateable values of the relevant flats come within the limits laid down in paragraph 2A of schedule 1 to the Housing Act 1988?  (2) what was the likelihood of the rack rental value of the relevant flats bringing them within the £25,000 limit? (3) what was the likelihood that the tenants of the relevant flats would be in residence at the term dates? (4) what was the likelihood of the long lessees of such flats relying on their rights to become rack rented tenants and staying in possession? (5) what were the valuation consequences of the possibility that the 1989 Act might apply at the end of the terms; (these consequences might not have been restricted to the choice of deferment rate)?
41.	I would not attach equal significance to all of the matters I have identified in the last paragraph. As to (1), I think it is quite likely that the flats were within the relevant rateable value limits but we were not shown any evidence which was before the Upper Tribunal on the point and the passage in Ex parte Firth, In re Cowburn cited in Pittalis v Grant referred to “any possibility [which] would prevent the point from succeeding”. As to (2), (3) and (4), Mr Dutton submits that the relevant possibility need not be measured or assessed; he says that it suffices if it exists as a possibility because that would negative the “guarantee” of early possession referred to by the Upper Tribunal. Whilst that is logically correct, his submission misses the point that it is likely, or at any rate it is possible, that an assessment of the risk would impact on the valuation consequences of the possibility. In any case, I consider that there is no answer to the difficulty created by the point in (5). I am unable to accept that the difficulty can be side-stepped (as Mr Dutton seeks to do) by holding that the inevitable valuation consequence of taking into account the possibility of the application of the 1989 Act is that one must adopt the generic deferment rate identified by the Lands Tribunal in Sportelli. That case gave guidance as to the deferment rate for unexpired terms of 20 years or more. The Upper Tribunal in Cadogan Square Properties Ltd v Earl Cadogan [2011] 1 EGLR 155 gave slightly different guidance for unexpired terms of 10 years up to, but not including, 20 years. That decision also indicated that, depending upon the valuation evidence called, a different approach might be appropriate for unexpired terms of under 10 years. The present case is concerned with unexpired terms of 4.74 years. The Upper Tribunal adopted an approach different from that identified in the two earlier cases. It is impossible for a court to hold as a matter of law, without permitting the parties to call valuation evidence on the point, that the only possible valuation consequence of taking into account the possibility of the application of the 1989 Act is that the deferment rate in this case reverts to the generic rate identified in Sportelli.
42.	If this court were to allow the nominee purchaser to take the point as to the possible application of the 1989 Act and if that point were to be held to be legally correct, the inevitable result would be that the court could not itself determine the appropriate deferment rate and would have to remit the matter to the Upper Tribunal for it to give directions as to the further preparation needed for a yet further hearing at which the new point could be considered and dealt with. In accordance with the established approach identified in the authorities, I consider that the nominee purchaser ought not to be allowed to raise the new point as to the 1989 Act and that the ground of appeal which raises that point ought to be dismissed. 
43.	The nominee purchaser had a further criticism of the decision of the Upper Tribunal in relation to the deferment rate. The nominee purchaser pointed out that paragraph 3 of schedule 6 to the 1993 Act states that “the value of the freeholder’s interest in the specified premises is the amount which at the relevant date that interest might be expected to realise if sold on the open market by a willing seller”. It submitted that the valuation in this case should have been on the basis that the whole of Vale Court was notionally sold in the open market. It suggested that the Upper Tribunal did not value on that basis but instead valued a property interest which consisted only of the reversions on the six leases which had unexpired terms of 4.74 years. It was submitted that the Upper Tribunal considered that the notional purchaser of that more restricted property interest would have been keen to acquire the reversion on those six leases and would have bid accordingly. The attitude of such a purchaser was not to be equated with the different attitude of a purchaser of the whole of Vale Court.
44.	I agree that the interest to be valued is the freehold interest in the whole of the specified premises. In the present case, the specified premises comprised the block at Vale Court. That block consisted of twenty five flats. Six of those flats were let on leases with unexpired terms of 4.74 years; seventeen were let on leases with unexpired terms of between 70 and 96 years and two were to be the subject of leasebacks with terms of 999 years. I agree that it would not be right to assess a value for the reversions on the six flats with unexpired terms of 4.74 years as if the reversions on those flats were the entire subject matter of the notional sale. In particular, such an approach would produce the wrong valuation answer if one took into account the attitude of a notional purchaser who would be keen to buy a block of property consisting of the reversions on six leases with unexpired terms of 4.74 years but who would adopt a very different attitude to a possible purchase of the whole of Vale Court comprising 25 flats with a mixture of lease terms. 
45.	Where I part company from the submissions for the nominee purchaser is that I do not consider that the Upper Tribunal at any time lost sight of the need to value the freehold interest in the block as a whole. It arrived at the value of the freehold in the whole block by placing values on individual elements in the valuation. Thus, as earlier explained, it adopted the term and reversion method of valuation which is conventional. That involves placing separate values on the term and on the reversion. In doing so, the Upper Tribunal (and all valuers who adopt this conventional method) do not make the elementary mistake of assuming that there is a separate sale of the right to receive rent during the term and of the right to vacant possession at the end of term. 
46.	In this case, it was necessary to consider the deferment rate to be applied to different parts of the interest being acquired. Both valuers who gave evidence before the Upper Tribunal considered whether to adopt different deferment rates for the flats with unexpired terms of 4.74 years from the rates for the other flats. To consider whether to adopt different deferment rates does not mean that the valuer is making the elementary mistake that the reversions on the short leases are being sold by way of a sale separate from the sale of the block. In those parts of its decision  where the Upper Tribunal considered how a purchaser would consider the advantages of the flats with short unexpired terms, I do not detect any sign that the Upper Tribunal was making the elementary mistake that the reversions on those flats were being sold separately from the remainder of the block. In any case, there is no suggestion in its decision that the Upper Tribunal thought that the reversions on those flats would have had a particular attraction to a purchaser if those reversions were sold separately from the remainder of the block and would be viewed differently by a purchaser of the whole block.
47.	I consider that this criticism of the Upper Tribunal is without foundation. What the Tribunal was doing was to build up its value for the single freehold interest by assessing the contribution to that single value made by the value of individual components. 
Hope value: the decision under appeal
48.	In this case, there were five non-participating tenants. In accordance with the decision of the House of Lords in Sportelli, it was necessary to consider whether the value of the freeholder’s interest in the block should include hope value in relation to those five flats. The statutory provisions make it clear that the valuation is to be carried out on the assumption that all the tenants in the block (including therefore the non-participating tenants) do not have a statutory right to an extended lease under Chapter II of the 1993 Act. Therefore, the relevant hope is that a non-participating tenant will come forward, seeking to negotiate with the freeholder for the grant of an extended lease, otherwise than pursuant to a statutory entitlement to acquire an extended lease. 
49.	The Upper Tribunal’s decision in relation to hope value is lengthy and detailed. At the beginning of its discussion of hope value, the Upper Tribunal referred to the speech of Lord Neuberger in Sportelli [2010] AC 226 at [66] and then (at paragraph 77) directed itself as follows: 
“The conclusion of the House of Lords (Lord Hoffmann dissenting) was that hope value can be taken into account under paragraph 3 of Schedule 6, in so far as it is attributable to non-participating tenants wishing to obtain new leases of their flats in the open market (and not pursuant to Schedule 13).”
50.	Thus, the Upper Tribunal correctly directed itself that hope value was to be assessed on the assumption that the tenants did not have a statutory right to an extended lease. The decision then referred at length to the evidence of the valuers for the parties. Those references all proceed on the correct basis that the tenants did not have a statutory right to an extended lease. The Upper Tribunal was faced with competing evidence and submissions as to how likely it was that a non-participating tenant would come forward, before the expiry of the current lease, to negotiate for an extended lease. One of the five non-participating tenants had a lease with an unexpired term of 70.25 years; the other four had leases with unexpired terms of 4.74 years. Therefore, it was necessary to form an assessment of the relevant likelihood for these different lengths of terms. There was evidence before the Upper Tribunal as to this likelihood based on the history of lease extensions in Vale Court and the Upper Tribunal was also referred to the evidence on this topic in other cases decided by the Upper Tribunal. Because this evidence related to transactions which actually happened (i.e. in the real world where tenants had rights under Chapter II of the 1993 Act) much of it (but not all) involved lease extensions being sought pursuant to Chapter II of the 1993 Act (by service of a notice under section 42 of the 1993 Act). The Upper Tribunal considered that the evidence showed a pattern which allowed it to form an assessment of the likelihood of a non-participating tenant with a short unexpired term coming forward, before the expiry of his term, to negotiate for an extended lease.
Hope value: the appeal
51.	The nominee purchaser submitted that towards the end of its lengthy reasoning on the subject of hope value the Upper Tribunal took a false step. It is submitted that instead of the Upper Tribunal assessing the hope of a tenant coming forward to negotiate for an extended lease (without any statutory entitlement to an extended lease) the Upper Tribunal assessed a quite different hope, namely, that a tenant who had an entitlement to an extended lease under Chapter II of the 1993 Act would seek to exercise that entitlement.
52.	If the Upper Tribunal had done that which the nominee purchaser contends it did, then it would have made an elementary error. Moreover, it would have been an elementary error contrary to its own self-direction at paragraph 77 of the decision and contrary to the basis on which it had discussed in detail the evidence of the valuers. I do not consider that the Upper Tribunal made any such error. In the course of its decision, the Upper Tribunal repeatedly referred to the need to assess the chance of the tenant “coming forward” to seek an extended lease. In context, it is clear that the Upper Tribunal was referring to a tenant coming forward without a statutory entitlement to an extended lease. 
53.	The nominee purchaser criticises the Upper Tribunal’s reasoning in paragraphs 115 and 116 of its decision. The Upper Tribunal there stated:
“115. Turning now to the level of hope value that should be applied to each non-participating flat, we accept, as we have said, Mr Roberts’s evidence as to the likelihood of lessees coming forward in respect of the four flats with 4.74 years remaining.  We agree that the potential imperatives for coming forward prior to lease expiry are many and that each lessee will have his own reasons for doing so.  The fact that, with only a short time to go before expiry, the lessee has not served a notice does not mean he will not do so.  Despite Mr McDonald’s initial arguments that the market was declining at the valuation date, and was anticipated to continue in that vein, it seems to us on the facts that that was not the case.  Mr McDonald also accepted in cross-examination that the market was closer to static than the impression he had initially given.  Therefore, whilst he mounted a cogent argument as to why in a falling market the chances of a lessee serving a section 42 notice would be significantly diminished, that was not the situation that existed here.
116. The statistical analysis by Mr Roberts as to the percentages of lessees who had come forward, and the lease lengths that would remain when they did so, adds weight to our conclusion that a purchaser would be justified in anticipating the receipt of such a notice and would build in hope value to reflect that view.  For instance, in Erkman there was evidence (paragraph 72) that a third of the applications for lease extensions came when there were less than 5.75 years unexpired.”
54.	In paragraph 115, the Upper Tribunal referred to the evidence of the valuer for the nominee purchaser as to “the chances of a lessee serving a section 42 notice”. That is a reference to the evidence which had been given as to what happened in the block and elsewhere as to the service of section 42 notices. I do not read that reference to the evidence as revealing that the Upper Tribunal was making the elementary error now suggested by the nominee purchaser. 
55.	In paragraph 116, the Upper Tribunal referred to “the statistical analysis” carried out by the valuer for the reversioner. It was explained to us that this was a reference to the evidence as to the tenants who had sought lease extensions in the block (and possibly elsewhere). Much of that evidence related to tenants exercising their statutory rights to extended leases. It was in the context of discussing that evidence that the Upper Tribunal referred to a purchaser anticipating “receipt of such a notice”. It is not clear that this phrase is a reference to a notice under section 42 but even if it were, such a reference was not inappropriate as the Upper Tribunal was discussing the evidence as to the service of such notices. 
56.	Following the comments in paragraphs 114 and 115 of the decision, the Upper Tribunal then posed for itself in paragraphs 117, 118 and 119, and then answered, the question as to the prospect of a non-participating tenant coming forward to negotiate for an extended lease. It is clear to me that the Upper Tribunal was considering that question on the correct basis that the tenant did not have a statutory entitlement to an extended lease.
57.	The nominee purchaser next submitted that it would not be right to equate the position of a tenant with a short unexpired term, but who has a statutory right to an extended lease, with the position of a tenant with a short unexpired term, but who does not have such a statutory right. It was submitted that there were important differences between the two cases. Conversely, the reversioner submitted to us that the two cases had many similarities. I do not think that the Upper Tribunal made any error of law in its handling of the evidence as to the cases where tenants had exercised their statutory rights to extended leases shortly before the end of their current terms. Both valuers commented on this evidence. The Upper Tribunal plainly thought that the evidence was of some help in forming its assessment of hope value. However, the Tribunal did not at any time say that the two cases were identical. 
58.	The nominee purchaser next submitted that the Upper Tribunal had erred in law in that it had ignored the possibility that the lessees might have security of tenure under schedule 10 to the 1989 Act. Neither party had asked the Upper Tribunal to take this possibility into account. Neither party had called any evidence which would have enabled the Upper Tribunal to assess that possibility, nor any evidence as to the valuation consequences of doing so.  The parties had expressly agreed with the note from the Upper Tribunal, to which I referred when considering the submissions as to the deferment rate. The parties therefore agreed that there was certainty as to the freeholder’s right to vacant possession at the end of the terms. The Upper Tribunal did not err in law in acting on that basis. The new point as to the possible application of the 1989 Act is not open to the nominee purchaser on this appeal. It is not a pure point of law. If the point had been taken before the Upper Tribunal, there would have had to have been further or different evidence to enable the Upper Tribunal to deal with it.
59.	The nominee purchaser then submitted that the Upper Tribunal was wrong to quantify the hope value in relation to the four non-participating tenants with unexpired terms of 4.74 years at 20% of the marriage value in relation to those four flats. I do not consider that the Upper Tribunal made any error of law in its assessment. It considered the evidence which had been given by both valuers. The evidence from the reversioner’s valuer supported a figure of 20% of marriage value. He contended that 20% was the right figure not only for the four flats with unexpired terms of 4.74 but also for the fifth non-participating tenant who had an unexpired term of 70.25 years. The Upper Tribunal explained in detail why it was unconvinced that it should apply a “blanket rate” of 20%. In its decision, it assessed the hope value for this fifth flat at 10% of marriage value. 
60.	At paragraph 117 of its decision, the Upper Tribunal stated that there was nothing in the evidence “to dissuade us” from accepting 20% of marriage value for the four flats with short unexpired terms. The nominee purchaser submitted that the Upper Tribunal was directing itself that there was a presumption in favour of a figure of 20% and that there was a legal or evidential burden on the nominee purchaser to rebut that presumption. I do not agree. Read in context, the statement in paragraph 117 of the decision, coming after a detailed analysis of all of the evidence before it, is to be understood as saying that the evidence supported the figure of 20% and that there was nothing in the evidence to justify the Upper Tribunal in adopting a lower figure.
61.	Finally, on the subject of hope value, it was submitted that the Upper Tribunal had gone wrong in its treatment of an earlier decision of the Upper Tribunal in Culley v Daejan Properties Ltd [2009] 3 EGLR 165. The tribunal judges in Culley were the same as in the present case. The nominee purchaser submitted that the Upper Tribunal in the present case was entitled to take account of the reasoning in Culley which commented on certain matters which affected the choice of the percentage of marriage value. It was there considered that it might be appropriate to take a lower percentage where the unexpired terms were particularly long. Further, it might be appropriate to take a higher percentage where the proportion of non-participating flats was particularly large. In Culley, the unexpired terms were around 65 years and the percentage was 10%. In the present case, the Upper Tribunal selected 10% where the unexpired term was 70.25 years and 20% for unexpired terms of 4.74 years. In Culley, 50% of the leases were held by non-participating tenants; in the present case, there were five non-participating tenants in a block of 25 flats. 
62.	In the present case, the Upper Tribunal referred to Culley as part of its reasoning for its selection of 10% for the flat with an unexpired term of 70.25 years. The nominee purchaser does not criticise it for doing so. The Upper Tribunal did not rely on the evidence in Culley when it selected 20% for the other four flats; it relied on the evidence before it and referred to its own reasoning in Culley. Accordingly, the nominee purchaser’s submission that the evidence in Culley was not admissible when coming to a conclusion on the evidence in the present case is not relevant to what the Upper Tribunal did in the present case. The nominee purchaser submitted to us that having regard to the considerations referred to in Culley (the length of the unexpired terms and the proportion of non-participating flats) the right answer was not 20%, but should have been 10%. If one were to attach weight to the considerations identified in Culley, there is a strong argument that they support a figure higher than the 10% contended for by the nominee purchaser. In any event, the weight to be attached to these considerations and the ultimate selection of the percentage was for the Upper Tribunal. The percentages it selected for hope value were plainly open to it on the evidence before it and the Upper Tribunal did not commit any error of law.
The alleged inconsistency
63.	The nominee purchaser submitted that the approach of the Upper Tribunal to the deferment rate and to hope value were inconsistent. It was also said that its approach involved double counting. It was said that when the Upper Tribunal determined the deferment rate, it assumed that the freeholder’s interest was sold to a purchaser who was interested in having early vacant possession of the six flats with unexpired terms of 4.74 years but when it determined hope value, it assumed that the freeholder’s interest was sold to a purchaser who would pay more in order to buy the hope of being able to grant extended leases to the five non-participating tenants, four of whom held the leases with unexpired terms of 4.74 years (the hope being of the grant of an extended lease before the expiry of the relevant term). It was said that if a purchaser would pay more for that hope he could not be said to be interested in early vacant possession.
64.	I am unable to accept this submission. There were four leases held by non-participating tenants where the unexpired terms were 4.74 years. In those cases, the Upper Tribunal assessed the vacant possession value at the valuation date and then deferred that value for 4.74 years, using its selected deferment rate. Its choice of deferment rate reflected the fact that the period of deferment was short and after 4.74 years the purchaser would be entitled to vacant possession. At that point the purchaser would have the benefit of a vacant flat and he could do with it as he pleased. In particular, he would be able to let it on a long lease for a premium and thereby realise its vacant possession value. In the case of those four leases, the Upper Tribunal also included a sum for hope value. That sum reflected the hope that the lessees would come to the freeholder before the expiry of their terms and take extended leases at a premium. In that way, the purchaser would not have to wait 4.74 years before being able to charge a premium for the grant of a long lease of the relevant flat. The premium charged for a long lease while there was still a short unexpired term would be, or might be, different from the premium for a lease with vacant possession but that ought to be picked up in the assessment of the hope value. Accordingly, I do not consider that there was any inconsistency in the approach of the Upper Tribunal to the two questions of deferment rate and hope value.
65.	There might have been an inconsistency in approach if the Upper Tribunal had assessed the price for the reversion on one or more of the short unexpired terms on the basis that the purchaser would pay a higher price than anyone else because he was buying one or more of those flats for his own occupation. It might be said that such a purchaser would not be interested in the prospect of granting an extended lease to the existing lessee of such a flat in the period before the expiry of the term and so there should not be hope value in relation to such a flat, as well as an enhanced price paid by an intending occupier of the flat. Whatever the position would be in relation to that possibility, I do not think that the reasoning of the Upper Tribunal involved an inconsistency of that kind or, indeed, any inconsistency.
The result
66.	I do not accept any of the points raised by the nominee purchaser on this appeal and, accordingly, I would dismiss the appeal.
Future guidance
67.	In paragraph 143 of its decision, the Upper Tribunal said:
“ Accordingly for future guidance we conclude that the deferment rate for reversions of less than 5 years should be the net rental yield that the evidence shows to be appropriate for the property in question; and that in addition there should be an end allowance, which, in the absence of evidence establishing some other percentage, should be 5%.”
68.	The Upper Tribunal’s decision to offer future guidance as to the deferment rate in the case of reversions of less than 5 years followed the approach adopted by the Lands Tribunal in Sportelli (an approach approved by the Court of Appeal in the same case) and by the Upper  Tribunal in Cadogan Square Properties Ltd v Earl Cadogan. The nominee purchaser invited this court to make it clear that the guidance given by the Upper Tribunal in the present case should not be regarded as definitive because the possible application of the 1989 Act had not been considered in this case (because no one had raised it) and this possibility might be raised in another case and, when raised, this possibility might undermine that guidance. I agree that the guidance given by the Upper Tribunal in this case may have to be qualified in a case in which a party raises an issue as to the possible application of the 1989 Act (or the Rent Act 1977 or the Housing Act 1988) at the end of the unexpired terms of the leases. If such an issue is raised, then the relevant tribunal will have to consider it and the decision in the present case, where the issue was not raised, does not offer any guidance as to how it should be dealt with.
Lord Justice Rimer
69.	I agree.
Lord Justice Pill : 
70.	I agree with the conclusion of Morgan J and with his reasoning and want only to underline his approach to the following arguments now raised:
(a)	That the Tribunal erred in assuming that the reversioner was guaranteed the early enjoyment of possession;
(b)	That even if the Tribunal was entitled to make that assumption, the nominee purchaser should now be permitted to challenge it, and
(c)	Upon a successful challenge, the court must adopt the generic deferment rate identified by the Tribunal in Sportelli, where the Tribunal gave guidance as to the deferment rate for unexpired terms of 20 years or more.  
The argument was based on the possibility, considered by Morgan J at paragraphs 22 and 23, that tenants may have claims to security of tenure under section 186 and Schedule 10 of the Local Government and Housing Act 1989.  
71.	At each stage of the argument, I agree with the reasoning of Morgan J at paragraphs 26 to 42 of his judgment.  It is clear that it was accepted on behalf of the nominee purchaser that the Tribunal could approach the issues on the basis that the early enjoyment of possession was guaranteed.  That is clear from the nominee purchaser’s response to the Tribunal’s note to the parties in advance of judgment, considered by Morgan J at paragraphs 31 and 32.  
72.	In seeking to re-open the issue, the nominee purchaser relied on the decision of this court in Pittalis v Grant [1989] 1 QB 605 at 611 C-F where the court permitted the appellant to take “a pure point of law not raised below”.  In that case, a flat and shop had been let on a long lease and the flat was sub-let for 3 years.  The leasehold interest was surrendered to the landlords and the sub-tenancy of the flat had expired by effluxion of time but the defendants remained in occupation and a statutory tenancy was claimed.  
73.	At the hearing in the County Court, the landlord conceded that the flat was “premises” within section 137(3)(a) of the Rent Act 1977, as amended.  The claim to possession failed on the ground that section 137(3) afforded protection and the landlord was permitted to withdraw the concession in this court.  Nourse LJ, giving the judgment of the court, stated, at page 611C that “the substantive question is a pure question of law which does not depend on evidence as to the actual state of the property at the material time.”  
74.	The present situation is very different.  Whether it would have been appropriate to take into account the possibility that the 1989 Act might have applied at the end of the terms depended on the questions of fact and opinion identified by Morgan J at paragraphs 39 and 41 of his judgment.  
75.	Each of these issues would require an opportunity to give evidence and careful consideration by a fact finding Tribunal, including a risk assessment.  The point was not taken before the Tribunal and I agree that the nominee purchaser should not be allowed to take it now.  It may be that the decision not to attempt to take the point before the Tribunal was based on the nominee purchaser’s interest in supporting higher values for the leasehold interest, as contemplated by Morgan J at paragraph 35.  The nominee purchaser should not be permitted a second run.    
76.	As to stage (c), I do not in any event accept the submission that the inevitable consequence of taking into account the possibility of the application of the 1989 Act was that the Sportelli deferment rate must be adopted.  That case was concerned with unexpired terms of 20 years or more, a very different situation from the unexpired terms of 4.74 years under consideration.  I agree with Morgan J, at paragraph 42, that the court could not adopt the Sportelli rate as a default position.  It would have been necessary to give the reversioner an opportunity to call valuation evidence.  Remittal to the Tribunal would have been inevitable.
77.	I find no merit in the arguments raised by Mr Dutton on any of the issues posed above, whether as a first or second appeal.  In agreement with Morgan J on these and the other issues, I too would dismiss the appeal.