First-tier Tribunal Determines Freehold Interest Price

OUTCOME: Allowed

Case Reference : BIR/00CR/OAF/2024/0010

Property

: 2 [ADDRESS],

[POSTCODE]

Applicants

: [redacted]

(leaseholders)

Representative

: [RESPONDENT].

Respondent: [redacted]

Representative

: None

Type of Application : To determine the sum payable into Court by lessees to purchase

a freehold interest pursuant to Section 27 Leasehold Reform Act

1967 by Order of Birmingham County Court of 8 April 2024.

Claim No.J00BM723

Tribunal Members : [NAME].D. [NAME] [NAME].(Est.Man.) FRICS

V. [NAME] and Venue of : None. Determined by paper submission Hearing

Date of Decision : 16 August 2024

____________________________________________________________

DECISION

© CROWN COPYRIGHT 2024

FIRST - TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Introduction 1 This is an application to determine the sum payable into Court by Lessees to purchase the

freehold interest in 2 [ADDRESS], [POSTCODE]

where the landlord cannot be found, pursuant to Section 27 Leasehold Reform Act 1967 ('the Act').

2 The Lessees have been unable to locate the freeholder to serve Notice to acquire the freehold interest and applied to Birmingham County Court for a Vesting Order on 18 March 2022. This was granted on 8 April 2024 by District Judge Mody subject to assessment of the price by the First-tier Tribunal (Property Chamber).

The Law 3 There are two known interests in the property:

Freehold Owned by parties unknown. The lease had been granted by [RESPONDENT] and [NAME] to [RESPONDENT] for 380 years from 26 April 1712 at a peppercorn

ground rent.

Leasehold The Leasehold interest was registered to the Applicants on 6 July 2020.

4 The Applicants are leaseholders in occupation and wish to acquire the freehold interest. They had been unable to locate the freeholders to serve notice of acquisition and applied to Birmingham County Court for a Vesting Order under Section 27 of the Leasehold Reform Act 1967. The Order specifies the deemed date of service of a Notice as 8 July 2020 which is the valuation date for present purposes.

[ADDRESS] issued a General Order of Judgment on 21 April 2024 subject to determination of the price by the First-tier Tribunal (Property Chamber).

6 The Tribunal has considered the facts and assesses the price under section 9(1) of the Act.

Facts Found 7 The Tribunal has not inspected the property and relies on the Submission of Miss [NAME].[NAME]. [NAME] [NAME] of Messrs Lawrence & Wightman Chartered Surveyors dated 19 June 2024.

8 The property comprises a two storey, three bedroom detached house on a modern housing estate near Dudley built around 1988. It is located at the corner of [ADDRESS] and [ADDRESS]. The property is two storey brick and tile construction. The accommodation comprises a porch, downstairs toilet, living room, dining room, kitchen, utility and study on the ground floor with a landing, three bedrooms, bathroom and airing cupboard on the first floor. It was built with an integral garage that has since been converted to a study. The property has a front drive and rear garden.

9 The property is in good condition.

Issues [ADDRESS] requires the Tribunal to determine the price of the freehold interest.

The price payable under section 9(1) of the Act 11 The Applicants submitted a Valuation Report prepared by Miss [NAME].L. [NAME] [NAME] of Messrs Lawrence & Wightman Chartered Surveyors dated 19 June 2024. The Tribunal's determination of each element of the valuation is below:

12 Unexpired Term

Applicant

71.8 years.

Tribunal

The Tribunal accepts the term from the Land Registry entry and agrees the unexpired term at the valuation date but for calculation purposes, rounds to 72 years.

13 Value of Term Ground Rent

Applicant

Nil. The ground rent is one peppercorn per annum as recorded by H.M. Land Registry.

Tribunal

The Tribunal agrees.

14 Freehold Entirety Value

'Entirety value' is the notional market value of the best house that could reasonably be expected to have been built on the plot at the valuation date, assuming the plot were fully developed.

Applicant

Miss [APPELLANT] values the freehold interest with vacant possession at 8 July 2020 at £210,000 based on sales records of other properties on the estate:

Address

Description

Date Price £

[ADDRESS] 3 bed detached house of the same May 2020 210,000

design and construction as the

subject house.

[ADDRESS] 4 bed detached house with double Dec 2020 312,500

garage.

[ADDRESS] 3 bed detached house of similar

Dec 2021 225,000

design and construction to the

subject house.

Bearing in mind the comparable evidence, Miss [NAME] considered that if the subject plot were fully developed, the maximum value of a hypothetical house that could reasonably have been built on the plot, i.e. its 'entirety value', would have been £210,000 at the valuation date.

Tribunal

The Tribunal finds the sales of [ADDRESS] and [ADDRESS] support [NAME] valuation. The sale of [ADDRESS] is less relevant as a 4 bedroom property but the Tribunal appreciates its inclusion to present an overall impression of values in [ADDRESS] around the valuation date.

The Tribunal also, of its own volition, researched the following sales on the estate:

[ADDRESS] 3 bed detached house.

Nov 2017 210,000

[ADDRESS] 3 bed detached house.

Dec 2020 240,000

[ADDRESS] 3 bed detached house.

May 2022 219,000

The properties are of similar design and accommodation.

No.[ADDRESS] sold for £210,000 in November 2017 for the same value advocated by Miss [NAME] but 3 years prior to the valuation date. From images on line, which may have been taken more recently, it appears well maintained and in excellent condition and the fact that the sale pre-dated the subject valuation date at a time of rising values would tend to suggest the value of [ADDRESS] ought to be higher.

No.[ADDRESS] at £240,000 only five months after the subject valuation date, may also suggest £210,000 for the subject house to be low, but in fact, [ADDRESS] is at the far end of a cul-de-sac with no houses to its left in a far quieter position than [ADDRESS] which is at the corner of two roads. The Tribunal finds that [ADDRESS] would be likely to achieve a higher price than [ADDRESS] and its sale supports [NAME] valuation.

Equally, No.[ADDRESS] which is again similar, achieved £219,000 in March 2022, eight months after the valuation date on a rising market, supporting [NAME] valuation of £210,000 in July 2020.

It is rare that all the evidence forms an exact pattern and this case is no different, but where 4 comparables support a figure of £210,000 and only 1 supports a higher figure, the Tribunal places more evidential weight on the sales of [ADDRESS], [ADDRESS], [ADDRESS] and [ADDRESS] than [ADDRESS] and agrees with [NAME].

Accordingly, having considered the relevant evidence, the Tribunal agrees with [NAME] entirety value of £210,000 at 8 July 2020.

15 Site Value as Percentage of Entirety Value

Applicant

Miss [APPELLANT] contends for 35% as the value of the plot within the Entirety Value of the hypothetical house.

Tribunal

The Tribunal agrees this to be a fair assessment.

16 Years Purchase

Applicant

As there is a peppercorn ground rent the value of the term income is nil and there would be no point determining the capitalisation rate.

Miss [NAME] submits for a deferment rate of 5.25% based on case law (see footnote) and personal experience of negotiating settlements in the West Midlands.

Tribunal

The Tribunal agrees.

Cases cited by [NAME]:

1 [NAME] v [NAME] of the Calthorpe Estates [2008] LRA 97.

2 Earl Cadogan v Sportelli [2005] LRA 50

17 Freehold Standing House Value

Applicant

£210,000. Miss [APPELLANT] considers the plot fully developed and deems the Standing House Value to be the same as the Entirety Value.

Tribunal

The 'standing house value' is the market value of the house built on the site, excluding the value of tenant improvements, assuming the Freehold is sold with vacant possession.

The Tribunal agrees that in this case the Entirety Value and Standing House Value should be treated as the same, which the Tribunal determines at £210,000.

18 'Clarise reduction'

[COMPANY] [2012] UKUT 4 (LC), [2012] 1 EGLR 83, Valuers sometimes make allowance for the prospect of occupiers remaining in occupation on expiry of the term which in this case would be in 72 years' time.

Applicant

Miss [APPELLANT] makes no reduction to reflect the Clarise principle of the prospect of a lessee remaining in occupation on expiry of the lease under Schedule 10 to the Local Government and Housing Act 1989.

Tribunal

The lease expires in 72 years' time which the Tribunal considers too remote to require a Clarise reduction. Each case is considered on its merits but in this instance it is too far in the future and disregarded.

19 Tribunal Valuation

Based on these inputs, the Tribunal determines the value of the freehold interest as:

Term 1

£ 0

Term 2

Entirety Value

£210,000

x plot ratio

0.35

Plot Value

£ 73,500

5.25% return

0.0525

Equivalent rental value per s.15 of the Act

£ 3,859

Years Purchase 50 years 5.25%

17.5728

Present Value 72 years 5.25%

0.025119

£1,703

Reversion

Standing House Value

£ 210,000

Present Value 122 years 5.25%

0.00194

£ 407

£2,110

Freehold Value

rounded to

£2,100

20 Tribunal Determination

The Tribunal determines the price of the freehold interest in accordance with section 9(1) of the Leasehold Reform Act 1967 at £2,100 (Two Thousand One Hundred Pounds).

[NAME] [NAME].(Est.Man.) FRICS

Chairman

Date

Appeal to the Upper Tribunal

Any appeal against this decision must be made to the Upper Tribunal (Lands Chamber). Prior to making such an appeal the party appealing must apply, in writing, to this Tribunal for permission to appeal within 28 days of the date of issue of this decision (or, if applicable, within 28 days of any decision on a review or application to set aside) identifying the decision to which the appeal relates, stating the grounds on which that party intends to rely in the appeal and the result sought by the party making the application.