First-tier Tribunal Determines Freehold Interest Valuation

OUTCOME: Allowed

Case Reference : BIR/00CR/OAF/2023/0019

Property

: 62 [ADDRESS],

[POSTCODE]

Applicants

: [redacted]

Representative

: [COMPANY]

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 4th September 2023.

Claim No.K00BM683.

Tribunal Members : [NAME].D. [NAME] [NAME].(Est.Man.) [NAME] [NAME]. [NAME] and Venue of : None. Determined by paper submission Hearing

Date of Decision : 01 February 2024

____________________________________________________________

DECISION

© CROWN COPYRIGHT 2023

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 62 [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 and applied to the County Court for a Vesting Order on 28th March 2023. This was granted by District Judge Dunn sitting in Birmingham County Court on 4th September 2023 subject to determination 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 26th April 1712 at peppercorn

ground rent.

Leasehold The leasehold interest was registered to [NAME] [NAME] and Miss

[NAME] (as she then was) on 2nd May 2018.

4 The Applicants are the current leaseholders and wish to acquire the freehold interest. They have been unable to locate the freeholders and applied to the County Court for a Vesting Order under Section 27 of the Leasehold Reform Act 1967. The application was made on 28th March 2023 which is the valuation date for present purposes.

[ADDRESS] issued Judgment on 4th September 2023 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 [NAME] [NAME] [NAME] dated 2nd October 2023. The property comprises a traditional two storey, three bedroom end terraced house on a modern housing estate near Dudley built around 1988. The accommodation comprises a living-dining room, kitchen and utility on the ground floor with landing, three bedrooms and bathroom on the first floor. It occupies a corner plot with open plan front garden and enclosed back garden with single garage accessed from a track at the rear.

8 It is brick and tile construction with double glazing and gas-fired central heating.

Issues [ADDRESS] requires the Tribunal to determine the price of the freehold interest and any other sums due to the freeholder.

The price payable under section 9(1) of the Act 10 The Applicants submitted a Valuation Report prepared by [NAME] [NAME].[NAME] dated 2nd October 2023 and the Tribunal's determination on each point is below.

11 Unexpired Term

Applicant

69.12 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 70 years.

12 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.

13 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

[NAME] [APPELLANT] values the freehold interest Entirety Value at 28th March 2023 at £160,000, having checked on-line sales records of other houses on the estate:

Address

Description

Date Price £

5 [NAME] 3 bed mid-terrace house sold

July 2021 150,000

freehold.

For comparison purposes, [NAME] [NAME]

increases the price in line with the

Nationwide House Price Index to

£160,826 in March 2023.

18 [NAME] 3 bed mid-terrace house sold

April 2022 127,500

leasehold.

[NAME] [NAME] attaches little weight to the

evidence as the property was leasehold.

[ADDRESS] 2 bed terrace house.

Feb 2021 135,950

For comparison, [NAME] [NAME] indexes

the equivalent price to £153,966 by

March 2023 and adds £5,000 for the

additional bedroom at the subject

house, valuing [ADDRESS]

at £159,000.

[ADDRESS]. 3 bed terrace sold freehold.

Nov 2020 144,000

[NAME] [NAME] adjusts for inflation to make

its equivalent value £164,028 at March

2023.

Having weighed the evidence [NAME] [NAME] submits 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. the 'entirety value', on 28th March 2023, would have been £160,000.

Tribunal

The Tribunal of its own volition also researched the following sale:

18 [NAME] 3 bed mid-terrace house sold

July 2023 161,000

leasehold.

The evidence post-dates the valuation date and was leasehold but supports the general

proposition of a freehold value of the subject property of around £160,000 in March 2023.

Considering the evidence overall, the Tribunal agrees with [NAME] [NAME] opinion of an Entirety Value of £160,000 at the valuation date.

14 Site Value as Percentage of Entirety Value

Applicant

[NAME] [APPELLANT] contends for 30% as the proportion of the Entirety Value for the plot.

Tribunal

The Tribunal agrees.

15 Years Purchase

Applicant

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

[NAME] [NAME] submits for a deferment rate of 5.25% based on case law (see footnote) and other valuations determined by the First-tier Tribunal (Property Chamber).

Tribunal

The Tribunal agrees, although previous decisions of this Tribunal are not binding on its Decision.

Cases cited by [NAME] [NAME]:

1 [NAME] v [NAME] of the Calthorpe Estates [2009] UKUT 235 (LC)

2 [NAME] v Sportelli [2007] 1 EGLR 153.

16 Freehold Standing House Value

Applicant

£150,000. [NAME] [APPELLANT] says that although the house is double glazed, the windows are timber framed which would make it less valuable than upvc, and the age of the central heating system would also make it less valuable than a fully modernised house valued at an entirety value of £160,000, the reduction being around £10,000.

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 were sold with vacant possession.

The Tribunal disagrees that timber framed double glazing is a comparative disadvantage and is unwilling to make a comparative reduction for the age of the heating system without full knowledge of the date it was installed and the dates heating was installed in the comparable houses. The Tribunal therefore finds the Standing House value to be the same as the Entirety Value in this case at £160,000.

17 '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 April 2092.

Applicant

[NAME] [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 70 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 would be too remote and is disregarded.

18 Tribunal Valuation

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

Term 1

£ 0

Term 2

Entirety Value

£ 160,000

x plot ratio

0.30

Plot Value

£ 48,000

5.25% return

0.0525

Equivalent rental value per s.15 of the Act

£ 2,520

Years Purchase 50 years 5.25%

17.5728

Present Value 70 years 5.25%

0.027826

£1,232

Reversion

Standing House Value

£ 160,000

Present Value 120 years 5.25%

0.00215

£ 344

£1,576

Freehold Value

say

£1,600

19 Other sums due to the [ADDRESS] requires the Tribunal to determine any other sums due to the freeholder.

However, the ground rent is only a peppercorn which has not been demanded and the freeholder has incurred no costs.

The Tribunal therefore determines no other sums are due.

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 £1,600 (One Thousand Six Hundred Pounds).

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

Chairman

Date: 01 February 2024

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.