First-tier Tribunal Determines Freehold Reversion Value Under Leasehold Reform Act

OUTCOME: Allowed

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Case Reference

:

CHI/00HC/OAF/2020/0003

Property

:

[ADDRESS], Weston-super –Mare [POSTCODE]

Applicant: [redacted]

[NAME], [APPELLANT] & [NAME] as Administrators for [COUNSEL] (deceased)

Representative

:

[RESPONDENT]

Respondent: [redacted]

:

Type of Application

:

Leasehold Reform Act 1967 (Missing Landlord)

Tribunal Member

:

[NAME] of Decision

:

13 March 2020

DECISION

Summary of Decision

The Tribunal has determined for the reasons set out below that the price payable by the Applicant for the freehold reversion of the property is to be the sum of £3,435 and the amount of unpaid pecuniary rent payable for the property up to the date of the proposed conveyance is nil.

2 Background

1. District Judge Field sitting at the County Court at Weston–super-Mare made an order dated 3 January 2020 directing that the First–tier Tribunal (Property Chamber) assess the appropriate sum in accordance with S27(5) of the Leasehold Reform Act 1967. (The Act)

2. Enclosed with the application to the Tribunal was a valuation report prepared by Mr [NAME].[NAME]. [NAME] dated 4 February 2020.

3. An inspection of the property has not been made.

The Lease

4. The site is identified on the HM Land Registry plans edged red under title number AV159458 (Leasehold) and AV145861 (Freehold) The leasehold title is for a term of 500 years from 1 September 1557 and made between [RESPONDENT] and John and [RESPONDENT]. The lease is subject to a yearly rent in respect of the whole of the premises of £1 6s 9d.

5. Mr [NAME] in his valuation states that no ground rent is paid, the beneficiaries being unknown.

The Law

6. Section 27(5) of the Act provides: The appropriate sum which in accordance with Section 27(3) of the Act to be paid in to Court is the aggregate of: a. Such amount as may be determined by (or on appeal from) the appropriate Tribunal to be the price payable in accordance with Section 9 above; and b. The amount or estimated amount (as so determined) of any pecuniary rent payable for the house and premises up to the date of the Conveyance which remains unpaid.

7. Section 9 of the Act sets out in detail the assumptions to be made and the procedure to be followed in carrying out the valuation. The effect of Section 27(1) is that the valuation date is the date on which the application was made to the Court.

8. There are various bases set out in Section 9 of the Act and the Tribunal determines that the appropriate basis is in Subsection 9(1) being that on 31 March 1990 the Rateable value of the house and premises was not above £500.

9. The Tribunal has been referred to and takes account of the following decisions: Arbib v Cadogan (2005), [COMPANY] v Sportelli (2006) and [COMPANY] (2012).

3 The Premises

10. The property comprises a detached 2 storey house built in the mid 1980’s.

11. The accommodation comprises an entrance hall, cloakroom, lounge leading to dining room, fitted kitchen and utility room with door to garage on the ground floor 3 bedrooms one with en-suite shower room and family bathroom on the first floor. Outside is a driveway to an attached garage and enclosed rear garden. Gas fired central heating is installed.

Evidence and Decision

12. In a valuation report dated 4 February 2020 Mr [NAME] determined that the value for the purposes of Section 27 of The Act as at 3 January 2020 is £2,070.

13. Mr [NAME] made his determination on an open market value of the property of £240,000, a site value proportion of 25.00% (£60,000) a modern ground rent at 6% (£3,600) and a YP in perp at 7% deferred 37 and ¾ years. This produced the sum of £4,138.49 which he reduced by 50% in respect of the front garden being held freehold on the principles of [NAME] v [NAME]. This produced a rounded sum of £2,070.

14. Mr [NAME] bases his open market value on the sale of six four and three- bedroom properties at prices between £223,500 and £270,000 adjusted for position and accommodation;

a. [ADDRESS], sold October 2019 for £260,000 b. [ADDRESS], sold October 2019 for £270,000 c. [ADDRESS], sold September 2019 for £255,000 d. [ADDRESS], sold August 2019 for £223,500 e. 17 Willowdown, sold subject to contract December 2019 for £270,000 (including extension) f. [ADDRESS], sold subject to contract January 2020 for £253,000 (including conservatory)

15. The Tribunal accepts Mr [NAME] value of £240,000.

16. The Tribunal finds that the deferment period is 37 ¾ years

17. Mr [NAME] considers the deferment rate should be 7% and the modern ground rent calculated on a 6% return. He justifies the departure from the 4.75% rate determined in Sportelli and the previously adopted 7% for calculating the modern ground rent for the reasons set out in paragraphs 1 to 5 on page 3 of his report.

18. The Tribunal accepts that there are grounds to depart from the generic deferment rate of 4.75% but considers that a rate of 6% is more

4 appropriate to reflect the differences and therefore applies that figure to the valuation below.

19. The Tribunal accepts Mr [NAME] site value of 6% and 7% return on capital.

20. For the reasons set out in paragraph 6 of his report Mr [NAME] considers that the staged approach adopted in Clarice is inappropriate and therefore adopts a single reversionary basis. The Tribunal disagrees and sees no justification for departing from the 3-stage approach.

21. The Tribunal accepts Mr [NAME] application of 25% as the site value proportion.

22. In order to reflect the assumption that Schedule 10, paragraph 4 of the Housing Act 1989 applies to the tenancy and that it will continue until the appropriate notice is served a deduction of 3.85% is made to reflect the possibility that the tenant may obtain an assured tenancy at a market rent.

23. The Tribunal’s valuation is therefore;

Value of current term with no rent payable, £00.00

Value of first reversion; Entirety value £240,000 Site value @ 25%

£60,000 S.15 modern ground rent @6%

£3,600 Years purchase 50 years @7% = 13.80075 = £49,683 Present value of £1 in 37.75 years deferred @6% 0.1108418

= £5,507

Value of second reversion: Entirety value £240,000 Deduct 3.85%, £230,760 Present value of £1 in 88 years deferred @ 6% = 0.0059304

= £1,368

Total:

= £6,875 Less 50% re [NAME] v [NAME] = £3,437.50

Say

£3,435

24. The Tribunal determines that the amount of unpaid pecuniary rent payable for the property up to the date of the proposed conveyance is nil.

D [NAME]

5 March 2020

5

1. A person wishing to appeal this decision to the Upper Tribunal (Lands Chamber) must seek permission to do so by making written application to the First-tier Tribunal at the [NAME], which has been dealing with the case. The application must arrive at the Tribunal within 28 days after the Tribunal sends to the person making the application written reasons for the decision.

2. If the person wishing to appeal does not comply with the 28-day time limit, the person shall include with the application for permission to appeal a request for an extension of time and the reason for not complying with the 28-day time limit; the Tribunal will then decide whether to extend time or not to allow the application for permission to appeal to proceed.

3. The application for permission to appeal must identify the decision of the Tribunal to which it relates, state the grounds of appeal, and state the result the party making the application is seeking.