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/2018/0010

Property

:

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

Applicant: [redacted]

:

[COUNSEL] [NAME], solicitors

Respondent: [redacted]

:

Type of Application

:

Leasehold Reform Act 1967 (Missing Landlord)

Tribunal Member

:

[NAME] of Decision

:

12 December 2018

DECISION

2 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 £3,607 and the amount of unpaid pecuniary rent payable for the property up to the date of the proposed conveyance is nil.

Background

1. District Judge Field sitting at the County Court at Weston–super-Mare made an order dated 19 June 2018 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 13 August 2018.

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

The Lease

4. The site is identified on the HM Land Registry plan edged red under title number AV78013 and is held by way of a lease 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.

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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).

The Premises

10. The property comprises a terraced house constructed about 1982.

11. The accommodation comprises an Entrance hall opening on to a living room and fitted kitchen on the ground floor with two bedrooms and bathroom/ WC on the first floor. There is an open plan front garden, enclosed rear garden and a remote parking space.

12. Mr [NAME] describes the property as “in tenantable order but required updating and redecoration”

Evidence and Decision

13. In a valuation report dated 13 August 2018 Mr [NAME] determined that the value for the purposes of Section 27 of The Act as at 19 June 2018 is £2,035.

14. Mr [NAME] made his determination on an open market value of the property of £135,000, a site value proportion of 25.00% (£33,750) a modern ground rent at 6% (£2,025.00) and a YP in perp at 7% deferred 39 years. This produced the rounded sum of £2,035.

15. Mr [NAME] bases his open market value of £135,000 on the sale of four similar houses but with central heating at prices between £125,000 and £155,000;

a. [ADDRESS], sold 14 May 2018 for £125,000 b. [ADDRESS], sold February 2018 for £155,000 c. [ADDRESS], sold February 2018 for £155,000 d. 14 [NAME], sold January 2018 for £151,000

16. The Tribunal accepts Mr [NAME] value of £135,000.

17. The Tribunal finds that the deferment period is 39 years

18. Mr [NAME] considers that 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 [NAME] 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.

19. 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.

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

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

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

23. 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.

24. The Tribunal’s valuation is therefore;

Value of current term with no rent payable, £00.00

Value of first reversion; Entirety value £135,000 Site value @ 25% £33,750 S.15 modern ground rent @6%

£2,025 Years purchase 50 years @7% = 13.80075 = £27,947 Present value of £1 in 39 years deferred @6% = 0.10306 =

£2,880

Value of second reversion: Entirety value £135,000 Deduct 3.85%, £129,802 Present value of £1 in 89 years deferred @ 6% = 0.0056 =

£727

Total sum payable:

£3,607

25. 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]

12 December 2018

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1. A person wishing to appeal this decision to the Upper Tribunal ([NAME]) 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.