First-tier Tribunal Determines Lease Extension Premium

OUTCOME: Allowed

© CROWN COPYRIGHT

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference

: NAT/LON/00AK/OCE/2021/0136 Property

:

2nd [ADDRESS] [POSTCODE]

Applicants

: [redacted]

: [NAME], East Barnet Respondent

: [redacted] Type of [NAME]

: Section 50 sand 51 of the Leasehold Reform, Housing and Urban Development Act 1993 (as amended) (“the Act”) for a determination of the terms and premium for the grant of a new lease Tribunal member

: [NAME] (Valuer Chairman) Date of decision

:

16 November 2021

Determination based on Written Representations

DECISION

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(1) This has been a remote determination on the papers which has not been objected to by the parties. The form of remote hearing was P: PAPERREMOTE. A face to face hearing was not held because it was not practicable, no-one requested the same, and all issues could be determined on paper. The documents that the Tribunal was referred to are in a bundle of 137 pages the contents of which the Tribunal has noted. The Decision made is set out at Paragraphs (2) and (3) below.

Decisions of the Tribunal

(2) The Tribunal determines that the appropriate sum to be paid into Court for the lease extension of the property known as 2nd floor flat, 135b [ADDRESS] [POSTCODE] pursuant to Schedule 13 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”), is £28,128 (twenty eight thousand one hundred and twenty eight pounds).

(3) The terms of the draft surrender and re-grant of the lease as supplied to the Tribunal are approved, save that the reference to 27 August 1985 at Paragraph 10 should read 27 August 2085.

Reasons Introduction

1. This matter relates to an [NAME] made under section 50 and 51 of the Leasehold Reform, Housing and Urban Development Act (as amended) (“the Act”) for a determination of the terms and premium for the grant of a new lease of the property known as 2nd floor flat, 135b [ADDRESS] [POSTCODE] (“the property”).

2. By proceedings brought under CPR Part 8 and issued on 19 November 2020 (“the valuation date”), the Applicant applied for an order dispensing with the requirement to serve a section 42 initial notice upon the respondent and for a vesting order. By an Order made by District Judge Dray sitting in the County Court at Clerkenwell & Shoreditch dated 10 June 2020, the [NAME] was granted. The matter was transferred to the Tribunal for the determination of:

(a) The form of the new lease and (b) The sum to be paid into court in accordance with section 51(5) of the Act.

3. The Tribunal issued directions on 2 August 2021 requiring bundles to be provided by 13 September 2021, which were provided. The applicant was given an opportunity to request a remote video hearing, but has not done so and the matter has therefore come before me for determination based on written representations, in accordance with rule 31 of the Tribunal Procedure (First-tier Tribunal)(Property Chamber) Rules 2013 (“the rules”). The Tribunal is not currently carrying out

3 inspections except in special circumstances and I did not consider that an inspection was necessary or proportionate in this case.

Expert Evidence

4. An experts’ valuation report was provided by Mr [NAME] who is employed by [COMPANY] and who is also a consultant to [COMPANY], [NAME]. His report is correctly addressed to the Tribunal and contains the declarations required from expert witnesses by the Tribunal and the RICS. I am satisfied that Mr [NAME] is suitably qualified to give expert evidence and understands his duties to the Tribunal.

5. The substantive valuation sections of the report may be summarised as follows. Mr [NAME] carried out an external view of the property but did not inspect internally as a result of the Covid pandemic. The date of viewing was not stated. The property comprises a converted second floor flat within a three-storey mid-terraced house. The property is of brick with pebbledash under pitched tiled roofs. The internal arrangement, from plans annexed to his report, comprises one double and one single bedroom, reception room, kitchen, bathroom and entrance hall. The floor area is not stated. An exterior photograph was included. There no external area demised but the tenant may maintain a dustbin in front of the building. The building faces [ADDRESS] close to its junction with [ADDRESS]. This is a busy road connecting [ADDRESS] with the [ADDRESS] (A10). The exterior of the building is tired. There were no relevant improvements.

6. The lease commenced on 27 August 2086 for a term of 99 years at an initial annual ground rent of £50 rising by £50 every 33 years of the term. At the valuation date, there were 64.77 years unexpired.

7. Mr [NAME] adopted 7% for the capitalisation rate and 5% for the deferment rate relying on [NAME] for the latter. He also considered that the long leasehold value should be taken as 99% of the virtual freehold value.

8. As to extended lease value, Mr [NAME] relied on six comparables, details of which were provided. In three cases the unexpired terms were 85 years, 91 years and 86 years. I regard such unexpired lease lengths as intermediate rather than long unexpired terms. Using them would require adjustments and I therefore consider them unhelpful.

9. 21(a) [ADDRESS] N9 was a purpose-built two bedroom first floor flat in average condition sold in December 2024 for £258,000 with 108 years unexpired.

10. [ADDRESS], N9 was a two bedroom ground floor flat with private garden in good condition sold in August 2024 £282,500. The unexpired lease term was 979 years.

4 11. Within the subject building at 135 Church St, another flat had recently been marketed with an asking price of £280,000. An offer of £270,000 had been made but there were no current offers. The lease has an unexpired term of 154 years.

12. Mr [NAME] had used the index of property prices from HM Land Registry for flats in the London Borough of Enfield to adjust for the date of sale as against the valuation date. He also made a number of adjustments for condition and amenities. In terms of [ADDRESS], Mr [NAME] made a market adjustment of £5200 and a 5% adjustment for location. As to 24 (a) [ADDRESS] [NAME] made 5% adjustments in respect of both location and outside space. Having analysed his comparables and consulted local agents Mr [NAME] concluded that the extended lease value was £245,000. The premium was £27,600.

Relativity of Existing Short Lease to Virtual Freehold Value

13. Mr [NAME] was unable to identify any market transactions to assist. [NAME] v [NAME] [UKUT] 0164 (LC) UTLC he relied on relativity graphs which he stated gave 81.4% as a relativity.

Decision

14. I agree with the deferment and capitalisation rates put forward.

15. I accept [ADDRESS] and 24(a) [ADDRESS] as relevant comparables and Mr [NAME] adjustments. These give resultant figures £239,900 and £254,300, respectively.

16. The average of the two adjusted comparables gives £247,100. However, I also place some weight on the offer of £270,000 for another flat in the subject building. I therefore find that the extended lease value is £250,000.

17. I agree with the 1% adjustment for freehold as against long leasehold value.

18. I accept that there is no reliable market evidence to establish relativity and that graphs must be used following [NAME]. Mr [NAME] has not specified the graph used. I prefer the Savills unenfranchiseable graph which gives a relativity of 81.50%, for an unexpired term of 64.75 years. This differs slightly from the 81.40% used by Mr [NAME].

19. I therefore find that the premium is £28,128 and my valuation is appended.

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20. The terms of the draft surrender and re-grant of the lease are approved save that the reference to 27 August 1985 at Paragraph 10 should read 27 August 2085.

Name: Mr [NAME] [NAME]:

16 November 2021

ANNEX - RIGHTS OF APPEAL

• The Tribunal is required to set out rights of appeal against its decisions by virtue of the rule 36 (2)(c) of the Tribunal Procedure (First-tier Tribunal)(Property Chamber) Rules 2013 and these are set out below.

• If a party wishes to appeal against this decision to the Upper Tribunal (Lands Chamber) then a written [NAME] for permission must be made to the First-tier Tribunal at the Regional office which has been dealing with the case.

• The [NAME] for permission to appeal must arrive at the Regional office within 28 days after the Tribunal sends written reasons for the decision to the [NAME].

• If the [NAME] is not made within the 28-day time limit, such [NAME] must include a request for an extension of time and the reason for not complying with the 28-day time limit; the Tribunal will then look at such reason(s) and decide whether to allow the [NAME] for permission to appeal to proceed despite not being within the time limit.

• The [NAME] for permission to appeal must identify the decision of the Tribunal to which it relates (i.e. give the date, the property and the case number), state the grounds of appeal, and state the result the party [NAME] the [NAME] is seeking.

© CROWN COPYRIGHT Date of Valuation 19-Nov-2020 Lease expiry date 26-Aug-2085 Unexpired Term /years 64.77 Unimproved long leasehold value 250,000 £ Virtual Freehold Value of Flat 252,525 £ Value of 64.77 year lease @ 81.50 % of virtual freehold value 205,808 £ Ground rent capitalisation rate 7.00% Reversionary deferment Rate 5.00% Premium Payable 28,128 £ Diminution in Value of Freeholder's Interest Term 1 Ground rent 100 £ per annum 31.77 Years Purchase @ 7.00% 12.62 1,262 £ Term 2

Ground rent 150 £ per annum 33 Years' Purchase @ 7.00% 12.75 PV £1 in 31.77 years @ 7.00% 0.1165 1.48538 223 £ Reversion Value of virtual freehold 252,525 £ Present Value of £1 in 64.77 years time @ 5% 0.04242 10,712 £ Freeholder's present interest 12,197 £ Less Freeholder's Proposed Interest value of virtual freehold 252,525 £ Present Value of £1 in 154.77 years time @ 5% 0.00053 133 £ Diminution in Value of Freeholder's Interest 12,064 £ Calculation of Marriage Value Value of Proposed Interests Leaseholder 250,000 £ Freehold after sale 133 £ Total Value of Proposed Interests 250,133 £ Value of Present Interests 205,808 £ Freeholder (see above) 12,197 £ Total Value of Present Interests 218,005 £ Hence Marriage Value, Difference Between Proposed and Present Interests 32,128 £ Divide Marriage Value equally between the Parties 16,064 £ Premium Payable 28,128 £ Existing lease APPENDIX [ADDRESS] [POSTCODE] VALUATION BY THE FIRST-TIER TRIBUNAL (PROPERTY CHAMBER)