First-tier Tribunal Determines Lease Extension Premium

OUTCOME: Allowed

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FIRST-TIER TRIBUNAL [NAME] CHAMBER ([NAME]) Case reference : LON/00AK/OLR/2020/0583 HMCTS code : V: [NAME] : 2 [ADDRESS] [POSTCODE] Applicant : [redacted] : In person Respondent: [redacted] [RESPONDENT] : Mr [COUNSEL] of [NAME] of [NAME] : Section 48 Leasehold Reform Housing and Urban Development Act 1993 Tribunal members : Judge Pittaway Mrs A Rawlence MRICS Date of hearing : 26 May 2021 Date of decision : 30 June 2021

DECISION

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Covid-19 pandemic: description of hearing

This has been a remote video hearing which has been not objected to by the parties. The form of remote hearing was V: CVPREMOTE. A face-to-face hearing was not held because it was not practicable and all issues could be determined in a remote hearing. The documents before the tribunal at the hearing were;

1. The applicant’s bundle of documents (84 pages)

2. The expert report of Mr [NAME] of [NAME] (128 pages)

3. A revised valuation calculation from Mr [NAME] (2 pages)

At the hearing the tribunal heard submissions from Mr [NAME] and evidence and submissions from Mr [COUNSEL] of [NAME], acting for the respondent. The applicant’s bundle contained an expert’s report from Mr [APPELLANT] [COMPANY].

Summary of the tribunal’s decision (1) The value of the existing lease is £351,915. (2) The value of the freehold with vacant possession is £420,000. (3) The premium payable for the new lease is £41,455.00. The tribunal’s valuation is attached to this decision.

The [NAME]

1. This is an [NAME] made by Mr [NAME] pursuant to section 48 (1) Leasehold Reform Housing and Urban Development Act 1993 (“the 1993 Act”) for a determination of the premium to be paid for a lease extension, or other terms of acquisition of the lease of the ground floor flat 2 [ADDRESS] [POSTCODE] (the “[NAME]”).

2. By a notice of claim dated 13 December 2019, served pursuant to Section 42 of the Act, Mr [NAME] exercised his right to claim a new lease of the [NAME] and proposed to pay a premium of £25,000 for the new lease.

3. On 23 January 2020 the respondent landlord served a counter-notice admitting the validity of the claim and counter-proposed a premium of £56,000.00 for the new lease.

4. On 18 April 2020 the applicant applied to the tribunal for a determination of the premium.

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The issues Matters agreed 5. The tribunal had before it a Statement of Agreed Facts dated 5 February 2021 which agreed (i) Unexpired term at valuation date: 64.01 years (ii) Capitalisation rate:

6% (iii) Deferment rate:

5% 6. Neither valuer denied that the lease of the [NAME] dated 10 January 1985 is for a term of 99 years from 25 December 1984 at a ground rent of £50, rising to £100 after 33 years, and £200 after a further 33 years. The applicant’s bundle also contained an official copy of a Deed of Variation of the lease dated 6 November 1995 from which page 2, which set out the variations permitted by the Deed, was missing. Neither party was able to provide the tribunal with a copy of the missing page, and neither were able to clarify how it had varied the lease.

7. It was clear at the hearing that it was agreed that the [NAME] is a one- bedroom flat and that it enjoyed exclusive use of a garden.

8. Until the day before the hearing [NAME], not having inspected the interior of the [NAME] was assuming that the flat had a floor area of 63 m2. On receipt of the applicant’s bundle he adjusted this to 72m2, being the floor area adopted by Mr [NAME] in his valuation. Matters not agreed 9. The existing lease value. The applicant contended that this was £345,625 and Mr [APPELLANT] for the respondent contended that it was £351,915.

10. The value of the extended lease with vacant possession. Mr [NAME] contended that this should be £391,050 and Mr [APPELLANT] £435,000.

11. Relativity. The applicant’s valuation gave a relativity of 87.5% while Mr [APPELLANT] argued for a relativity of 80.9% 12. The premium. The applicant’s valuation placed this at £31,861. Mr [APPELLANT] amended his valuation at the hearing to argue for a premium of £49,700.

4 13. Neither the applicant’s notice nor the respondent’s counter-notice sought any amendment to the form of the lease other than the amount of the premium and the provisions required by statute. However there was evidence in the applicant’s bundle that the landlord had proposed certain amendments to the lease, some but not all of which the tenant had indicated that he was prepared to accept. The hearing

14. The hearing took place on 26 May 2021. The applicant was unrepresented. The report of his valuer, Mr [APPELLANT] of [APPELLANT] was in the applicant’s bundle but he did not attend the hearing. The respondent was represented by Mr [RESPONDENT] of [NAME].

15. Neither party asked the tribunal to inspect the [NAME] and the tribunal did not consider it necessary to carry out a physical inspection to make its determination.

16. The applicant relied upon the valuation of Mr [APPELLANT] of 1 June 2019and the respondent relied upon the expert report and valuation of Mr [NAME] dated.17 May 2021 and his revised valuation submitted to the Tribunal on 25 May 2021.

17. The following case was referred to by Mr [NAME]; [COMPANY] (Birkdale) Limited v Ms [NAME] [NAME] [2020] UKUT 0164 (LC) (“Deritend”)

Evidence and submissions 18. Mr [NAME] report did not clarify the basis upon which he had reached his valuation other than to say that he had chosen, ‘the direct comparison method of valuation appraisal’, that he had had discussions with local estate agents and analysed market commentaries and date to determine his opinion of the value of the subject [NAME]. Mr [NAME] gave unsupported oral evidence that the [NAME] had been valued in July 2017 at £347,000.

19. Mr [NAME] submitted that the floor area of the flat was not relevant to the valuation and argued that the layout of the flat was such that it was difficult to measure. When questioned by the tribunal Mr [NAME] confirmed that since the lease was granted new double- glazed windows and a new bathroom had been installed. There was no off-street parking. The flat has gas central heating.

20. Mr [NAME] submitted that there is no direct comparable evidence for the sale of a short leasehold interest similar to the [NAME]. He used three comparables in [ADDRESS] to establish the freehold value of the

5 [NAME], adjusting these for non physical and physical factors. He adjusted the date of sale of the comparable properties with reference to the price index for flats and maisonettes in the London Borough of Enfield from January 2017 to January 2020. He then adjusted the comparable prices to reflect distinguishing physical factors and weighted each comparable to arrive at a price per square metre to apply to the [NAME] to reach a FHVP value of £435,000.

21. Mr [NAME] referred the tribunal to three comparables, all of which he adjusted for both non-physical and physical features. The non- physical was the date of the sale of each comparable which he adjusted with reference to the price index for flats and maisonettes in the London Borough of Enfield. If the [NAME] had a ground rent he capitalised this at 6%. • [ADDRESS] is a two-bedroom flat on the first floor of the building of which the [NAME] forms part which, with a 125 year lease, sold on 23 February 2018 for £404,500, adjusted to valuation date with rent capitalised the rent at 6% to give a value of £397,225.23. Mr [NAME] and increased the price by 5% ‘to reflect subject [NAME] end link’. • [ADDRESS] sold on 18 October 2018 for £500,000 with a share of the freehold, time adjusted to £494,871.78. Mr [NAME] added £35,000 for the extension, £10,000 for the cellar, £5000 for a summerhouse and £15,000 for a private rear garden. This gave a value of £429,881.78 which he again adjusted by 5% ‘to reflect subject [NAME] end link’. • [ADDRESS] sold on 2 August 2017 for £436,000, with a share of the freehold, time adjusted to date of valuation to £417,025.85. Mr [NAME] increased this by £10,000 to reflect that it enjoyed on-site car parking which is something that [ADDRESS] could not achieve. He uplifted the price by 5% to reflect that the [NAME] is structurally detached.

22. Mr [NAME] took a price (from his adjusted figures) per square metre based on their EPC certificates for each of the comparables and then weighted these, attributing a weighting of 40% to each of 6 Fox lane and [ADDRESS] and 20% to [ADDRESS] to give a freehold vacant possession value to [ADDRESS] of £435,000.

23. Mr [NAME] pointed out that [ADDRESS] had to be a good comparable as it is in the same building and that [ADDRESS] was in a different type of building. He stated that [ADDRESS] was equivalent to [ADDRESS] when it was sold in 2016 for £415,000, but that it had subsequently been extended to create a second bedroom.

24. Insofar as relativity is concerned Mr [NAME] submitted that in the absence of market evidence, as he submitted was the case here, it was appropriate to rely upon graphs of relativity, and that he considered the

6 most appropriate graph to be that of Savills 2015 Enfranchiseable (sic) Graph of Relativity. He adopted the unenfranchiseable relativity of 80.9% to give consideration to the Act rights. He cross-referred to the Gerald Eve 2016 Enfranchisement Graph of Relativity which provides a relativity of 81.026%. He did not consider that the fact that the flat is not in prime Central London was a matter which necessitated an adjustment to the graphs he used.

25. Mr [NAME] valuation used a relativity of 87.5% without any explanation. Reasons for the tribunal’s determination 26. The tribunal has had regard to the valuation reports in the bundles, the evidence that it heard, and the case law referred to in reaching its decision. As appropriate these are referred to in the reasons for the tribunal’s decision.

27. It is unfortunate that Mr [RESPONDENT] did not attend the hearing so that the respondent did not have the opportunity of cross-examining him on his report. The tribunal have accordingly not been able to place as much weight on his report as it might have been able to do if he had attended 28. The tribunal does not consider that there is sufficient certainty as to the square meterage of any of the comparables to make this a useful basis of comparison. It has therefore looked at the physical configuration of the properties.

29. In weighting his comparables Mr [NAME] only attributed 20% of the total price per square metre to [ADDRESS], attributing 40% to each of his other comparables, [ADDRESS] and [ADDRESS]. The tribunal do not consider this weighing to be appropriate. It considers that 2a and [ADDRESS] offer the better comparables than [ADDRESS] which is in a different type of building.

30. Following the decision in [NAME] the preferred method of establishing relativity is to look to market transactions around the valuation date as the starting point for determining the value of the existing lease without rights under the 1993 Act.

31. The comparables offered by Mr [NAME] assist the tribunal in establishing both the existing leasehold and the freehold vacant possession value of the [NAME]. 32. [ADDRESS] is a good comparable for existing lease value as it is in the same building as the [NAME]. Its sale price adjusted to the valuation date gives a value of £395,596. However it is owned on a 125 year lease,

7 and benefits from a second bedroom, which on the evidence before the tribunal clearly affects value, [NAME] attributed a value of £35,000 to the addition of a second bedroom to [ADDRESS]. Taking this into account, and the longer lease, the Tribunal accept Mr [NAME] valuation of the existing leasehold of the [NAME] at £351,915. It is not necessary to ‘to reflect subject [NAME] end link’, as this comparable is in the same building as the [NAME].

33. For the freehold vacant possession value of the [NAME] the tribunal has had regard to the comparables at [ADDRESS] and [ADDRESS], both of which own a share of the freehold. [ADDRESS] is a good comparable as it is a ground floor flat. Taking its time adjusted value of £494,872 the Tribunal has deducted £60,000 to allow for the extra bedroom, cellar, summerhouse and a larger private garden than the [NAME] has giving an adjusted value to its freehold interest of £434,872. 34. 30 Fox is also useful comparable for the freehold vacant possession value. Taking its time adjusted value of £417,025 the Tribunal has had regard to the fact that it enjoys off street parking, which is not a facility that will be available to the [NAME]. It considers it more appropriate to deduct £15,000 (rather than the £10,000 proposed by Mr [NAME]) to reflect this facility, giving an adjusted value of £402,025.

35. The Tribunal took an average of the freehold vacant possession values of the evidence provided by these comparables and accordingly find that the freehold vacant possession value for the [NAME] is £418,500 and the extended lease value is £414,315.

36. The figures adopted by the Tribunal give a relativity of 84.08%. [NAME] the Tribunal has based its value of the existing lease on the available market transactions around the valuation date. It cross-checked its value against the relativities proposed by the Applicant (87.5%) and the Respondent (80.9%) and note that the relativity it has adopted sits comfortably between these two proposed relativities. The form of lease 37. The Tribunal noted from the papers before it that the Respondent had proposed varying the lease to provide for the landlord to insure the structure of the building with the tenant contributing a proportion of the cost. The form of the lease was not a matter before the Tribunal to decide, however it would encourage the parties to consider [NAME] these amendments to the form of the lease. Section 57(6) contemplates that the parties may between themselves agree variations to the terms of the new lease.

8 The premium 38. Taking the existing leasehold value, extended leasehold value and freehold vacant possession value found by the tribunal for the [NAME] the tribunal determine that the premium is £41,455, as set out in its valuation in the Appendix. Name: Judge Pittaway Date: 30 June 2021

Rights of appeal

By rule 36(2) of the Tribunal Procedure (First-tier Tribunal) ([NAME] Chamber) Rules 2013, the tribunal is required to notify the parties about any right of appeal they may have. If a party wishes to appeal 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 [NAME] and the case number), state the grounds of appeal and state the result the party [NAME] the [NAME] is seeking. If the tribunal refuses to grant permission to appeal, a further [NAME] for permission may be made to the Upper Tribunal (Lands Chamber).

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APPENDIX Valuation Valuation of [ADDRESS], London N13 4 AH

Freeholder's Present Interest

Term

Initial ground rent

£50

initial rent expired

0 £0

Increased ground rent

£100

[NAME] 31.01 yrs @6% 13.3 £1,393.00

Increased ground rent

£200

[NAME] 33 yrs @6% 14.23

PV £1 in 31.01 years @6% 0.16415 2.3358545 £467

Term Total £1,860

Reversion

Freehold VP £418,500

PV £1 in 64.01 years 5.5%

0.04402 £18,422.37 £20,283

Present interest

After extension 418,500

PV of £1 154.01years at 5%

0.0005453 £228.21 £228

Diminution

£20,054.63 £20,283

Marriage Value

Value after lease extension

proposed freeholders interest

£228

proposed leaseholders interest

£414,315 £41,4543

less

existing freeholder's interest

£20,283

existing leaseholder's interest

£351,915

£372,198

Marriage Value

£42,345

landlord share 50%

£21,172.5 £21,172

10 Lease Extension Premium

£41,455