First-tier Tribunal Determines Lease Extension Premium

OUTCOME: Dismissed

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference HMCTS Code: : LON/00AE/OLR/2020/0242 VIDEO REMOTE Property : [ADDRESS] [POSTCODE]

Applicant

Representative :

:

Ms [COUNSEL]

In person

Respondent

Representative :

[RESPONDENT]

Mr [COUNSEL] counsel instructed by [COUNSEL] [COMPANY] of [NAME] :

Lease extension

Tribunal members :

Judge Tagliavini Mrs E [NAME] and date of hearing :

10 [ADDRESS] [POSTCODE] HMCTS: Video Remote 25 February 2021

Date of Decision :

1 March 2021

DECISION

2 Covid-19 pandemic: description of hearing This has been a remote video hearing which has been consented 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 that the tribunal was referred to in a bundle number 1 to 366 the contents of which, the tribunal has noted. The order made is described at the end of these reasons. Summary of decisions of the first-tier residential property tribunal (1) The tribunal determines that the premium for the lease extension of [ADDRESS] [POSTCODE] is £89,671.

The [NAME] 1. This is an [NAME] made under the provisions of section 48 of the Leasehold Reform, Housing and Urban Development Act 1993 seeking the tribunal’s determination of the premium payable and the terms of a new lease for subject property [ADDRESS] [POSTCODE] (‘the Flat’).

Background

2. The subject property is a two bedroom first floor flat with kitchen, living room and bathroom/w.c. and situated in a purpose built block of flats circa 1930’s. The subject property is in an outdated condition and requires modernising and redecoration throughout. The applicant purchased the subject property at auction on 11 September 2019 for £194,000 with the benefit of a section 42 Notice. The respondent is the freehold owner of 1-32 and 34-[ADDRESS], Wembley and is therefore the competent landlord. The lease is for a term of 99 years from 14 October 1995.

3. A Notice of Claim under section 42 of the 1993 Act was served by the applicant’s predecessors in title dated 19 May 2019 proposing a premium payable of £38,650. A Counter Notice dated 11 September 2019 admitted the lessees right to acquire a new lease but proposed a premium of £118,675. Subsequently, the applicant amended the premium payable to £61,590 and the respondent amended its premium to £91,513.

The issues agreed between the parties

4. At the date of the hearing the parties had agreed the following:

(i) The terms of the new lease

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(ii) The GIA at 635 sqft (58.99 sqm)

(iii) The ground rent at £20 per annum (fixed)

(iv) Deferment rate of 5%

(v) Capitalisation rate of 6.5%

(vi) Unexpired term of 35.395 years

(vii) Valuation date of 22/05/2019

The issues not agreed between the parties

5. (i) The existing short lease value of the Flat without 1993 Rights

(ii) The extended leaser value of the Flat

(iii) [NAME]

(iv) The premium payable

The applicant’s case

6. The applicant relied upon a valuation report said to be an ‘Expert Report’ by both the applicant and her father Mr [APPELLANT] dated 4 February 2021 in which the premium payable was calculated in the sum of £61,590. Oral evidence was heard by the tribunal from Mr [NAME] who confirmed that he had been appointed by his daughter to assist her with the lease extension for the Flat. In his report Mr [NAME] stated he is a qualified home energy surveyor and has experience in finance and management of residential buildings, mainly overseas investments. On questioning by the tribunal, Mr [NAME] confirmed he had no qualifications as a surveyor and was not a member of the RICS but that he had acquired his ‘expertise’ in preparing the valuation from having helped other friends with similar valuations and transactions. As the report did not contain a Statement of Truth Mr [NAME] confirmed orally to the tribunal that the contents of it were true.

7. In his valuation report the premium payable was based on a valuation date of 10 November 2020, although it was agreed at the hearing that the correct valuation date was 29 May 2019. Similarly, Mr [NAME] had used a capitalisation rate of 7% but also subsequently agreed this should be 6.5%.

8. Mr [NAME] explained to the tribunal that he had sought ‘valuations’ from [NAME] of the short lease market value, which when averaged provided a figure of £220K. Mr [NAME] also asserted that ‘Everyone knows the auction prices are 10 - 15% lower.’ Mr [NAME] then made a deduction to reach a short lease market value of £208K.On questioning, Mr

4 [NAME] accepted he had made no adjustments for time, condition, floor or Act Rights in respect of these comparable properties. Mr [NAME] stated that in his opinion, the required renovations and redecorations would cost in the region of £35,000.

9. In considering the long-lease of the Flat, Mr [NAME] explained to the tribunal that he had used a number of sales that were said to be of comparable properties in the local area and relied on the Office Copy Entries and Particulars of Sales for these properties in support of his evidence. These sales referred to 31 Kirk House, 16 Bell House, [ADDRESS], 15 Lister House, [ADDRESS] which were all in the Wembley area but none of which was situated on [ADDRESS], Wembley. Mr. [NAME] stated that he had averaged these sales which provided a figure of £282K (rounded to £290K). Mr [NAME] also referred the tribunal to the graph titled ‘House prices reports for Wembley November 2019 to November 2020 which he asserted showed that average flat prices had fallen from £290,492 to £281,667 and a downward trend to his valuation date of 10 November 2020. Mr [NAME] also referred the tribunal to documents from [NAME] which he asserted showed a similar downward trend in Wembley flat prices over the past five years.

10. In support of his long lease value of £290K Mr [NAME] referred the tribunal to particulars of sale of comparable properties from local [NAME]. Mr [NAME] asserted these established a long lease value of £290k in respect of the subject Flat.

11. In reaching his [NAME] figure of 77.9% Mr [NAME] stated that he preferred to rely on the sales rather than any graphs as the former method provided the most reliable figure. Therefore, he had calculated the [NAME] to be 75.9% by using short lease market value of £220K and a long lease value of £290K.

12. In cross-examination Mr [NAME] accepted that he knew very little about the 1993 Act and deferred several time to his daughter, the applicant on several issues asserting that Ms [APPELLANT] was an ‘expert’ herself and conceded he was not an ‘expert’ himself and accepted he did not understand the requirement to make adjustments for time to reflect the (agreed) valuation date.

13. Mr [NAME] accepted he had no evidence to support his assertion that prices achieved at auction were generally at least 10% less than the market value. He asserted again that this was widely known and accepted that the price achieved at auction reflected that the buyers tended to be investors and cash buyers.

14. In the report Mr [NAME] produced a valuation of £61,590 based on a valuation date of 10 November 2020 and a capitalisation rate of 7%.

The respondent’s case

5 15. The Respondent relied upon the oral evidence of its expert valuer Mr [NAME] who spoke to his signed report dated February 2021.

16. Mr [NAME] told the tribunal that he had visited the subject Flat on 10 September 2019 and taken the date stamped photographs exhibited in his valuation report and had found it to be in a tired and dated condition in need or modernisation and redecoration throughout.

17. In assessing the long leasehold value of the Flat, Mr [NAME] relied on the sales of four comparable flats and maisonettes in the local area which he had adjusted variously for condition, geared ground rent, length of lease and location. Mr [NAME] stated that these sales provided an average figure of £310,500. Mr [NAME] subsequently reduced this figure by £3,000 tov reflect the repair of former heating and hot water arrangements thereby providing a long lease value of £307,500.

18. Although Mr [NAME] had previously agreed a notional freehold value of 1% at the hearing he resiled from this and his report relied on a figure of 1.5% which he stated was in line with the Upper Tribunal decision concerning [ADDRESS] thereby providing a notional freehold value of £312,183.

19. In valuing the existing leasehold value Mr [NAME] considered the available market evidence. Mr [NAME] told the tribunal that both the subject Flat and [ADDRESS] had sold within 6 months of each other. Although both properties were held on similar lease terms No. 4 was a maisonette with its own front door and in average to good condition unlike the subject property but had sold in the most recent sale in March 2020 for £182,00 (£190,403 indexed to May 2019).

20. Mr [NAME] told the tribunal that he had found details of three sales transactions for the subject flat, that took place in 2019 for £190k, £194k and £195k, the average price of which was £193k. To this average figure Mr [NAME] made an allowance of £17,500 for refurbishment and renovation to bring the subject Flat into a condition similar to the long lease comparables, which provided an existing lease value inclusive of 1993 act rights of £210,500. Mr [NAME] told the tribunal that using [NAME] 1993 Act discount figure of 13.83% the figure was reduced to £181,389 which divided by the freehold value o £312,183 produced a [NAME] of 58.1%.

21. Mr [NAME] compared the sales history of the subject Flat to that of the maisonette at [ADDRESS] which he had inspected in December 2019 when he had found it to be in a superior condition. This property had sold for between £182,000 to £190,403 (indexed to May 2019) and therefore cast doubt on the reliability of the sales prices for the subject Flat.

22. As a way of testing the reliability of the [NAME] figure Mr [NAME] stated he had used [NAME] and [NAME] 2016 graph which provided a [NAME] for 35.395 unexpired of 57.53%. Using a capitalisation rate of 6.5% (now agreed) and a 5% deferment rate of 5% Mr [NAME] calculated that the premium payable is £91,513.

6 23. In cross-examination by Ms [NAME] it was suggested to Mr [NAME] that he had not in fact visited the property as he seemed unaware that the windows were wood and not metal as he had described; was unaware of the form of heating und and unaware if there was running water in the bathroom. Mr [NAME] confirmed his visit to the subject Flat and also explained he was entitled to rely on sales both before and after the valuation date as these often showed trends in values.

The tribunal’s decision and reasons

24. On balance the tribunal preferred the expert evidence of Mr [NAME] to that of Mr [NAME]. The tribunal finds the valuation evidence relied upon by the applicant to be unreliable as it was based on an incorrect valuation date; had made no adjustments in the sales of the comparable properties for time, condition, size, location or floor and appeared to have been prepared inexpertly with little reference to the requirements of Schedule 13 of the 1993 Act.

25. The tribunal accepts that Mr [NAME] visited the subject Flat on 10 September 2019 and accepted his evidence in mistaking wooden window frames for metal and preferred his evidence to that of the applicant. However, the tribunal was not satisfied that Mr [APPELLANT] conclusion that the sales of the subject Flat were too high and unreliable because the sales of a single comparable at 4, [ADDRESS] were lower, although a superior property with a similar lease length. Therefore, the tribunal using its expertise uplifted the long leasehold value by 1% as per the agreed statement of facts and used £195,000 as the starting point to arrive at the short lease value as the tribunal had two documented sales close to the valuation date at £195,000 and £194,000. The tribunal also accepted Mr [NAME] figure of £17,500 to reflect the poor repair and need for renovation works. The tribunal accepted it was appropriate to make the deduction in line with the [NAME] for Act rights as proposed by Mr. [NAME].

26. Therefore, the tribunal finds that the premium payable is £89,671 (see valuation attached).

Name: Judge Tagliavini

Date: 1 [ADDRESS] [POSTCODE]

Valuation date 22nd May 2019

Freehold Value

£310,575

Long Lease value

£307,500

Existing lease value £183,000

Unexpired term 35.3949 years

Landlord's present interest

Ground rent

£20

35.3949 yrs at 6.5% 13.729

£275

Reversion

£310,575

deferred 35.3949 years at 5% 0.1778

£55,220

£55,495

less Landlord's proposed interest £310,575

deferred 125.3949 years at 5% 0.0021

£652

Diminution in Landlord's interest

£54,843

Marriage Value

Landlord's proposed interest £652

Claimant's proposed interest £307,500

less

Landlord's existing interest £55,495

Existing leasehold value £183,000

£69,657 £34,829

Lease extension premium £89,671

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Rights of appeal from the decision of the tribunal By rule 36(2) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 201, 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 property 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).