First-tier Tribunal Determines Lease Extension Premium

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Case Reference : CAM/22UQ/OLR/2019/0200

HMCTS code : BTMMREMOTE

Property : [ADDRESS] [POSTCODE]

Applicant: [redacted] : [COUNSEL](Hons) MRICS

Respondent: [redacted] : [COUNSEL] [NAME] of [NAME] : Determination of the premium to be paid for a new lease - Leasehold Reform Housing & Urban Development Act 1993

Tribunal Members : Mrs [NAME] [NAME] (Hons)

Date of Decision : 21 May 2020

_______________________________________________

DECISION ____________________________________

© CROWN COPYRIGHT

FIRST - TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

2 Covid-19 pandemic: description of hearing This has been a remote [audio] hearing which has been consented to by the parties. 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 I was referred to are in a bundle of 229 pages, the contents of which I have noted. Decision of the Tribunal

The Tribunal determines that the premium payable for the new lease for the property at [ADDRESS] [POSTCODE] (the Property) is £11,057.

Background

1. This is an [NAME] for a determination of premium of the new lease under section 48 of the Leasehold Reform Housing and Urban Development Act 1993 (the Act)

2. On 9 July 2019 the Applicants, [RESPONDENT] and [RESPONDENT] gave notice to the Respondent, [RESPONDENT] under section 42 of the Act seeking a new lease to the Property. The notice of claim under section 42 indicated a proposed premium of £6,500.

3. On 19 August 2019 the Respondent landlord served a counter notice under section 45 accepting the tenant’s right to a new lease. They, however, rejected the proposal for the premium, instead suggesting a figure of £12,600 for the premium.

4. A copy of the Lease dated 27 March 1997 between [NAME] and [NAME] and [NAME] for a term of 99 years from 25 October 1996 was provided. The Applicants acquired the lease on 8 December 2015 under title number EX574892.

5. Matters could not be agreed and an [NAME] was made to the Tribunal on 10 December 2019 under section 48 of the Act seeking a determination as to the premium to be paid.

6. A directions order was issued by the Tribunal on 14 January 2020 indicating that the matter would be dealt with on the papers if a request for a hearing was not received by 3 March 2020.

7. The Applicant requested a hearing and an oral hearing was arranged for 21 April 2020.

8. However following government guidelines in respect of face to face hearing due to the coronavirus, the tribunal wrote to parties postponing the face to face hearing. It stated that the [NAME] would be dealt with on the papers unless either party objected. An objection was received from the applicant and a remote hearing by telephone was arranged for the original hearing date, 21 April 2020.

9. The premium for the extended lease remains in dispute. The Law

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10. The method of calculation of the premium under section 48 of the Leasehold Reform Housing and Urban Development Act 1993 is by reference to Schedule 13 of the Act.

The Property

11. Valuation reports provided by Mr [NAME](Hons) FRICS of [NAME], Chartered Surveyors for the Applicant and by Mr [APPELLANT] [NAME] of [APPELLANT], for the Respondent describe the property as a ground-floor apartment within a two-storey development built some 20 years ago.

12. The accommodation comprises a hall, living room, kitchen, bedroom and shower toom /wc. The property has an allocated parking space.

Matters agreed

13. The following matters have been agreed

 Property description and accommodation  Date of Valuation – 9 July 2019  Unexpired term – 76.29 years  Capitalisation rate – 6.5%  Deferment Rate – 5%  Freehold value - £166,650  Long Leasehold value - £165,000

Matters to be determined

14. The matters that could not be agreed and that require to be determined are

 Existing Lease Value

And therefore, the Premium payable for the new lease.

Applicant’s Evidence

15. Mr [APPELLANT] for the Applicant explained that he had been unable to find any comparable evidence of sales of short leases. Therefore, he had approached arriving at the valuation of the existing lease value by reference to [NAME] graphs and tables together with his own ‘Test of [NAME]’.

16. In respect of the graphs of [NAME] he considered the Greater London and England graph as the most appropriate given the location of the property which was close to the Hertfordshire border and some 40 miles north of London.

17. He did not accept that the use of the [NAME] 2015 graph was appropriate and he believed that they were based on 5000 flat transactions in Prime Central London. (PCL) and that no subsequent analysis had been done.

4 18. He had also used his knowledge and experience of dealing with numerous lease extension cases, mainly on behalf of the tenant and had carried out an analysis of 4 of these in the Bedford/Hertfordshire area. He had done this by applying what he described as his ‘Ten stage test of [NAME]’ which was set out in his submission. He derived a [NAME] for leases with between 72 years and 78 years outstanding of 92.7% to 97.83% of the Freehold Value.

19. With reference to these factors he had arrived at a [NAME] of 94.75% which he said was slightly lower than the Greater London and England graph (95.08%) for an unexpired term of 75 years. He did not make an explicit ‘no act world’ adjustment.

20. He had applied this to the Freehold Value of £166,650 to arrive at the existing lease value of £157,900. Applying the agreed factors of the valuation this gave a premium payable of £7,099.

21. He did not accept that, had the property had an unexpired term of 80 years where no marriage value would be payable, that the 3.71 years would impact the short lease value to the extent suggested by Mr [NAME].

22. When questioned in cross examination by Mr [NAME] he said he was aware of the recent case of The Trustees of Barry and Peggy High Foundation and [NAME] and [NAME] [NAME] (2019) UKUT 0242. He believed that the decision was made on the facts and what was in front of the tribunal by way of evidence.

23. He also did not agree that negotiated settlements should not be accepted as evidence and said that the ones he has used were all available for people to find.

Respondent’s evidence

24. Mr [RESPONDENT] for the Respondent said that he had had regard to the RICS report on Leasehold Reform: Graphs of [NAME] in the absence of any compelling or analysed sales evidence.

25. He had considered the judgment handed down in the recent tribunal decision of The Trustees of Barry and Peggy High Foundation and [NAME] and [NAME] [NAME] (2019) in respect of a property in Whetstone which he said determined that [NAME] should be ascertained with reference to [NAME] for 2015 with an appropriate deduction for the benefit of the act.

26. He suggested that this was now the accepted methodology for anywhere in the country whether acting for the landlord or the tenant .

27. In his evidence he referred to exchanges he had had by e mail with authors of some of the graphs but omitted to include any written evidence to this effect.

28. He also suggests that applying the average of the 5 Greater London and England graphs of 95.51% to the Freehold Value results in a negative marriage value which he did not believe could be correct.

29. He had adopted 89.42% for the outstanding lease length from [NAME] 2015 and then calculated the difference between this and [NAME] 2015 (87.72%) of 1.7%. He had then adjusted this relative to the

5 89.42% which produced a ‘no act world’ discount of 1.52% resulting in what he refers to in his submission as a [NAME] of 87.9%.

30. Adopting the [NAME] of 87.9% resulted in a value of tenants existing interest of £146,485. Applying the agreed factors of the valuation this gave a premium payable of £12,806.

Determination

31. The Tribunal notes that neither valuer was able to provide direct comparable sales evidence in respect of short leases of similar properties, which is not unusual.

32. Mr [NAME] adopted the RICS Greater London and England graphs with no separate deduction for no act world’ – although by adopting 94.75% against a graph average for 76.29 years of 95.51% it could be assumed that he had reflected some small allowance. He has then supported this with a number of negotiated settlements.

33. Mr [NAME] adopted a [NAME] based on [NAME] 2015 adjusted in line he submits with [NAME] to 87.9%.

34. The tribunal does not agree with Mr [NAME] that negotiated settlements are not accepted by the tribunal as evidence. The tribunal does admit these as evidence – but it does however accept, in the absence of evidence before the tribunal that a detailed analysis of the price or value has been agreed, that less weight must be given to these.

35. It also has to agree that very recent Upper Tribunal decision appear to have favoured the use of more recent tables of [NAME] but also agrees with Mr [NAME] that any decision of the Upper Tribunal is influenced to a great extent by the evidence that is put before it. It also does not agree that the Upper Tribunal in Trustees of Barry and Peggy High Foundation and [NAME] and [NAME] [NAME] ([NAME]) found that ‘[NAME] should be ascertained from [NAME] of 2015 with an appropriate deduction for the benefit of the Act’. Rather they found that the FTT were wrong to exclude [NAME] and [NAME] graphs from their consideration. They found, based on the evidence before the FTT, that they should have preferred the approach of the surveyor for the appellant who had adopted a [NAME], indeed based on [NAME] of 2015 with an appropriate deduction for the benefit of the Act.

36. However, of the different approaches taken by the experts in this case, we largely prefer that of Mr [NAME] to that of Mr [NAME] in that we are more inclined, in the absence of evidence of short leasehold sales to favour the more recently published graphs of [NAME]. However, we do not totally disregard the settlement evidence provided by Mr [NAME] and determine, having regard to both the [NAME] and Unenfranchiseable graphs as starting point and the evidence provided by Mr [NAME] we determine a [NAME] of 90%.

37. The Tribunal determines that, on the basis of the elements of the valuation set out above the premium payable for the lease extension of the property is £11,057

6 Appendix 1

Tribunal's valuation Valuation date

9/07/2019 Unexpired term 76.29 Period to 1st review 10.29 Ground rent to 1st review £125 Capitalisation rate 7% Deferment rate 5% Extended lease value

£165,000 Freehold uplift 1% £166,650 [NAME] 90.00% Existing Lease value

£149,985

Calculations

Diminution of freehold Loss of ground rent 125 £ 125 Years Purchase 10.29 years @ 6.5% 7.3371 £917 Loss of ground rent 250 £ 250 Years Purchase 33 years @ 6.5% 13.4591 Present value of £1 in 10.29 years @ 6.5% 0.5231 £1,760 7.0403 Loss of ground rent 500 500 Years Purchase 33 years @ 6.5% 13.4591 Present value of £1 in 43.29 years @ 6.5% 0.0655 0.8812 Sub-total £441 £3,118 Reversion to Freehold Capital value £ 166,650 loss of reversion Present value of £1 in 76.29 years @ 5% 0.0241807 £4,030 Less : New reversion £166,650 Present value of £1 in 166.29 years @ 5% 0.0003 £50 Value of freeholders present interest £7,098 Marriage Value calculation Value of proposed interests Freeholder £0 Leaseholder £165,000 £165,000

7 Value of existing interests Freeholder £7,098 Leaseholder £149,985 Sub-Total £157,083 Total marriage value £7,917 at 50% £3,959 Enfranchisement Price £11,057

ANNEX 1 – RIGHTS OF APPEAL

1. 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 at the Regional Office which has been dealing with the case.

2. 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].

3. If the [NAME] is not made within the 28-day time limit, such [NAME] must include a request to 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.

4. The [NAME] for permission to appeal must identify the decision of the Tribunal to which it relates (ie 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.

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