First-tier Tribunal Determines Lease Extension Premium

OUTCOME: Allowed

© CROWN COPYRIGHT

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00AQ/OLR/2018/1029 Property : [ADDRESS], [POSTCODE] Applicant : [redacted] : Mr [COUNSEL], MRICS Respondent : [redacted] : Mr [COUNSEL] (Hons) MRICS Type of application : Section 48 of the Leasehold Reform, Housing and Urban Development Act 1993 Tribunal members : Judge I [NAME] of hearing and venue : 11 [ADDRESS] [POSTCODE] Date of decision : 13 December 2018

DECISION

Background 1. This is an application made by the Applicant qualifying tenant pursuant to section 48 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) for a determination of the premium to be paid for the grant of a new lease of [ADDRESS], [POSTCODE] (the “property”).

2 2. The property is described as being a self-contained converted flat on the first floor of an extended two storey 1930’s built semi-detached house, which has been converted into 3 flats of varying sizes. It is comprised of a double bedroom, lounge, kitchen and bathroom/WC.

3. The property is accessed via a communal front door and lobby up to the landing and has a gross internal area of 45 square metres. There is no access to any outside space, garage or off-street parking facility. On street parking is permitted in [ADDRESS], which is not subject to any restrictions.

4. By a notice of a claim dated 25 January 2018, served pursuant to section 42 of the Act, the Applicant exercised the right for the grant of a new lease of the property and proposed to pay a premium of £7,870.

5. On 6 February 2018, the Respondent [NAME] served a counter- notice admitting the validity of the claim and counter-proposed a premium of £23,420.

6. On 3 August 2018, the Applicant applied to the Tribunal for a determination of the premium and terms of acquisition. The Issues Matters Agreed 5. These are set out in the Statement of Agreed Facts annexed hereto. Matters Not Agreed 6. These were:

(a) the new lease value on an unimproved basis. (b) the appropriate freehold relativity to arrive at the existing short lease value on an unimproved basis.

7. Neither party asked the Tribunal to inspect the property and the Tribunal did not consider it necessary to carry out a physical inspection to make its determination. 8. The Applicant relied upon the expert report and valuation of Mr [APPELLANT], FRICS dated 28 November 2018 and the Respondent relied upon the expert report and valuation of Mr [NAME], BSc (Hons) MRICS dated 26 November 2018.

3 Decision 9. The hearing in this case took place on 11 December 2018. The Applicant and Respondent were represented by Mr [APPELLANT] and Mr [RESPONDENT] respectively.

New Lease Value 10. It is now the settled view that the correct valuation approach under the Act to be taken was, firstly, to look at evidence in the real market1 and, secondly, to graphs of relativity where the market evidence provided was insufficient.

11. Both valuers relied on a number of sales of properties with extended leases or a share of the freehold within a year of the valuation date as market evidence of the long lease value. Both agreed that no adjustment for time on the sale process was necessary, as the market values had not moved materially in the interim.

12. At the hearing, both valuers agreed that from their “basket” of comparable properties, the most relevant were the sales relating to [ADDRESS] and [ADDRESS], both of which are local to the subject property. Therefore, the Tribunal’s decision on the extended lease value is based on a consideration of these properties.

13. [ADDRESS] was sold in July 2017 for £289,000. From the sale price, Mr [NAME] made a downward adjustment of 10% (£29,000) for the rear garden, £10,000 for the garage. £5,000 for the parking space and £2,000 for the installation of double glazing as a tenant’s improvement. He made the same adjustments in respect of [ADDRESS], save for the absence of a garage. In so doing, he arrived at a long lease value of £240,000 for the property on an unimproved basis.

14. Mr [NAME] made similar adjustments in relation to [ADDRESS] by deducting 10% overall for the lack of an off road parking space and garden. He, therefore, concluded that the extended lease value of £260,000.

15. Both valuers then applied a 1% uplift to their extended lease values to arrive at the freehold vacant possession value.

16. The Tribunal considered that the deduction of 10% generally applied by Mr [NAME] for the lack of a garden was excessive. Neither valuer relied on any particular evidence in arriving at their respective deductions in respect of the garden. In the absence of any such evidence, and doing the best it can in the circumstances, the Tribunal found that a deduction of £20,000 should be made for the lack of a garden.

1 See Sloane Stanley Estate v Mundy [2016] UKUT 0233 (LC) at para. 17

4 17. The Tribunal considered that a deduction of £10,000 was appropriate for the lack of a garage. It did not accept the submission made by Mr [NAME] that the absence of otherwise of a garage did not have an affect on value because it was invariably used as storage space.

18. The Tribunal also considered that a further adjustment should be made for the lack of a parking space and accepted Mr [NAME] adjustments of £5,000 and £10,000 for [ADDRESS] and [ADDRESS] respectively. The former has a garage in addition whereas the latter does not. Indeed, Mr [NAME] agreed that an adjustment of £10,000 for the lack of a parking space was appropriate in respect of [ADDRESS].

19. As to the adjustment of £2,000 made by Mr [NAME] for the installation of double glazing at both properties, the Tribunal considered this to be unnecessary because this amounted to a replacement and not an improvement that accrued to the tenants.

20. Applying the Tribunal above findings on the adjustments to be made to the sale prices for [ADDRESS] and [ADDRESS], the adjusted long lease values are £254,000 and £260,000 respectively. An averaging of both figures results in a value of £257,000, which the Tribunal found to the extended lease value for the property.

Relativity

21. Mr [NAME] contended for a relativity figure of 85.68% on the basis that it was close to the average of 87.2% in the Savills 2015 graph and 84.298% in the [NAME] graph for the unexpired term of the lease.

22. In support of this, Mr [NAME] submitted that these graphs were in fact used by the Upper Tribunal in the case of [NAME] v [NAME] for a property in Hemel Hempstead, as it considered it appropriate to do so.

23. The Tribunal rejected Mr [NAME] submission for a number of reasons. Firstly, [NAME] did not establish as a general proposition that the [NAME] and [NAME] graphs should be adopted for relativities of properties outside prime central London properties. In that case, the Tribunal in fact based its decision on actual sales of short leases and not on the graphs. In addition, Mr [NAME] was unaware that the graphs were only based on properties within the prime central London area and he accepted, therefore, that relativities would be lower than for properties outside this area.

24. Secondly, he told the Tribunal that he had earlier this year acted for a tenant in preparing a valuation for a lease extension in which he had not adopted the same methodology in relation to relativity he advanced in this case. When asked why by the Tribunal, he was unable to satisfactorily explain why he had taken a different approach in that matter.

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25. It follows, that the only coherent evidence on relativity before the Tribunal was from [NAME]. Therefore, the Tribunal accepted his relativity figure of 91.6% should be adopted. This had been based on taking an average of the appropriate relativities in the [NAME], [NAME] and [NAME] graphs.

26. A 1% uplift then had to be applied to the extended lease value of £257,000 to arrive at the freehold value £259,600.

27. The Tribunal determined the appropriate premium to be paid fby the Applicant for the new lease is £14,976. A copy of its valuation calculation is annexed to this decision.

Name: Judge I Mohabir Date: 13 December 2018

Rights of appeal

By rule 36(2) of the Tribunal Procedure (First-tier Tribunal) (Property 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 application for permission must be made to the First-tier Tribunal at the regional office which has been dealing with the case. The application for permission to appeal must arrive at the regional office within 28 days after the tribunal sends written reasons for the decision to the person making the application. If the application is not made within the 28 day time limit, such application 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 application for permission to appeal to proceed, despite not being within the time limit. The application 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 making the application is seeking. If the tribunal refuses to grant permission to appeal, a further application for permission may be made to the Upper Tribunal (Lands Chamber).

6 96A [ADDRESS] [POSTCODE]

APPENDIX A The Tribunal’s Valuation Assessment of premium for Enfranchisement In accordance with the Leasehold Reform, Housing and Urban Development Act 1993 AB/LON/00AQ/0LR/2018/1029

Components

Valuation date:

26/01/2018 Deferment rate:

5% Capitalisation rate:

6.5% Freehold value:

£259,600 Long lease value £257,000 Existing leasehold value £237,638 Relativity 91.54% Unexpired Term 69.16 years

Ground rent currently receivable

£60 Capitalised @ 6.5% for 3.16 years

2.7741 £166

Rising to:

£120 Capitalised @ 6.5% for 33 years 13.4591 Deferred 3.16 years @ 6.5% 0.8196 £1,324

Rising to:

£240 Capitalised @ 6.5% for 33 years 14.23 Deferred 36.16 years @ 6.5% 0.1026 £331

Reversion to freehold value: £259,600 Deferred 69.16 years @ 5% 0.0342 £8,878 £10,699 Less New Reversion Freehold Value £259,600 Deferred 159.16 years @ 5% 0.000424 £110

Diminution in landlords interest

£10,589

Marriage Value Value of Proposed Interests Value of extended lease

£257,000 Value of landlords proposed interest

£110 £257,110

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Value of Existing Interests Landlord’s existing value

£10,699 Existing leasehold value

£237,638 £248,337

£8,773

Freeholders share @ 50%

£4,387

LEASE EXTENSION PREMIUM

£14,976

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