First-tier Tribunal Determines Lease Extension Premium

OUTCOME: Allowed

Summary of the tribunal’s decision

The appropriate premium payable for the new lease is £35,370.00

The [NAME]

1. This is an [NAME] made by the applicant 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 [ADDRESS]16 6RW (the “Property”).

2. By a notice of claim dated 30 November 2017, served pursuant to Section 42 of the Act, the applicant exercised the right to claim a new lease of the property and proposed to pay a premium of £20,706 for the new lease.

3. On 7 February 2018 the respondent freeholder served a counter-notice admitting the validity of the claim and counter-proposed a premium of £55,461 for the new lease.

4. On 8 June 2018 the applicant applied to the tribunal for a determination of the premium and terms of acquisition.

The issues

Matters agreed

5. The following matters were agreed

(i) The subject property is a two bedroom conversion flat on the first floor of a two storey former single dwelling house built circa 1910. The property comprises 702 sq.ft. There is no outside space or parking provision.

(ii) The valuation date: 30 November 2017

(iii) Details of the tenants’ leasehold interest:

(a) Date of lease: 21 February 1986

(b) Term of lease: 99 years from 18 June 1985

(c) Ground rent: £50 p.a. increasing by £50 p.a. every 33 years

(d) Unexpired term at valuation date: 66.55 years

6. Capitalisation rate: 6.5%

7. Deferment rate: 5%

8. Adjustment to long leasehold value to assess freehold vacant possession value: 1%

9. Freehold value: £413,177

10. Extended lease value: £409,045

Matters not agreed

11. The following matters were not agreed

(i) [NAME]; and

(ii) The premium payable

The hearing

12. The hearing took place on 23 October 2018.

13. The applicant relied upon the expert report and valuation of [NAME] [APPELLANT] [NAME] dated 9 October 2018 and the respondent relied upon the expert report and valuation of [NAME] [NAME] dated 9 October 2018.

14. 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.

The valuation reports

15. [NAME] [NAME] and [NAME] [NAME] agreed that there was no appropriate transaction evidence for the existing lease value, which is the preferred method of calculating [NAME] following the decision in [NAME] v [NAME] (“[NAME]”).

16. [NAME] [NAME] therefore based his value on a [NAME] of 88.58% which he obtained by following the approach adopted in [NAME] c Cheema & Cheema LON/00az/OLR/2017/1393 (“[NAME]”). In [NAME] the 2002 Savills graph was compared to the Savills 2016 (enfranchisable) graph and the percentage reduction applied to the average of the five graphs under Section 2 of the RICS Research-Leasehold Reform: Graphs of [NAME]. He submitted that while based on Prime Central London (PCL) data he considered the approach in [NAME] to be a fair adjustment to reflect modern relativities from his experience in the south and south west Greater London market. He cross referenced this [NAME] to his preferred Section 2 graph (that of [NAME]) whose graph showed a [NAME] of 88.93% and to a [NAME] of 88.04%, achieved if he adopted the approach taken in [NAME] v [NAME] & [NAME] [2015] UKUT 0651 (LC) (“[NAME]”). In [NAME] only three of the five Section 2 graphs were used along with the Cluttons flat graph (which is a PCL graph), with a 2/3 weighting made to the average of the three selected Section 2 graphs and 1/3 to the Cluttons flat graph.

17. [NAME] [NAME] accepted that there was difficulty in using the Section 2 graphs; Beckitt & Kay because it is mortgage based, South East Leasehold because its information was primarily taken from south east London and contained both pre- and post Act figures; [NAME] and [NAME] because they were Brighton based. His preferred one of the five was [NAME], submitting that the figures it produced most closely accorded with his experience in the area of the Property. In using the 2016 Savills graph (the tribunal note that this is the same graph as that to which [NAME] [NAME] refers to as the 2015 Savills graph) [NAME] [NAME] did not believe it was yet widely used in the Greater London market but that it was not inconsistent to use it as a tool where it matched his experience. The only way he could see it being usefully employed in Greater London was in the form in which it was weighted in the [NAME] case.

18. [NAME] [NAME] submitted that the appropriate [NAME] to be adopted was 83.29%. He took as his starting point the Savills 2015 enfranchisable [NAME] of 86.12% for a lease term of 66.55 years. For his use of the Savills 2015 enfranchisable graph relied on the decision in Reiss v Ironhawk [2018] UKUT 0311 (LC). To the [NAME] of 86.12% [NAME] [NAME] then applied a 3.29% deduction for “no Act rights”. The 3.29% he took from the value of Act rights shown in the Myleasehold graphs, which figure is calculated by taking the difference between the Savills 2002 figure and the [NAME] 2009 figure and calculating this difference as a percentage of the Savills 2002 figure. In support of his approach [NAME] [NAME] referred the tribunal to the statement on [NAME] (at paragraph 169) that one method of determining [NAME] was to use a graph to determine the relative value of an existing lease with Act rights and then to make a deduction to reflect the absence of those rights on the statutory hypothesis. In his submission the [NAME] graph was the most reliable, he cited the decisions in [NAME] v [NAME] (“[NAME]”), and [NAME] v [COMPANY] (“[NAME]”).

19. [NAME] [NAME] disregarded the five Section 2 graphs entirely, relying on the fact that they had been disregarded in the [ADDRESS] case LON/00AE/OLR/2017/0433. On being questioned by [NAME] [NAME] he submitted that there was no distinction between [NAME] in prime central London and the remainder of London.

Reasons for the tribunal’s determination

20. The tribunal had difficulty in accepting either of the valuers’ approaches in its entirety.

21. While appreciating that it might be a pragmatic solution to do so, the tribunal has seen no evidence to substantiate why the [NAME] weighting should be adopted in this case. [NAME] [NAME] has made no adjustment for the no Act world and the tribunal consider some adjustment to reflect this is necessary.

22. The tribunal do not agree with [NAME] [NAME] that there is no difference in [NAME] between prime central London and Greater London. There is a difference and the tribunal need to make an adjustment to the [NAME] figure to account for this.

23. The tribunal is mindful that [NAME] [NAME] referred to the [NAME] case in support of his use of the [NAME] graph but the tribunal note that this case involved a property in W11, and agree with [NAME] [NAME] that this is “prime London” if not Prime central London.

24. The tribunal is further mindful that [NAME] [NAME] took a recent graph ([NAME] 2015) but adjusted it by reference to a percentage calculated by using the older graphs

25. The tribunal does not agree with [NAME] [NAME] interpretation of the [NAME] case as pointing to the [NAME] 2015 enfranchisable graph being the most reliable method of valuation in all cases, but consider that it may be a useful starting point for considering the appropriate [NAME] in this case. It then considers it necessary to make some adjustment for the property not being in prime central London and to have regard to the “no Act world.” It is difficult to quantify these in the absence of comparable evidence, but in this case the tribunal consider that there is no reason for it not to assume that the deduction for “no Act” rights is counter-balanced by a need to reflect that the location of the property which is not prime central London.

26. Accordingly the tribunal have adopted a [NAME] of 81.6%.

The valuation setting out the tribunal’s calculations is set out in the Appendix

Name: Judge Pittaway Date: 31 October 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 [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).