First-tier Tribunal Determines Lease Extension Premium

OUTCOME: Allowed

FIRST-TIER TRIBUNAL [NAME] (RESIDENTIAL PROPERTY) Case reference : LON/00AC/OLR/2018/0387 Property : 91 [ADDRESS] [POSTCODE] Applicant : [redacted] : Mr [COUNSEL] Respondents : [redacted] :

Mr [COUNSEL] of [NAME] : Section 48 of the Leasehold Reform, Housing and Urban Development Act 1993

Tribunal members : Judge S Brilliant Mr L Jarero BSc FRICS

Date of determination and venue : 25 [ADDRESS] [POSTCODE] Date of decision : 15 October 2018

DECISION CORRECTED UNDER RULE 50 OF THE TRIBUNAL PROCEDURE (FIRST-TIER) ([NAME]) RULES 2013

Summary of the Tribunal’s decisions (1) The market value of the extended lease is £515,000. (2) The relativity between the extended lease and the existing unexpired

term is 80.64%.

2 (3) The appropriate premium payable for the new lease is £66,539 (in

accordance with the calculation annexed to this decision). Background 1. This is an [NAME] made by the applicant lessee pursuant to section 39 and 48 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) for a determination of the premium to be paid for a new lease of 91 [ADDRESS] [POSTCODE] (“the flat”).

2. The flat is a self-contained ground floor flat of conventional construction forming part of a semi-detached building containing four flats. The flat comprises a front bedroom with a bay window, a rear bedroom with an ensuite toilet, a small study/bedroom, a bathroom/WC and kitchen. The gross internal area is 76m². There is exclusive use of a small rear garden measuring approximately 10m by 11.5m. [ADDRESS] is a busy four lane road linking the [ADDRESS] with the [ADDRESS].

3. The applicant holds the flat under a lease dated 15 October 1982 for a term of 99 years from 25 December 1972 (“the lease”). The lease is registered at Land Registry under title number NGL448896. The respondents’ freehold is registered at Land Registry under title number NGL739216.

4. By a tenant’s [NAME] notice dated 15 August 2017, served pursuant to section 42 of the Act, the applicant applied to acquire a new lease of the flat. The applicant proposed a price of £43,500 for the new lease.

5. On 9 October 2017, the respondents served a counter notice admitting the claim to acquire a new lease of the flat. The respondents proposed a price of £90,000 for the new lease.

6. By an [NAME] dated 12 March 2018, the applicant applied to the Tribunal for a determination of the premium due to the respondents. In addition, the applicant requested that the Tribunal determine the respondents’ costs payable pursuant to section 60 of the Act and the terms of the new lease and all other terms of the acquisition still in dispute.

7. Directions were given on 28 March 2018. The [NAME] to determine the respondents’ recoverable costs was stayed. We were not addressed on the terms of new lease or on any other terms of the acquisition still in dispute. The hearing

3 8. The hearing in this matter took place on 25 September 2018. The applicant was represented by Mr [APPELLANT], who also gave expert evidence on behalf of the applicant in accordance with an undated written report.

9. The respondents were represented by Mr [RESPONDENT], who also gave expert evidence on behalf of the respondents in accordance with a written report dated 8 August 2018.

10. The Tribunal did not find it was necessary to conduct an inspection. The issues Matters agreed 11. The following matters were agreed between the respective experts in a memorandum dated 8 August 2018: Date of valuation 15 August 2017 Unexpired term at valuation date 54.36 years Capitalisation rate 7% Deferment rate 5% Section 33 valuation costs £1,853.36 (including VAT)

Matters in dispute 12. The following matters remained in dispute: The value of the flat with the extended lease in accordance with the Act. The appropriate freehold relativity. Hence, the marriage value (50/50). Appropriate premium to be

4 paid.

Value of the flat with the extended lease 13. Mr [NAME] relied upon three comparable flats:

(1) First floor flat, [ADDRESS].

(2) Ground floor flat, [ADDRESS].

(3) Ground floor flat, [ADDRESS].

Based on these comparable Mr [NAME] valued the flat with an extended lease at £350,000 taking into account a tenant’s improvements. Without the improvements £400,000. 14. Mr [NAME] relied upon six comparable flats:

(1) [ADDRESS], [ADDRESS].

(2) [ADDRESS], [ADDRESS].

(3) Ground floor flat, [ADDRESS].

(4) First floor flat, [ADDRESS].

(5) [ADDRESS].

(6) [ADDRESS], [ADDRESS].

Based on these comparable Mr [NAME] valued the flat with an extended lease at £515,000.

15. We preferred the evidence of Mr [NAME] for the reasons set out in the following paragraphs and value the flat with an extended lease at £515,000 and a freehold value of £520,202.

16. Mr [NAME] relied upon six comparables. He found that the adjusted pound per ft2 was £628.00. He applied this to the 820 ft2 of the flat, resulting in a rounded down figure of £515,000. This analysis was not challenged by Mr [NAME].

5 17. Mr [NAME] used a basket of comparables, including properties that were close by, and were similar in size though not identical to the flat. He pointed out that his comparables in [ADDRESS] were in a mansion type block owned by the [COMPANY]. He felt that these flats were not as desirable as the flat as they only had access to communal gardens, and often these types of flat had service charge problems. He adjusted his figures for these factors as well as [NAME] adjustments for time in that some of the comparables sold at dates different to the valuation date.

18. Mr [NAME], on the other hand, relied on only three comparables and did not explain how he arrived at his figure of £400,000. He made adjustments for a garage and a parking space, the latter Mr [NAME] disputed, and he also discounted for the possibility of developing the roof space which was not included in the demise. He also deducted for tenants’ improvements. This was unnecessary as his comparables were flats in their original condition though updated to comply with the terms of the lease. The improvements he was arguing for were an ensuite bathroom, full central heating and double glazing.

19. Mr [NAME] made no adjustments for time. When cross-examined as to why he had not included [ADDRESS] in his list of comparables, his reply was that he chose comparables which best suited his client. This is in breach of the fundamental principle that his duty as an expert is to the Tribunal, and not to his client. Relativity 20. Mr [NAME] put forward a relativity rate of 82.63%. He relied upon an average of the following graphs: 1. [NAME] 80.00% 2. [NAME] [NAME] 82.50% 3. [NAME] 83.00% 4. [NAME] 85.00%

21. Mr [NAME] put forward a relativity rate of 77.82%. He relied upon an average of the following graphs: 1. [NAME] 73.90%

6 2. [NAME] 77.62% 3. John D Wood Pure Tribunal Graph 78.05% 4. [NAME] 78.10% 5. [NAME] 79.36% 6. [NAME] 79.93%

22. In our view, we should ignore the tables produced by [NAME], [NAME], John D Wood Pure Tribunal Graph and [NAME]. The first two are predominantly, if not wholly, [NAME]. John D [NAME] is an analysis of all Tribunal decisions countrywide. [NAME] is not transaction-based but opinion based and concentrates on properties in Croydon.

23. We prefer to rely upon the graphs of [NAME] and [NAME]. Mr [NAME] relied upon an email from the latter saying that relativity falls as one gets near to Central London. But he also said he did not know why and he was not present at the Tribunal to be questioned. The average of [NAME] (79.36% extrapolated for 54.36 years) and [NAME] (81.92% extrapolated 54.36 years) is 80.64%. Name: Judge Simon Brilliant Date: 15 October 2018

Date Corrected: 20 November 2018

Rights of appeal

By rule 36(2) of the Tribunal Procedure (First-tier Tribunal) ([NAME]) 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].

7 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).