First-tier Tribunal Determines Lease Premium Under Leasehold Reform Act

OUTCOME: Allowed

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00AJ/OLR/2018/0635 Property : 40 [ADDRESS] [POSTCODE] Applicant : [redacted] : [COUNSEL] Solicitors

Respondent : [redacted] Representative :

Type of [NAME] : Section 51 of the Leasehold Reform, Housing and Urban Development Act 1993 Tribunal members : Tribunal Judge [NAME] of determination and venue : 18th June 2018 at 10 [ADDRESS] [POSTCODE] Date of decision : 18th June 2018

DECISION

Summary of the tribunal’s decision The appropriate premium payable for the new lease is £37,713 as set out on the attached valuation.

2 Background 1. On 21st July 2017 the Applicant commenced proceedings in the County Court at Central London under claim number D02CL026 pursuant to section 50 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 40 [ADDRESS] [POSTCODE] (the “Property”).

2. By an Order dated 28th March 2018, amongst other matters, the claim was transferred to this Tribunal for the purposes of determining the premium payable and to approve the form of the new lease. It is noted that the costs of the Applicant had been assessed at £6,000 including VAT and that sum was to be deducted from the amount we found to be payable for the premium 3. In support of the [NAME] we were provided with a copy of a report from Mr [NAME] of Ringley, [NAME] dated 28th June 2016. However this report was, it would seem, for the purposes of advising the Applicant on a figure which could be inserted in the Initial Notice. Three scenarios were contemplated giving values of £42,115 from the Landlord’s point of view, £33,170 as a possible settlement figure and £22,375 as a figure to be inserted in the Initial Notice.

4. By a later report prepared by [NAME] of [COMPANY] dated 31st May 2018 a figure of £36,200 was advanced as being the premium payable. This report has the correct valuation date, has been prepared for the purposes of an [NAME] under sections 50 and 51 of the Act and contains the usual expert’s declaration.

5. It is said by the solicitors for the Applicant that the figures suggested in the two reports are “considerably different”. It is not wholly clear what the purpose was of including the first report. It pre-dates the valuation date and was not provided for the purposes of determining the premium payable following an [NAME] to the Court under the Act. It contains no declaration. In addition it is noted that the possible settlement figure is not far removed from the value attributed by Mr [NAME].

6. Mr [NAME] report speaks to a capitalisation rate of 6%, a deferment rate of 5.25%, a long lease value of £420,000 with a 1% discount from freehold to long leasehold. As to [NAME] Mr [NAME] has suggested a rate of 85.43% based on an adjusted Savills graph and a [NAME].

3 The tribunal’s determination 7. We find that the report of Mr [NAME] should not be considered by us for the reasons set out above at paragraph 5.

8. We therefore confine our decision to considering the report of Mr [NAME]. We have considered the comparable evidence put forward and accept the long lease value of £420,000.

9. The uplift of 1% for the freehold is uncontentious and we are in agreement with the capitalisation rate of 6%. The deferment rate of 5.25%, for the reasons set out in Mr [NAME] report is noted, but not accepted by us. As he himself says there must be compelling evidence to depart from the 5% set by the Upper Tribunal in [NAME] and as revisited by the Court of Appeal. In this case it is said that the repairing obligations are a “little ambiguous”. The lease is, in effect a full repairing and insuring lease. We do not see that this imposes any management problems justifying the departure from the ‘[NAME]’ rate of 5%.

10. Mr [NAME] has advanced arguments to support his view on [NAME]. We have noted all that has been said. He appears to be arguing for a [NAME] based on the [NAME] enfranchiseable graph of 87.20% from which he has deducted 3.25% to represent the discount for the “No Act World”. This he says gives a percentage of 83.95%. However he then adopted the Gerald Eve Graph of 86.66% and the Savills figure, which he includes at 84.20%, which is inexplicably inconsistent with the his earlier assessment of 83.95% to achieve an average of 85.43%. If we apply the 86.66% and 83.95% we find a [NAME] of 85.30%. In accepting, in this case, his views on the basis of calculating [NAME] for this lease, we find that the rate should be 85.30%, following his own figures.

11. Applying these elements to the valuation we find that the premium to be paid for the new lese is £37,713 as set out on the attached valuation.

12. The terms of the extended lease, the draft of which was included in the bundle before us is approved (see tab 11 of the bundle) save that we consider that the grant should be with limited title guarantee and that the signature clause should be amended to provide for execution by a District Judge of the County Court as set out at paragraph 2 of the said Order. Name: Tribunal Judge Dutton Date: 18th June 2018

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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).

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Appendix A

First Tier Tribunal (Property Chamber)

Ref: GM/LON/00AJ/OLR/2018/0635

40 [ADDRESS] [POSTCODE]

Valuation Date

21 July 2017

Lease granted for 99 years from 25 December 1987

Unexpired term

69.43 years

Ground rent

£100 pa until 2020

£200 until 2053

£300 for the remainder

Unimproved vacant freehold value

£424,242

Extended lease value

£420,000

Capitalisation rate

6%

Deferment rate

5%

Value of existing lease

£361,878

[NAME]

85.30%

Valuation of [NAME]'s current interest

Ground rent - 1st period

£100

[NAME] 3.43 years @ 6.%

3.0193

£302

Ground rent - 2nd period

£200

[NAME] 33 years @ 6%

14.2302

Deferred 3.43 yrs @ 6%

0.8188

£2,330

Ground rent - 3rd period

£300

[NAME] 33 years @ 6%

14.2302

Deferred 36.43 yrs @ 6%

0.1197

£511

Reversion to freehold value

£424,242

Deferred 69.43 yrs @ 5%

0.0338

£14,339

[NAME]'s current value

£17,482

Value after grant of extended lease

Ground rent for 159.43 years

£0

Reversion to freehold value

£424,242

Deferred 159.43 yrs @ 5%

0.0004186

£178

Diminution in [NAME]'s interest

£17,304

Marriage Value

Value after enfranchisement

Freeholders interest

£178

Tenant's interest

£420,000 £420,178

Value before enfranchisement

6 Freeholders interest from above

£17,482

Tenant's interest

£361,878 £379,360

Marriage value

£40,818

Divide equally between parties

£20,409 £20,409

Premium payable to [NAME] £37,713