First-tier Tribunal Determines Lease Premium Under the 1993 Act

OUTCOME: Allowed

© CROWN COPYRIGHT

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00AC/OLR/2024/0351 Property : 1105A [ADDRESS] [POSTCODE] Applicant: [redacted] : [NAME] [COUNSEL] instructed by [RESPONDENT] solicitors Respondent : [redacted] : [NAME]. [COUNSEL](Hons) PGDip Surv Assoc RICS instructed by [COMPANY] of application :

Section 48 of the Leasehold Reform, Housing and Urban Development Act 1993 Tribunal members : Judge [NAME] A Harris LLM FRICS FCIArb Date of determination and venue : 4 February 2025 at 10 [ADDRESS] [POSTCODE] Date of decision : 4 February 2025

DECISION

Summary of the tribunal’s decision (1) The appropriate premium payable for the new lease is £80,630. Background 1. This is an application made by the applicant leaseholder pursuant to section 48 of the Leasehold Reform, Housing and Urban Development

2 Act 1993 (“the Act”) for a determination of the premium to be paid for the grant of a new lease of 1105A [ADDRESS] [POSTCODE] (the “property”).

2. By a notice of a claim dated 30 August 2023, served pursuant to section 42 of the Act, the applicant exercised the right for the grant of a new lease in respect of the subject property. At the time, the applicant held the existing lease granted on 10 December 1982 for a term of 99 years from 29 September 1981 at an annual ground rent of £50 rising by £50 each 33 years. The applicant proposed to pay a premium of £58,000 for the new lease.

3. On 2 November 2023, the respondent freeholder served a counter-notice admitting the validity of the claim and counter-proposed a premium of £120,000 for the grant of a new lease.

4. On 23 April 2024, the applicant applied to the tribunal for a determination of the premium. The issues Matters agreed 5. The following matters were agreed: (a) The subject property is a self-contained maisonette on the first and second floors of a three storey property with commercial premises at ground floor level; (b) The gross internal floor area is 1,410 square feet; (c) The valuation date: 30 August 2023 (d) Unexpired term: 57.08; (e) Ground rent: £50 rising after 33 years to £100 and for the remainder of the term rising to £150 per annum; (f) Relativity is agreed at 76.71%; (g) Capitalisation of ground rent: 8% per annum; and (h) Deferment rate: 5%. (i) New lease value agreed at 99% of the freehold vacant possession value Matters not agreed 6. The following matters were not agreed: (a) The freehold (unimproved) value: the applicant contending for £450,000 and the respondent contending for £650,000; and

3 (b) The premium payable. The hearing 7. The hearing in this matter took place on 4 February 2025. The applicant was represented by [NAME] [APPELLANT], and the respondent by [NAME] [RESPONDENT]. We had a bundle of some 166 pages, which we considered in advance of the hearing.

8. 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.

9. The applicant relied upon the expert report and valuation of [NAME] [RESPONDENT] [NAME] dated 20 January 2025 and the respondent relied upon the expert report and valuation of [NAME] [NAME] dated 15 January 2025 Unimproved value of the property with freehold in possession.

10. We had a short hearing on 4 February 2025. Both valuers spoke to their reports. However, [NAME] [NAME] [NAME] had reviewed the comparable included in [NAME] [NAME] report of 1039A [ADDRESS] [POSTCODE] and revised his valuation as a result. Instead of a value of £66,000 he concluded that the premium payable should be uplifted to £80,422. [NAME] [NAME] sought a premium of £94,774.

11. We did ask if there was the possibility of a compromise, but it seemed not. 12. [NAME] [NAME] [NAME] considered that the comparable of [ADDRESS] was the best available to him. It had sold in December 2022 for £512,500. [NAME] [NAME] had adjusted this comparable in his list for time to £498,090, an adjustment with which [NAME] [NAME] [NAME] agreed. It was smaller than the property with two instead of three bedrooms. however, it was close in time and location. He did not rely on the other comparable properties set out in his report.

13. In a late addition to the bundle, he had provided photographs of this property, which he thought showed improvements such as the wooden flooring and a new kitchen. Taking the matter in the round he had uplifted his view on the reversion to freehold vacant possession value to £550,000 from £450,000, thus lifting the premium to be paid from £65,920 to £80,422.

14. There had been discussion concerning the use clause in the property lease which limited the use “as a private residence in the occupation of one family only” (see clause 2(11) of the lease). The lease for 1039A had

4 a similar user clause not to permit the property to be used “other than a self contained private dwelling for residential purposes only” (see paragraph (k) of the Third schedule). It was therefore agreed between the valuers that no adjustment was necessary for the restrictions against multiple letting (HMO style) if we accepted 1039A as the best comparable. 15. [NAME] [NAME] [NAME] commented upon the comparables put forward by [NAME] [NAME]. There were four. He considered that the flats at Temple Fortune House and 10 Arcade House were in a superior position to [ADDRESS] but reasserted that in his opinion the property at 1039A was the best. He did not think that the use of square footage rates applied in this case.

16. For his part [NAME] [NAME] agreed that the use of square footage rates was not the best evidence, He adjusted for time only, considering there were no adjustments that needed to be made for condition. Although he accepted that the property at 12 Temple Fortune House was something of an outlier nonetheless it was a flat above a shop in the locality and thus relevant. He accepted that the comparable at 10 Arcade House was close to [NAME] [NAME] [NAME]’s assessment of value.

17. In so far as [ADDRESS] was concerned whilst he could accept this was a good comparable, given the paucity of evidence available to the valuers, he did make the point that the flat was smaller, with one bedroom less which would have an impact on value. He did not accept that it was improved. Refurbishment was what was required by the lease and did not equal improvements. He gave no value for the limited outside space.

18. One other matter we should mention is the incorrect capitalisation rate used by [NAME] [NAME], He corrected this to give a premium of £94,674. In addition [NAME] [NAME] [NAME] had omitted an element from his valuation, namely the freeholders proposed interest, which we have assessed at £421.00 as shown on the attached valuation. The tribunal’s determination 19. The tribunal determines that the value of the unimproved freehold with vacant possession value is £550,000. Reasons for the tribunal’s determination 20. We had a preference for the opinion of [NAME] [NAME] [NAME], although we accept that there appears to be a shortage of true comparables. The valuers had limited their range to flats above commercial premises in the locality, which is appropriate. We felt that [NAME] [NAME] [NAME] had made more of an attempt to explain his views on the appropriate value to be

5 attributed to the subject property. He was also willing to review his valuation following a reassessment of the comparable at [ADDRESS]. 21. [NAME] [NAME] had given us four comparables with square footage rates ranging from £397.07 to £531.54 but little else in the way of explanation. It was only the evening before that we were provided with copies of the leases for these flats, but no Land Registry details, nor estate agents’ particulars were provided.

22. Although we do not consider that the square footage route is appropriate in this case, it is interesting to note the closeness of the values of the properties at 10 Arcade House and [ADDRESS]. We did not think any allowance had to be made for condition as little in the way of evidence was put to us. We do not consider the flat at 1039A was improved, we agree with [NAME] [NAME] that it had been refurbished in accordance with the lease terms. 23. [NAME] [NAME] [NAME] had readjusted his value quite considerably when reviewing the comparable of [ADDRESS], which he said came to him late in the day. His research confirmed the value attributed to this property by [NAME] [NAME] and sat with the other comparable at 10 Arcade House, [ADDRESS], which he considered to be a superior style of property to the subject property, but slightly smaller. The premium 24. The tribunal determines the appropriate premium to be £80,630. A copy of its valuation calculation is annexed to this decision.

Name: Judge Dutton Date: 4 February 2025

Appendix: Valuation setting out the tribunal’s calculations

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.

6 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).

7 CASE REFERENCE LON/00AC/OLR/2014/0106

First-tier Tribunal Property Chamber (Residential Property)

Valuation under Schedule 13 of the Leasehold Reform Housing and Urban Development Act 1993

Premium payable for an extended leasehold Interest in 1105A [ADDRESS] [POSTCODE]

Valuation date: 30 August 2023

8

Address Tribunal Valuation Valuation Date 30 August 2023 Existing lease Expiry Date 28 September 2080 Years unexpired 57.08 Length of new lease 147.08 Existing Ground Rent £100.00 Basis of review Date of 1st review 29 September 2047 Years to 1st review 24.08 Length of period 33 Rent at 1st review £150.00 Capitalisation Rate 8.00% Deferment Rate 5.00% Long Lease Figure £544,500 F/H to Long lease change 99% Freehold figure £550,000 Real World Short Lease Value No Act Discount Relativity Rate 76.17% Current Lease Value £418,935 Cap Rate P/V Multiplier Term Value Term 1 £100.00 24.08 8.00% 10.5412 1 10.5412 £1,054 1st Review £150 33.00 8.00% 11.5139 0.16 1.8043 £271 £1,325 REVERSION VALUE Capital Value Years to Reversion Deferment Rate P/V Reversion Value £550,000 57.08 0.05 0.0617 £33,951 £35,275 NEW FREEHOLD VALUE Capital Value Years to Reversion Deferment Rate P/V Reversion Value £550,000 147.08 0.05 0.0008 £421 MARRIAGE VALUE CALCULATION Value of Freeholders New Interest £421 Value of [NAME] £544,500 £544,921 less Value of Freeholders Current Interest £35,275 Value of [NAME] £418,935 £454,210 Difference £90,710 50% of Difference £45,355 CALCULATION OF PAYMENT BY LEASEHOLDER Freeholders Current Value £35,275 Share of Marriage Value £45,355 £80,630 Total Term Value [ADDRESS] Infomation EXISTING FREEHOLD VALUE TERM VALUE