First-tier Tribunal Determines Lease Renewal Premium

OUTCOME: Allowed

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00BB/OLR/2020/0331 Property : [ADDRESS] [POSTCODE] Applicant : [redacted] : Respondent : [redacted] : Type of [NAME] : Section 48 of the Leasehold Reform, Housing and Urban Development Act 1993 Tribunal members : Judge [NAME] of determination and venue : 08 December 2020 at 10 [ADDRESS] [POSTCODE] Date of decision : 08 December 2020

DECISION

© CROWN COPYRIGHT

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Summary of the tribunal’s decision (1) The appropriate premium payable into court for the new lease is £6,300. This is subject to the set off referred to in paragraph 9 below. Background 1. This is a missing landlord case. The case was heard on paper.

2. The Applicant is the lessee of [ADDRESS] [POSTCODE] (“the property”) under a lease dated 29 October 2002 (“the existing lease”).

3. The existing lease is registered under title number EGL447121. It is for a term of 99 years from 29 October 2002.

Accordingly, there are 81 years left on the lease.

4. The ground rent is £100 during the first 33 years, £200 during the second 33 years and £300 during the final 33 years.

5. The Respondent is the freeholder of [ADDRESS], registered under title EGL274633.

6. The Applicant has never met the Respondent and has been unable to locate him.

7. By a notice of claim brought in the County Court at Clerkenwell and Shoreditch dated 5 November 2019, the Applicant sought a vesting order pursuant to s.50 Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) providing for the surrender of the existing lease and for the granting of a new lease on such terms as might be determined by the Tribunal, with a view to the new lease being granted in like manner as if the Applicant had, at the date of her [NAME], given notice under s.42 of the Act to exercise her right to require a new lease of the property.

8. By an order dated 20 February 2020, District Judge Manners ordered that there should be a vesting order and the Applicant might make an [NAME] to the Tribunal for determination of the lease terms together with the sums payable under s.51(5) of the Act.

9. The Respondent was ordered to pay the costs assessed in the sum of £2,806.58, and the Applicant was given permission to set this sum off against the sums payable into court. The property 10. The Applicant relies on a valuation prepared by Mr [APPELLANT] dated 6 April 2020.

11. The property is a self-contained flat on the first floor of a two-storey, mid-terraced building. Originally there were commercial premises on the ground floor, but the commercial use has been discontinued and the ground floor is now in residential use.

12. The flat is approached from the separate entrance at the front of the building with an internal staircase providing access to the first floor.

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There is no private outside space demised to the Applicant.

13. The area is a mixed one, but predominantly residential in East London. It is reasonably well served by the local shopping, public transport and other facilities.

14. There are a few local shops but better shopping facilities can be found approximately up up 0.5 km away. Three underground stations and one mainline station are all within 1 km of the property.

15. The flat comprises an entrance hall and stairs, three rooms, a kitchen and bathroom. The gross internal floor area is in the region of 60m² (645 ft²). There is independent gas fired central heating 16. The exterior of the building has only been maintained to a basic standard. There has been a general lack of maintenance. The property itself has been maintained to a basic overall standard. Fixtures, fittings and decoration all show general wear and tear. There is condensation or penetrating dampness in some of the rooms. The valuation 17. For the purposes of valuation it has to be assumed that the property has been maintained in accordance with the full repairing covenants in the existing lease.

18. The matters to be considered are (a) capitalisation rate, (b) deferment rate, (c) the unimproved extended lease value, and (d) value of the property in possession to the Respondent. There is no marriage value. The valuation date is 19 October 2019. Capitalisation rate 19. Mr [NAME] takes the capitalisation rate as 7%. This is the rate usually agreed between valuers for suburban properties with a modest ground rent and limited provision of the rent review. Deferment Rate 20. Taking into account the Upper Tribunal decision in [NAME] v [COMPANY] [2013] UKUT 0334 (LC), [NAME] has applied a deferment rate of 5% to calculate the value of the Respondent’s present and future reversions. The unimproved extended lease value and comparable evidence 21. Mr [NAME] has made verbal enquiries of the [NAME] and searched Internet sites such as “[NAME]”, “[NAME]” and “[COMPANY]”.

22. His analysis of these comparable transactions include adjustments, where possible, for size, location, date of sale, condition and any other amenities such as outside space. To adjust the differences in the date of sales of comparable properties, he had used the index of property prices produced by the Land Registry for flats in Newham (“the index”).

23. Mr [NAME] except that comparable evidence is very limited and far from compelling. But his research suggests that the market value of the property of this type and size, maintained in good general condition and

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with a good long lease, would have been likely to fall in the range of £200,000-£250,000 at the valuation date.

24. In addition, [NAME] put a figure of £240,000 - £250,000 on the property. The [NAME] agent was of the opinion that the figure would be nearer to £200,000.

25. The property was purchased for £107,000 in April 2011. The index suggests that the value of the property would have increased to a figure of £193,400 since then.

26. Mr [NAME] relies upon four comparables.

27. The first comparable is 2(a) [ADDRESS], London E12. This is a slightly larger (678 ft2) two bedroom flat above shop premises. It sold, apparently in good condition, in March 2019 for £243,000. The index suggests that the value would have increased to £244,650 at the valuation date.

28. The second comparable is [ADDRESS], London E12. This is a two bedroom first floor flat in basic condition situated above former commercial premises. An offer of £185,000 was received for the flat in mid-2019, but this does not appear to have resulted in a completed sale. The flat was offered for sale by public auction on 30 April 2020 with a guide price of £17o,ooo. We are not told what happened at the auction.

29. The third comparable is 684(a) [ADDRESS], London E12. This is a two-bedroom, first floor flat situated over commercial premises. It was sold, apparently in average condition in June 2018 for £215,000. The index suggests that the value would have increased to £216,000 at the valuation date.

30. The fourth comparable is [ADDRESS], London E6. This is a two bedroom first floor flat in a converted house. It was sold, apparently in good condition, in January 2024 £260,000. The index suggests that the value of the flat would have been in the order of £261,200 at the valuation date.

31. Taking these comparable into consideration, Mr [NAME] is of the opinion that the value of the property is likely to have been around the midpoint of the range suggested above of £200,000-£250,000 at the valuation date. He therefore adopts a long lease value of £225,000. Value of the property in possession to the Respondent 32. Mr [RESPONDENT] says that in common with most valuers he has taken the long lease value to be approximately 99% of the value of the property in possession to the Respondent. The 1% differential represents the advantage to the landlord when possession is obtained at the end of the lease. Calculation of the value 33. Mr [NAME] comes to a figure of £6,300.

34. He has arrived at this figure as follows:

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Ground Rent

100

[NAME] 15.03 7.00

9.1184 912

Revised Ground Rent

200

[NAME] 33 7.00 12.7538

PV £1 def 15.03 7.00 0.3617 4.6132 923

Revised Ground Rent

300

[NAME] 33 7.00 12.7538

PV £1 def 48.03 7.00 0.0388 0.4947 148

Present reversion

Value in possession to the Respondent

227,273

PV £1 def 81.03 5.00

0.0192 4, 361

Proposed reversion

Value in possession to the Respondent

227,273

PV £1 def 171.03 5.00

0.0002 54 6,290

Marriage Value

0

Lease Renewal Premium

6,290 say 6,300

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Our assessment of Mr [NAME] evidence 35. In the main, we agree with and accept Mr [NAME] evidence. The comparables are good ones. The freehold value should be the extended value plus 1%. This comes to £227,250. Also, be present value in possession to the Respondent is £45 not £54. Reworking valuation with these figures the premium should be £6,301.

Accordingly, we do not disagree with Mr [NAME] figure.

36. Finally, we approve the draft of the lease but forward by the Applicant.

Name: Judge Simon Brilliant Date: 08 December 2020

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 [NAME] which has been dealing with the case.

The [NAME] for permission to appeal must arrive at the [NAME] 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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