First-tier Tribunal Determines Premium for New Lease

© CROWN COPYRIGHT

FIRST-TIER TRIBUNAL [NAME] (RESIDENTIAL PROPERTY) Case reference : LON/00AG/OLR/2018/0305 Property : [ADDRESS], [POSTCODE] Applicant : [redacted] : Ms [COUNSEL], [RESPONDENT], Solicitors Respondent : [redacted] : Mr [COUNSEL] of Counsel Type of [NAME] : Section 48 of the Leasehold Reform, Housing and Urban Development Act 1993 Tribunal members : Judge I [NAME], BSc MRICS Date of hearing and venue : 2 [ADDRESS] [POSTCODE] Date of decision : 26 November 2018

DECISION

Background 1. This is an [NAME] made by the Applicant qualifying tenant pursuant to section 48 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 [ADDRESS], [POSTCODE] (the “property”).

2 2. By a notice of a claim dated 3 July 2017, served pursuant to section 42 of the Act, the former leaseholder, [NAME], exercised the right for the grant of a new lease of the property and proposed to pay a premium of £27,730. On 10 July 2017 the notice was assigned to the Applicant when he purchased the leasehold interest.

3. On 6 September 2017, the Respondent freeholder served a counter- notice admitting the validity of the claim and counter-proposed a premium of £99,000.

4. On 21 February 2018, the Applicant applied to the Tribunal for a determination of the premium and terms of acquisition. The Issues Matters Agreed 5. These are the valuation date of 3 July 2017 and a deferment rate of 5%.

The parties had also agreed the terms of new lease. Matters Not Agreed 6. The issues not agreed were:

(a) Capitalisation rate.

(b) Floor area.

(c) Freehold vacant possession value.

(d) Existing lease value. 7. The Applicant relied upon the expert report and valuation of Mr [APPELLANT], [NAME] dated 1 October 2018 and the Respondent relied upon the expert report and valuation of Mr [NAME], BSc (Hons) MSc MARLA MRICS dated 27 September 2018.

Decision 8. The hearing in this case took place on 2 October 2018. The Applicant was represented by Ms [COUNSEL] a Solicitor from [APPELLANT]. The Respondent was represented by Mr [COUNSEL] of Counsel.

3 Procedural

9. Neither valuer had complied with the Tribunal’s Directions to serve their valuation reports not less than 2 weeks before the hearing date. [NAME] had attempted to do so, but no response was obtained from Mr [NAME]. Nevertheless, the Tribunal explained that this should not have prevented Mr [NAME] from complying with the Tribunal’s Directions by, for example, obtaining an undertaking from Mr [NAME] not to read his report until such time as he had served his report on Mr [NAME].

10. The only reason advanced by both sides for not complying with the Tribunal’s direction as to service of the reports was that both valuers were negotiating and had hoped to reach a settlement. The Tribunal did not consider this to be a good reason for non-compliance. Negotiations between the parties does not stay or suspend compliance with the Tribunal’s Directions. There is no certainty that negotiations will prove to be successful. It is incumbent on the parties to both comply with Directions and negotiate at the same time.

11. The situation faced by the Tribunal here is, unfortunately, a regular occurrence and is unacceptable. Solicitors and valuers instructed by parties are bound by their professional duty to comply with Directions issued by the Tribunal. A failure to do so is potentially a professional conduct issue.

12. Perhaps more importantly for practitioners is that by failing to comply with the Tribunal’s Directions, the Applicant runs the significant risk to having their [NAME] struck out or the Respondent runs the risk of being debarred from defending the claim. The consequences for professional advisers are obvious.

13. Indeed, in the present case, the Directions expressly provided that failure to comply with them had the potential consequences. The [NAME] could be struck out under Rule 9(3)(a) of the Tribunal Procedure (First-tier Tribunal) ([NAME]) Rules 2013 (“the 2013 Rules”) or the Respondent debarred from defending under Rules 9(7) and (8).

14. Both parties made cross applications for relief from sanctions. Having considered the submissions made, the Tribunal reluctantly granted relief from sanctions and gave permission for the expert reports to be admitted in evidence. The only basis on which the Tribunal did so was that both parties were in a position to proceed and neither had taken any point about prejudice caused by the late service of the reports. Had this not been the case, the Tribunal would have had little hesitation in striking out the [NAME] and [NAME] any appropriate cost order against the Respondent.

15. After careful consideration, the Tribunal preferred the evidence and

valuation of Mr [RESPONDENT], the Respondent’s valuer for the following reasons.

4 Comparable Evidence

16. Mr [NAME] provided only three comparable with no accompanying

explanation of how they had been analysed and which were then

ignored in reaching his opinion of freehold value. Indeed, two of the

comparables were discounted during the Tribunal hearing. In Mr

[NAME] report, he provided nine comparables properties including a

narrative explaining his reasons for adjusting the values to reach his

opinion of freehold value.

Floor Area

17. Mr [NAME] claimed to have measured the property ‘in accordance with

the RICS Professional Statement of Property Measurement’ to

‘approximately 32.46 sq m (349 sq ft)’. During the Tribunal he

confirmed this and stated he would have been using a laser measuring

device. Interestingly, later in his report he said he reached his freehold

vacant possession value ‘based on the agent’ measurements of 360 sq

ft. Further, during cross examination he admitted he has included an

area of around 9 square feet not included in the demise of the flat. No

calculations were provided by Mr [NAME] in his report showing how he

had reached his areas, nor was he able to say when he inspected

without consulting an unsubmitted document. Mr [NAME] report stated

the date of inspection and included a copy of his sketch plan with the

measurements taken.

Adjustments

18. Despite providing three comparables, Mr. [NAME] ignored these and

made an adjustment of 1.7% to the purchase price of the flat to reflect

the no act world. He then applied the Savills Enfranchiseable Graph at

87.70% to arrive at his freehold vacant possession value of £521,202.

No explanation is given in his report as to how he reached that

percentage. In cross-examination he confirmed it was the difference of

the Savills Enfranchiseable and Unenfranchiseable reports. Also, no

explanation was provided as to why no other graphs were not

considered and if they were, why they were discounted.

19. Mr. [NAME] also made reference to differential of 1.7% in the two Savills

graphs. He then went on to explain why he considered this too small an

adjustment for this property in its location and his reasons for

preferring 5%. In reaching his relativity figure of 80.52%, Mr [NAME]

report give an analysis as to how he arrived at the figure along with

graphs he consulted as a ‘sense check’.

20. Based on the evidence before the Tribunal, it considered the evidence

and valuation of Mr [NAME] to be preferable that of Mr [NAME]. Therefore,

the Tribunal made the following findings:

Valuation Date

3 July 2017 (previously

agreed)

5

Deferment Rate

5% (Previously agreed)

Capitalisation Rate

6.5%

Floor Area

363 sq ft (33.77 sq m)

Capitalisation Rate

6.5%

Freehold Vacant Possession Value £550,000

Existing Lease value

£441,500 (relativity 80.32%)

21. Accordingly, the tribunal determined that the appropriate premium to be paid for the new lease of the property is £59,520. A copy of [NAME]’s valuation is annexed to this decision.

Name: Judge I Mohabir Date: 26 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]. 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).

6