First-tier Tribunal Sets Enfranchisement Premium at £22,000

OUTCOME: Allowed

FIRST-TIER TRIBUNAL

PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Case reference : LON/00BE/OCE/2019/0233 Property : 22 [ADDRESS] [POSTCODE] Applicants : [redacted] [NAME], [COUNSEL]. [NAME] and [COUNSEL].J. [COUNSEL] : [COUNSEL] [NAME] [RESPONDENT], solicitors Respondent : [redacted] : [COUNSEL] of [NAME] : Section 24 of the Leasehold Reform, Housing and Urban Development Act 1993 Tribunal members : Judge [NAME] of determination and : venue 17 March 2020 at 10 [ADDRESS] [POSTCODE] Date of decision : 30 March 2020

DECISION

Summary of the tribunal’s decision

The appropriate premium payable for the collective enfranchisement is Twenty-two thousand pounds (£22,000.00).

2 © CROWN COPYRIGHT

Background 1. This is an [NAME] made by the applicant qualifying tenants pursuant to section 24 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) for a determination of the premium to be paid for the collective enfranchisement of 22 [ADDRESS] [POSTCODE] (the “property”).

2. By a notice of a claim dated 1 July 2019, served pursuant to section 13 of the Act, the applicants exercised the right for the acquisition of the freehold of the subject property and proposed to pay a premium of £17,100 for the freehold.

3. On 22 August, the respondent freeholder (who is also the tenant of Flat 5 at the Property) served a counter-notice admitting the validity of the claim and counter-proposed a premium of ££75,000 for the freehold.

4. By an [NAME] dated 25 November 2019, the applicants applied to the tribunal for a determination of the premium and terms of acquisition.

5. The tribunal issued directions on 13 December 2020.

The issues

Matters agreed

6. The following matters were agreed: a. The subject property: is a detached building constructed c.2008/2009 on the site of a former mission hall. It contains five purpose-built flats on an approximately rectangular shaped, sloping site. It is constructed over ground and three upper floors and the flats are approached from a communal entrance and internal staircase. There are two flats on the ground floor and one flat on each of the upper floors. Flat 5 occupies the whole of the third floor, access is from a communal staircase on the second floor. There is no lift. The building has brick faced and render-coated walls under a flat roof. The flats enjoy access to a communal garden at the rear. Flat 2 on the ground floor has a small private rear garden. Flat 1 has a small section of front garden. There is a roof terrace at 1st floor level at the rear of the building which is demised to Flat 3. Flats 2 and 3 have demised car parking spaces. There is a separate lease of one other ground floor parking space. b. The valuation date:

3 1 July 2019; c. Details of the tenants’ leasehold interests: The five flat leases were all granted for terms of 125 years from 1 January 2009 (having 114.51 years unexpired at the valuation date). The ground rent reserved in each flat lease is £100 p.a. for the first twenty-five years of the term, rising to £200 p.a. for the next twenty-five years, £300 p.a. for the subsequent twenty-five years, and £400 p.a. for the remainder of the term. The parking space lease is held for a term of 125 years from 1 January 2009 at a ground rent of a peppercorn p.a. d. Capitalisation of ground rent: 6% per annum; e. Deferment rate: 5%. f. Term and reversion value: £20,000, including the additional property, namely the communal areas over which the leaseholders have rights.

Matters not agreed

7. The following matters were not agreed a. Development hope value; and b. The premium payable

The hearing

8. The hearing in this matter took place on 17 March 2020. The applicants were represented by [NAME] [NAME]. [NAME]. [NAME] a consultant to [RESPONDENT] and [NAME], [NAME]. The respondent was represented by [NAME] [RESPONDENT]. [RESPONDENT] of [RESPONDENT], chartered [NAME].

9. 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.

10. The applicants relied upon the expert report and valuation of [NAME] [RESPONDENT] dated 3 March 2020 and the respondent relied upon the expert report and valuation of [NAME] dated 12 March 2020.

11. The bundles before the tribunal included a planning report prepared for the applicants by [NAME] [NAME]. [NAME] of [NAME] (“[NAME]”) dated 26 February 2020, and a planning report prepared for the respondent by [NAME] [RESPONDENT] [NAME] of WYG dated 12 March 2020. Neither planner attended the hearing.

12. The tribunal had regard to the experts’ reports, and other documents in the bundles before it, including the leases of the flats at the property. It noted, but had less regard to, the planning reports as the planners did not attend the hearing and were not available to be cross-examined. As appropriate the tribunal refers to these in its decision below.

4 The tribunal’s determination and reasons

13. The issue before the tribunal to determine was the development hope value to be added to the premium payable by the applicants for the collective enfranchisement of the property.

Paragraph 5 of Schedule 6 of the Act provides

Compensation for loss resulting from enfranchisement 5(1)Where the freeholder will suffer any loss or damage to which this paragraph applies, there shall be payable to him such amount as is reasonable to compensate him for that loss or damage. (2)This paragraph applies to— (a)any diminution in value of any interest of the freeholder in other property resulting from the acquisition of his interest in the specified premises; and (b)any other loss or damage which results therefrom to the extent that it is referable to his ownership of any interest in other property.(3)Without prejudice to the generality of paragraph (b) of sub-paragraph (2), the kinds of loss falling within that paragraph include loss of development value in relation to the specified premises to the extent that it is referable as mentioned in that paragraph. (4)In sub-paragraph (3) “development value”, in relation to the specified premises, means any increase in the value of the freeholder’s interest in the premises which is attributable to the possibility of demolishing, reconstructing, or carrying out substantial works of construction on, the whole or a substantial part of the premises..

14. Accordingly the tribunal has to assess whether there is any possibility of the freeholder reconstructing or carrying out substantial works of construction on the whole or a substantial part of the property.

15. The tribunal heard evidence from [NAME] [NAME], backed by the planning report from [NAME], that there had been no recent applications for further development of the buildings or garden land at the property. He asserted that contrary to [NAME] [NAME] view, there was no development potential. The property had been redeveloped only ten years ago and if more floor space could have been constructed then it would have been then. In his opinion, backed by [NAME] [NAME] report, the prospects of extending the property upwards and to the rear were extremely low. He submitted that it was for the respondent to demonstrate, with evidence, that there was a realistic prospect of obtaining planning permission for the suggested development and that the respondent had not done so. No plans, estimates, or financial appraisals for any further development had been provided by the respondent. (The tribunal notes that [NAME] [RESPONDENT] had provided a development appraisal.) [NAME] [NAME] could see no justification for increasing the premium to reflect the loss of development value.

5 In his submissions [NAME] [NAME] submitted that any potential flat on the fifth floor was unlikely to achieve the value [NAME] [NAME] had attributed to it. He pointed to the issues highlighted in the WPG report of issues that remained to be addressed, issues of access and was of the opinion that no investor would pay [NAME] [NAME] proposed development value.

16. [NAME] [NAME] asserted that the property did have development value. In giving evidence he accepted that there was no present potential of a rear extension, but argued for the possibility of an additional floor being added to the property. In support he referred the tribunal to

a. [NAME] “skyward” report; b. WPG’s report that indicated that achieving an additional studio flat to form a 5th storey was ‘acceptable in principle’, that had a ‘balanced’ chance of securing planning

permission, subject to ‘design, height, scale, building

regulation standards and other relevant material planning considerations’; and c. that there were buildings in the road taller than the

property.

Using the Upper Tribunal case [COMPANY] [2018] UKUT 79 (LC) he attributed a net development value to the potential fifth floor of £45,257.

17. [NAME] had spoken to the planning department as to the possibility/likelihood of a fourth floor extension.

18. [NAME] [NAME] was questioned by [NAME] [NAME] and by the tribunal on any legal constraints that might prevent the freeholder undertaking a fourth floor development. In particular, he was asked to explain how the development could be undertaken when there was no communal access through the third floor (all of which is demised to Flat 5) to the roof. He asserted that the landlord had reserved to itself the right to carry out development under clause 5.13 of the Leases. This states, “To permit the Landlord after reasonable prior notice to enter the demised premises in connection with the development of the remainder of the Building or any neighbouring premises without payment of compensation to the tenant for any damage or otherwise subject to the person or persons exercising such right in a reasonable manner and [NAME] good any damage caused to the demised premises.”

In the event that this was not sufficient to allow the Landlord to take part of the Flat 5 demise to create access to the roof he believed that a deal could be done with the tenant of that Flat to surrender a part of its demise at no significant extra cost. At the hearing he suggested that an allowance of £10,000 be made to his net development value of £45,257 to reflect that a deal would have to be struck with the tenant of Flat 5.

6 In his submissions he referred to an alternative possibility; That a fifth floor extension might be incorporated into Flat 5.

[NAME] [NAME] was unable to advise the tribunal whether an extra means of escape would be required if a fifth storey was added; nor where such escape could be located.

19. It is clear to the tribunal that [NAME] [NAME] had given insufficient attention to how access to any development on the roof would be achieved, in the absence of a communal staircase through Flat 5. Clause 5.13 does not give the landlord the right to remove part of the premises demised to Flat 5, nor to grant itself rights of access over that flat to obtain access to the roof.

Accordingly, any development potential of a fifth floor would have to be a development undertaken to incorporate it within Flat 5. There was no evidence before the tribunal that a tenant of Flat 5 would want to pay for such an extension to its demise.

20. In the circumstances the tribunal consider that any increase in the value of the freeholder’s interest in the premises which is attributable to the possibility of demolishing, reconstructing, or carrying out substantial works of construction on, the whole or a substantial part of the property, by way of a roof extension is very small. But a small possibility of such development in the future should be taken into account and the tribunal therefore attribute a value of £2000 to this possibility.

The premium

21. The tribunal therefore determines the appropriate premium to be twenty-two thousand pounds (£22,000), including development hope value.

Name: Judge Pittaway Date: 30 March 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 Firsttier 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).

Covid-19 pandemic: description of hearing This has been a remote hearing on the papers which has been consented to by the parties. The form of remote hearing was :PAPER REMOTE. A face-to-face hearing was not held because no-one requested the same, or it was not practicable, and all issues could be determined on paper. The documents that I was referred to are in a bundle of 20 pages, the contents of which I have noted. FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) HMCTS CODE Case reference : PAPER REMOTE LON/00BE/OCE/2019/0233 Property : 22 [ADDRESS] [POSTCODE] Applicant : [redacted] [NAME], [COUNSEL] : [COUNSEL] [NAME] Respondent : [redacted] : [COUNSEL] LLP Type of [NAME] : An [NAME] under Section 91(2) (d) of the Leasehold Reform, Housing and Urban Development Act 1993 for a determination as to costs to be paid under Section 33(1) of the Act Tribunal members : Valuer Chairman D Jagger MRICS Date of determination : 26th August 2020 !

DECISION © CROWN COPYRIGHT

Background 1. This is an [NAME] made by the applicant leaseholders pursuant to the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) for a determination of the reasonable costs to be paid under the provisions of sections 91(2)(d) and 30(1) of the Act in respect of the collective enfranchisement at 22 [ADDRESS] [POSTCODE] (the “property”).

2. The [NAME] is dated 25th November 2019 and directions were dated 23rd August 2020. which is evidently incorrect.

3. I have before me the following documents which would appear to be relevant:

4. There is a detailed Schedule of Costs dated 8 July 2020 prepared by the solicitors who acted for the respondents. This costs summary, prepared by [COMPANY], shows a total sum claimed £6,17o including VAT. This figure can be broken down to include the [NAME] fees of [NAME] at £2700 including VAT, solicitors fees of £3456 including VAT and finally £15 disbursements. [NAME] is a Grade A fee earner and his hourly charging rate is £300 per hour.

5. I have a Schedule of Objections from, [NAME] for the applicants dated 15 July 2020 which in summary does not dispute the [NAME] fee, but disputes the solicitors fees and considers a reasonable total fee would be £2700 inclusive of VAT which produces a total of £5,415 inclusive of VAT for the reasons stated.

6. I have responses from both applicant and respondents dated 22 July 2020 and 14 August 2020 respectively. The applicants reply further amends the solicitors fees to £1950 exclusive of VAT but keeps to the previous total of £5,415 which appears to be a mathematical error. Finally I have a letter dated 18 August 2020 on behalf of [COMPANY] which requests the Tribunal to disregard the Applicants reply to the Respondent which was not in compliance of the Directions.

7. In brief, the applicants representatives contend that the time claimed by the respondents solicitors is excessive and some of the costs are not recoverable under section 33(1) He also referred to the respondents email of the 8 July 2020 which set out solicitors fees of £2700 inclusive of VAT. In essence the two parties are £630 apart exclusive of VAT for solicitors fees in the matter.

8. The provisions of s33 of the Act are set out below and have been borne in mind by me in reaching this decision. !2

The tribunal’s determination The Tribunal determines that legal costs of £2,490 plus VAT are payable under sunder section 33(1) Reasons for the tribunal’s determination 9. The applicant is only liable to pay ‘reasonable’ costs under section 33(1). The respondent’s costs will only be regarded as reasonable id and to the extent that costs in respect of such services might reasonably be expected to have been incurred by him if the circumstances had been such that he was personally liable for all such costs (section 33(2))

10. The Tribunal allows [NAME] [NAME] charging rate of £300 per hour which is considered reasonable for a Grade A fee earner and was not challenged by the applicants.

11. The Tribunal focused on the time claimed by [NAME]. Their costs of £2880 plus VAT equate to 9.6 hours at £300 per hour. Based on the Tribunals knowledge and experience, this is slightly excessive and unreasonable .The Tribunal has no doubt that the respondents would not have incurred costs at this level, had they been personally liable to pay.

12. The level of client correspondence is considered excessive and an appropriate number of units would be 20.There is no consideration of a lease to take into account. The time spent on preparing the counter notice seems on the high side. The counter notice is not unique, containing as it does some fairly standard wording. I consider that this document, in the hands of a Grade A solicitor should not have taken more than 45 minutes to complete, say 7 units thus two thirds the amount claimed. This reduces the total units to 83 which equates to £2490 plus VAT 13. The fee for the [NAME] is not in dispute and is agreed at £2,700 inclusive of VAT. The disbursement of £15 is not in dispute.

14. To summarise therefore I find that following fees and disbursements are payable by the respondent • Solicitors fees of £2,490 • Vat thereon of £498 • [NAME] fee of £2,700 inclusive !3

• Disbursements of £15 00 19.

Accordingly, I find that the costs payable under the provisions of the Act (s91(2)(d) and 33(1)) are £5,703 inclusive of VAT and any disbursements 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). The relevant law Section 33(1) Costs of enfranchisement. (1)Where a notice is given under section 13, then (subject to the provisions of this section and sections 28(6), 29(7) and 31(5)) [NAME] shall be liable, to the extent that they have Name: Valuer Chairman D Jagger Date: 26th August 2020 !4

been incurred in pursuance of the notice by the [NAME] or by any other relevant landlord, for the reasonable costs of and incidental to any of the following matters, namely— (a) any investigation reasonably undertaken— (i)of the question whether any interest in the specified premises or other property is liable to acquisition in pursuance of the initial notice, or (ii)of any other question arising out of that notice; (b)deducing, evidencing and verifying the title to any such interest; (c)[NAME] out and furnishing such abstracts and copies as [NAME] may require; (d)any valuation of any interest in the specified premises or other property; (e)any conveyance of any such interest; but this subsection shall not apply to any costs if on a sale made voluntarily a stipulation that they were to be borne by the [NAME] would be void. (2)For the purposes of subsection (1) any costs incurred by the [NAME] or any other relevant landlord in respect of professional services rendered by any person shall only be regarded as reasonable if and to the extent that costs in respect of such services might reasonably be expected to have been incurred by him if the circumstances had been such that he was personally liable for all such costs. (3)Where by virtue of any provision of this Chapter the initial notice ceases to have effect at any time, then (subject to subsection (4)) [NAME]’s liability under this section for costs incurred by any person shall be a liability for costs incurred by him down to that time. (4)[NAME] shall not be liable for any costs under this section if the initial notice ceases to have effect by virtue of section 23(4) or 30(4). (5)[NAME] shall not be liable under this section for any costs which a party to any proceedings under this Chapter before a leasehold valuation tribunal incurs in connection with the proceedings. (6)In this section references to [NAME] include references to any person whose appointment has terminated in accordance with section 15(3) or 16(1); but this section shall have effect in relation to such a person subject to section 15(7). (7)Where by virtue of this section, or of this section and section 29(6) taken together, two or more persons are liable for any costs, they shall be jointly and severally liable for them.

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