First-tier Tribunal Sets Freehold Acquisition Premium

OUTCOME: Dismissed

© CROWN COPYRIGHT

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00BE/OCE/2024/0086 Property : [ADDRESS], London [POSTCODE] Applicant : [redacted] (2) [COUNSEL] : [COMPANY] Respondents : [redacted] (2) [NAME] : N/A Type of [NAME] : s.24 Leasehold Reform, Housing and Urban Development Act 1993 (missing landlord) Tribunal member(s) : Judge Tagliavini Mr Duncan Jagger MRICS Venue : 10 [ADDRESS] [POSTCODE] Date of decision : 1 October 2024

DECISION

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The tribunal’s decisions 1. The tribunal determines the premium payable by the applicants to the

respondents in respect of the freehold of the subject property at

[ADDRESS], London [POSTCODE] is £152,569 as per the valuation at

Appendix A).

The [NAME] 2. This is an [NAME] for a determination of the premium payable in

respect of the freehold of the subject property at 52 Avondale rise,

London [POSTCODE] (‘the property) pursuant to the provisions of the

Leasehold Reform Housing and Urban Development Act 1993 (‘the 1993

Act). Background 3. A claim was made in the county court in respect of the premium payable

for the freehold of the subject property as the respondent landlords could

not be located. Subsequently, service on the respondent landlords was

dispensed with and a vesting order was made on 7 February 2024 by

Deputy District Judge McCann sitting at the County Court in Central

London and dated 14 March 2024. 4. The claim was remitted to the First-tier Tribunal for a determination of

the premium payable in respect of the acquisition of the freehold by the

applicants in accordance with Schedule 6 of the 1993 Act. The property 5. The property comprises a two-storey terraced house converted into two

flats, with a one bedroom flat with living room, kitchen/diner and

bathroom/w.c. on the ground floor and a two-bedroom flat with living

room, kitchen/diner and bathroom/w.c. on the first floor. Both flats

have shared use of a rear garden. 6. The Ground floor flat is subject to a lease dated 15th March 1974 between

[NAME] & [NAME] (Lessors) and [NAME] [NAME]

[NAME]. The lease is for a term of 99 years from 1st January 1974 therefore

expiring on 31st December 2074 having approximately 51.31 years

remaining. 7. The First-floor flat is subject to a lease dated 15th March 1974 between

[NAME] [NAME] & [NAME] (Lessors) and [NAME]. The lease is for a term of 99 years from

1st January 1974 therefore expiring on 31st December 2074 having

approximately 51.31 years remaining. 8. The ground rents are the same for both flats which are £25.00 - £50.00

- £75.00. The ground rents will rise every 33 years in accordance with

the lease. The applicants’ case 9. The [NAME] was determined on the papers provided to the tribunal

and comprised a digital bundle of 258 pages. The applicants relied upon

the valuation report of [NAME], DipSurv AssocRICS

MFPWS dated 29 June 2024. Mr [NAME] concluded the premium

payable was £110,330 (best case scenario) or £135,500 (worst case

scenario The tribunal’s reasons 10. The tribunal determines that the premium payable under the 1993 Act is

a total of £152,569 (One hundred and fifty-two thousand five hundred

and sixty-nine pounds) and this is the appropriate sum to be paid into

the county court. 11. The tribunal determines that in the valuation report dated 29th June

2024, Mr [NAME] did not provide a freehold value, which by convention

is the extended lease value plus 1%. The extended lease values of the two

flats provided (i) a total of £700,000 (best case scenario) or (ii)

£780,000 (worst case scenario) with the ground floor flat freehold

vacant possession valued at £365,000 or £405,000 and the first floor

valued at £335,000 or £375,000). Mr [NAME] adopted a capitalisation

rate of 7%, and a deferment rate of 5% for each flat and in each scenario.

Mr [NAME] correctly used 9 September 2022 as the valuation date. 12. At the valuation date, the two leases had unexpired terms of 51.31 years.

However, in view of the fact the two leases have unexpired terms of less

than 80 years, marriage value is deemed to exist and as such, a marriage

value calculation must apply. 13. Having carefully scrutinised the valuation, including the comparable

evidence, the Tribunal agrees with the capitalisation and deferment

rates. However, the tribunal does not adopt the methodology used by Mr

[NAME] to calculate relativity of the long lease values and the valuation

of the long leases as it found the methods used by him were

incomplete and inaccurate. 14. The Tribunal examined the comparable evidence set out in the report

for the two flats. The report provided four comparables for the ground

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floor one bedroom flat and three comparables for the two-bedroom first

floor flat. It would have been good practice for the [NAME] to provide the

precise unexpired term of the leases for each comparable and to prepare

a schedule which makes valuation adjustments in order to provide a

precise methodology. Such adjustments would take into account

location, internal specification, onsite parking, private and precise

method of indexation for time lapse in comparison with the valuation

date. No such schedule was provided by Mr [NAME]. 15. The Tribunal makes two further observations. Firstly, the report

provides no methodology whatsoever as to how the valuation figures

have been calculated based upon the evidence relied upon. Further, the

valuation figures do not appear to make any sense as the one-bedroom

flat is valued £30,000 more than the two-bedroom flat. 16. Therefore, in order to provide a valuation methodology to calculate the

long lease values, the Tribunal has taken the average of the comparables

for the ground and first floor flats, which equate to £395,000 and

£452,000 respectively. 17. As regards the calculation of the figure of relativity, the tribunal finds

that Mr [NAME] provided a schedule of Relativity Graphs ranging from

72% to 77%. However, there was no methodology provided establishing

how these figures were assessed or what graphs the Tribunal should rely

on. 18. The Tribunal was surprised to see that Mr [NAME] did not refer to or

was unaware of the case of [NAME]- [NAME] [2018] EWCA and

its disapproval of the use of graphs and preference for real world sales

evidence where the same is available. However, the tribunal is aware

that in the absence of such real-world sales evidence, it has been

recommended by the Upper Tribunal that the most suitable approach

would be the use of the average of the [NAME] and [NAME]

unenfranchiseable graphs to find the ‘real world’ leasehold value. This

produces a relativity of 71.60% for an unexpired lease term of 51.37 years. 19. The Tribunal therefore adopts this methodology and the relativity

figure this produces. Overall, the tribunal finds the valuation report

relied upon by the applicants, falls short of the expectations of the

Tribunal and fails to meet the required standards of expert evidence

particularly where there is a missing landlord. 20. In conclusion, the tribunal prefers its own expert valuation as found in

Appendix A to that of the applicants’ valuation evidence.

Name: Judge Tagliavini

Date: 1 October 2024

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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 ([NAME]), 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] should be made on Form RP PTA available at https://www.gov.uk/government/publications/form-rp-pta-[NAME]-for- permission-to-appeal-a-decision-to-the-upper-tribunal-lands-chamber 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 ([NAME]).

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APPENDIX A

[ADDRESS], Peckham, London [POSTCODE]

The Tribunal’s Valuation Assessment of premium for Collective Enfranchisement In accordance with the Leasehold Reform, Housing and Urban Development Act 1993

LON/00BE/0CE/2024/0086

Components

Valuation date:

09/09/2022 Deferment rate:

5% Capitalisation rate:

7% Freehold value:

£855,555 Long lease value £847,000 Existing Lease Value £612,577 Unexpired Term 51.31 years

Ground rent currently receivable

£100 Capitalised @ 7.0% for 16.53 years

9.6171 £962

Rising to:

£150 Capitalised @ 7% for 33 years 12.753 Deferred 16.63 years @ 7.0% 0.326 £624

Reversion to freehold value: £855,555 Deferred 51.31 years @ 5% 0.08180 £69,984

Less eventual reversion £855,555 0.001 £855

£70,715 Marriage Value

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Landlords proposed interest £855 Tenants Proposed interest £847,000 £847,885

Freeholder’s Interest £71,570 Short lease value

£612,577 £684,147

£163,708

50% Division of Marriage value £81,854

LEASE EXTENSION PREMIUM.

£152,569