First-tier Tribunal Sets Freehold Interest Price and Conveyance Terms

OUTCOME: Allowed

Case Reference : BIR/00BY/OAF/2022/0007

Property : 4 Queens Croft, Formby, Liverpool, [POSTCODE]

Applicants : [redacted]

Respondent: [redacted]

1 the price payable for the Freehold interest under s.9(1) of the Leasehold Reform Act 1967

2 the provisions contained on the conveyance under

s.21(2) of the Leasehold Reform Act 1967

Tribunal Members : [NAME].[NAME]. [NAME] B.Sc.(Est.Man.) FRICS

V. Ward B.Sc. FRICS – Regional Surveyor

Judge M. Gandham

Date and Venue of : None.

Hearing

Date of Decision : 27 October 2022

____________________________________________________________

DECISION

© CROWN COPYRIGHT 2022

1 The price of the Freehold interest is determined at £1,030 (One Thousand and Thirty Pounds).

REASONS

Introduction

2 This is the Tribunal's decision in respect of applications under section 21(1)(a) of the Leasehold Reform Act 1967 ('the Act') for determination of the price to be paid under section 9 for purchase of the freehold interest and under section 21(2)(a) for determination of the provisions to be included in the conveyance under section 10 in respect of No.4 Queens Croft, Formby, Liverpool, [POSTCODE].

3 The Applicants are [NAME] [NAME] and [NAME] [NAME], represented by Dr.[NAME]. Rostron MA Phd FRTPI FRICS. The Respondents are [RESPONDENT] and [NAME], represented by [NAME].

4 The Applicants served Notice to acquire the freehold interest on 9th September 2021 and applied to the Tribunal by application received 16th November 2021.

Issues

5 1 The price of the freehold interest;

2 The Freeholder's reasonable costs;

3 The terms to be included in the conveyance.

The Law

6 The property is held by Lease dated 30th July 1993 for a term of 999 years from 1st January 1992 at the current ground rent of £60 p.a. until 1st January 2042 when it increases to £85 p.a. for the duration of the term. There is no provision for rent review.

7 The Lease is full repairing and insuring.

Facts Found

8 The Tribunal has not inspected the property but according to the Respondents' submission, it is a modern, link-detached, two storey house with garage.

Agreed Facts

9 The parties agree the value is to be assessed under section 9(1) of the Act.

Submissions in respect of Freehold value

10 Applicants

Dr [NAME], for the Applicants, valued the term income at 6.5% as follows:

Rent £ 60

Years Purchase 20 years 6.5% 11.0185

£ 661

Rent £ 85

Years Purchase 954 years 6.5% 15.3846

£ 1,308

Price £ 1,969

11 Respondents

A valuation was submitted by [NAME].[NAME] B.Sc. MRICS, RICS Registered Valuer, for the Respondents, which adopted 4% capitalisation rate, £415,000 as the capital value of the house, 40% as the site apportionment and 7% as the devalued modern ground rent for the purposes of section 15 of the Act, recapitalised in perpetuity at 4%.

It was suggested there were ground rent reviews at 167 year intervals.

The valuation was set out as follows:

Term

Rent £ 60

Years Purchase 139 years 4.0% 24.89064906

£ 1,493

Rent £ 85

Years Purchase 167 years 4.0% 24.96353393

Present Value £1 0 years 4.0% 1.0

£ 2,122

Rent £ 85

Years Purchase 167 years 4.0% 24.96353393

Present Value £1 167 years 4.0% 0.001459

£ 3

Rent £ 85

Years Purchase 500 years 4.0% 24.99999992

Present Value £1 333 years 4.0% 0.000002

£ 0

Rent £ 85

Years Purchase 333 years 4.0% 24.99994681

Present Value £1 333 years 4.0% 0.000000

£ 0

Rent £ 85

Years Purchase 167 years 4.0% 24.96353393

Present Value £1 1,166 years 4.0% 0.000000

£ 0

£ 3,618

Reversion

Capital Value £ 415,000

Site Value apportionment at 40% £ 166,000

S.15 'Modern ground rent' at 7% £ 11,620 p.a.

Years purchase in perpetuity at 4% 25

Present Value £1 deferred 100 years 0.00735

£ 2,134

Premium Payable £ 5,752

Tribunal Comment and Determination of Freehold value

12 Both parties adopt the same general approach of assessing the value of the freehold by capitalising the rental income for the term, although Mr [NAME] adds a value for the reversion as typically found in a 'standing house' valuation under the Act. However, the parties' inputs vary significantly.

13 The Tribunal finds the rental income for the first period of the term from the date of Notice to be £60 p.a. for 20 years.

14 The Tribunal finds the rental income for the second period will be £85 p.a. from 1st January 2042 until the lease expires, 969 years from the date of Notice.

15 The Tribunal notes that Dr. [NAME] adopts a capitalisation rate of 6.5% and Mr [NAME] 4.0%. No market evidence was provided by either party to justify the rates contended.

16 Mr [NAME] submitted that residential auction evidence indicated a capitalisation rate of 3-5% but gave no evidence to support the claim and did not refer to the fact that section 9(1) of the Act required a tenant's bid to be disregarded, whereas at auction there is no such constraint, tenants are free to bid and compete with other parties.

17 The factors to be taken into account in assessing the rate were listed by the Lands Tribunal in Nicholson v Goff [2007] 1 EGLR 83, 13 EG 256. They were the length of the lease term, the security of recovery, the size of ground rent, whether the lease contained provisions for rent review and the nature of these provisions.

18 Taking these factors into account, the Tribunal finds that the income would be well secured but at just £60 rising to £85 p.a. for the next 969 years, the cost of collection would make it a relatively unattractive investment. Using its general knowledge and experience, the Tribunal determines the appropriate rate to be 6.5% in this case.

19 The Tribunal notes an error in Dr [NAME] valuation as the income for the second period is not deferred by 20 years, resulting in an inflated figure.

20 The Tribunal has difficulty following Mr [NAME] valuation because:

1 the rent review periods are not in line with the lease and it is not clear why the income is valued over 6 periods;

2 the unexpired term is incorrect;

3 the reversion includes an adverse differential which the Court of Appeal criticised

in Official Custodian of Charities v Goldridge [1973] 227 EG 1467 as illogical;

4 Mr [NAME] had not seen the property, which raises questions about his

description of the interior of the house from an internet research and a freehold

vacant possession value of £415,000, unsupported by any evidence;

5 the Tribunal does not agree the reversion is worth anything.

Mr [NAME] considers a purchaser in the market would pay £2,134 today for the right to receive a revised ground rent income and eventual vacant possession value in nearly 1,000 years' time but the Tribunal disagrees. We find the reversion to have a theoretical value but is too remote to be valued and currently worth nil.

21 Bearing in mind the above, the Tribunal applies its own knowledge and experience and values the freehold interest under section 9(1) of the Act below:

Rent £ 60

Years Purchase 20 years 6.5% 11.0185

£ 661

Rent £ 85

Years Purchase 949 years 6.5% 15.3846

Present Value 20 years 6.5% 0.2837

£ 370

£ 1,031

Price say £ 1,030

Submissions in respect of the terms of the Conveyance

22 Neither party had provided any submissions in relation to which provisions of the conveyance remained in dispute within their original statements of case, although both parties had provided a draft transfer of part. The Applicants had also supplied a copy of the Lease, a copy of the freehold and leasehold titles and a copy of a Landlord’s Notice of Request for Particulars of Rights of Way and Restrictive Covenants dated 13 September 2021 (‘the Notice’).

23 The draft transfers were of a standard form, the only difference being the reference to the plan in box 3, the amount of the consideration in box 9 and the insertion of an indemnity clause in the Respondents’ draft in box 12.

24 In the Applicants’ Statement of Reply, dated 10 June 2022, Dr [NAME] submitted that the indemnity covenant included within the draft transfer supplied by the Respondents was void as the Respondents had failed to meet the timescales set out in the Notice.

Tribunal Comment and Determination in respect of the Conveyance

25 As previously stated, the draft transfers supplied by each party were of a standard form, the variances being the reference to the plan, the amount of the consideration and whether a standard indemnity clause should be provided.

26 With respect to box 3 (the identification of the transferred property), the Tribunal finds that the wording in either draft is equally acceptable. In respect of the amount of the consideration in box 9, this should be detailed as £1,030, the price payable for the freehold interest as determined by the Tribunal.

27 In relation to the indemnity clause, although the Tribunal accepts that the Respondents did not comply with the Notice, consequently, under paragraph 5 (5) of Schedule 1 to the Leasehold Reform (Enfranchisement and Extension) Regulations 1967 are deemed to require no rights of way or provisions concerning restrictive covenants, the Tribunal does not accept that this would fetter the tribunal’s jurisdiction under clause 21 (2)(a) of the Act, to determine what provisions ought to be contained in the conveyance.

28 The Tribunal notes that the proposed indemnity clause is a general indemnity relating to any existing provisions contained or referred to in the Property Register and Charges Register of the freehold title. Having considered both the freehold and leasehold titles, the Tribunal does not consider that the proposed indemnity clause should be included in the conveyance of the freehold interest. It does not appear, from the freehold title, that the Respondents provided an indemnity upon their purchase. In addition, the restrictive covenants relevant to the property are stated to run with the land and any other provisions which relate to the freehold of the property will invariably be detailed on the Applicants’ new freehold title upon registration of their transfer.

29 As such, the Tribunal determines that the provisions that ought to be contained in the conveyance of the freehold interest are those detailed in the draft transfer supplied by the Applicants within their Statement of Case, subject to the correct consideration being detailed in box 9.

[NAME] B.Sc.(Est.Man.) FRICS

Chairman

Date 27 October 2022

Appeal to Upper Tribunal

Any appeal against this decision must be made to the Upper Tribunal (Lands Chamber).

Prior to making such an appeal the party appealing must apply, in writing, to this Tribunal for permission to appeal within 28 days of the date of issue of this decision (or, if applicable, within 28 days of any decision on a review or application to set aside) identifying the decision to which the appeal relates, stating the grounds on which that party intends to rely in the appeal and the result sought by the party making the application.