First-tier Tribunal Sets Freehold Premium Under Leasehold Reform Act

OUTCOME: Allowed

© CROWN COPYRIGHT

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : CAM/33UC/OAF/2025/0002 Property :

[ADDRESS], [POSTCODE]

Applicants : [redacted] ([NAME]) Representative : [RESPONDENT] (Solicitors) Respondent : [redacted] Representative :

None

Type of application : To determine the premium payable under S.9 as compensation to the landlord, arising from an application to enfranchise the freehold made by S.27 Leasehold Reform Act 1967 (“the Act”) Tribunal :

Mr [NAME]. [NAME]

Venue :

HMCTS, Cambridge County Court, 197 East St. Cambridge [POSTCODE]

Date of decision : 27 May 2025

DECISION

2 Decision The premium to be paid by the applicants for the freehold interest in the Property is £2,930 (Two thousand nine hundred and thirty pounds).

Introduction 1. This concerns an application made under Section 27 of the Leasehold Reform Act 1967 (“the Act”) for a transfer of the freehold of the Property. This determination is of the premium to be paid by the [NAME] to the [NAME] of the Property. The relevant legal provisions are set out in the Appendix to this decision.

2. The applicants, are the long [NAME] of the Property, being a small part of a much larger land holding in the lease. It is let under the terms of a lease which began on 5 September 1620. The lease was for 500 years. It will end on 4 September 2120.

3. The original 1620 lease is acknowledged by all to be lost and the rent due under the applicants’ current lease of its Property is nil. Leasehold title to the Property is registered at HM Land Registry under NK499280. There is no known registered or unregistered freehold proprietor of the Property and so no respondent.

4. By order made of District Judge Earl, issued 3 April 2024 in the County Court at Norwich. The usual order of the Court in such applications would confirm that, and on the Court being satisfied that the respondent could not be found, the respondent’s interest in the subject Property was vested in the applicants in accordance with section 27 of the Act. [ADDRESS] at this stage now ordered that “1b) The appropriate sum to be paid into Court being the sum determined by the First Tier Tribunal (Property Chamber) as the ‘price’ in accordance with section 8 of the 1967 Act, plus an amount which the Court determines is the amount of any unpaid rent up to the date of Transfer.” The Tribunal determines the premium under S.9 of the Act. [ADDRESS] reserved approval of the final form of transfer, to itself.

5. Directions in standard format were issued by [NAME] of the Tribunal on 31 March 2025.

6. The Tribunal now determines the premium payable at the antecedent valuation date, only. It remits determination of the remainder of the application back to the County Court for it to consider and determine: The final form of transfer TR1; the deduction, if any, of the applicant’s costs in this application from, and the addition of any to, that total premium sum.

3 Statutory basis of valuation 7. Section 9 to the Act provides that the price to be paid by the purchaser for of the freehold interest shall be the aggregate of the value of the [NAME]'s interest and compensation for any other loss. No payment is made for the [NAME]’s share of any marriage value arising where the enfranchisement arose from one of the exceptions set out under S.1A of the Act. In this case it is represented by [NAME] at the bottom of the valuation sheet.

8. It is taken that the transfer qualifies as an enfranchisement made under Section 9(1A) of the Act because the rateable value of the Property as at April 1990 was not more than £500. Therefore the provisions of Section 9A which take account of compensation by the tenant for the landlord’s loss of marriage value, do not apply to this transfer.

9. The value of the freehold interest is the amount which, at the valuation date, that interest might be expected to realise if sold in the open market subject to the tenancy by a [NAME] (with the nominee purchaser, or a tenant of premises within the specified premises or an owner of an interest in the premises, not buying or seeking to buy) on the assumption that the tenant has no rights under the Act either to acquire the freehold interest or to acquire a new lease. Applicants’ Case 10. The applicant has now provided a valuation report dated 5 June 2024 by [NAME] [NAME], Norwich (the “Valuation Report”). The report contains a formal Statement of Truth confirming that in so far as the facts stated in the report are within his own knowledge, that he believes them to be true and includes a statement of compliance confirming that they understand their duty to this Tribunal.

11. Having considered the contents of the Valuation Report and the opinions expressed in that report the Tribunal is satisfied that the method adopted is appropriate to determine the enfranchisement price for the Property. The Tribunal accepts the description of the Property and its location as stated in the Valuation Report. The antecedent valuation date is 18 October 2023, the date of filing the claim at Court.

12. Photographs of the exterior and interior of the Property were included in the Valuation Report. The Tribunal did not consider it necessary or proportionate to carry out an inspection of the Property. Valuation 13. According to the Valuation Report, the Property is a single ground level detached house, a bungalow, of relatively modern construction dating

4 from 2005 and of traditional construction. Originally built as an office in 2005 for use in conjunction with the nearby “[NAME]” it lasted only 2 years and planning permission was granted in 2007 to convert the now redundant office, into a dwelling house. It is situated less than a mile from the centre of the village of Foulsham, in otherwise open countryside. The Property site area is about 0.32 ha (0.78 acres). The village is some 18 miles north west of Norwich.

14. The Property is arranged ‘side on’ with a wide frontage to [ADDRESS]. It is not within a Conservation Area, nor Listed. The GIA of the dwelling is about 118.3 m2 (c.1273ft2).

15. External walls are finished to brick elevations under a pitched and hipped roof structure, finished in concrete single lap tiles. The windows are double glazed; heating of space and water by oil fired boiler. At one end a former timber conservatory has been replaced by a UPVC one. There is a detached garage/ workshop with timber sidings and a similar double pitched roof as the bungalow. There is ample off road parking within the plot, itself accessed down a private gravelled driveway from the county road.

16. Internally the bungalow is a modern light airy space with master bedroom & shower room/ wc, with two further bedrooms, family bathroom/wc, living room and kitchen, connected by an internal corridor. There is a mains water feed waste disposal is to a ‘septic tank’.

17. The applicants refer to their improvements, after purchase 11 December 2019 for £378,750, costing around £60,000. These works included: new windows, front door, a new conservatory, patio doors, shower room fittings, kitchen worktops and sink, a new wood burner stove and lined flue, new external paving and enclosed the car port into a garage. [NAME] concludes (para 4.1.3) “… a significant sum has been spent on improvements, although in my experience the full cost of improvements is seldom reflected in market value, particularly when as in this case one conservatory is replaced by another albeit better one. The value of a modern house which forms part of my calculation assumes a house built to present day standards i.e. a good but not exceptional standard.” The Tribunal agrees with this approach.

18. At the valuation date 18 October 2023 (AVD) the unexpired residue of the 500 year lease from 5 September 1620, is reported as 96.92 years. 19. [NAME] confirms that he has adopted the [NAME] deferment rate of 4.75% when applied to the delayed enjoyment of the full capital value of the freehold with vacant possession on conclusion of the actual and assumed 50 year lease extension beyond, which the Tribunal accepts.

5 20. In assessing the “modern ground” for the assumed 50 year lease extension beyond the existing term [NAME] confirms the absence of market based ground rents in the locality as is often the case. Instead he adopts a 40% portion of the full capital value of the whole freehold with vacant possession. This provides a “Modern House Value”. He refers to other enfranchisement cases in Foulsham in recent years, “..where the percentage of Site Value to Modern House Value has ranged from 30% to 40% depending on the size and location of the plot.” Again the Tribunal accepts this approach here.

21. Reaching a modern ground rent [NAME] adopts a 7% return applied to that site value reached from the preceding stage, to arrive at a modern ground rent. The Tribunal accepts this approach here.

22. After research of actual sales of house plots suitable for a new house development on a one off basis locally [NAME] has found none. Instead, the plot being a sizeable one he takes a percentage at the upper end, being 40% of the open market capital value of the freehold with vacant possession. The Tribunal accepts this approach here. 23. [NAME]’s assessment of the market value is based on evidence of sales of the freeholds of local, comparable dwellings in and around the rural hinterland of Foulsham. [NAME] adjusts the basic sale values of the comparables: for time using the HMLR data (all properties Broadland) market index and for their comparative advantage of space / design on each plot. He accepts that the approach is somewhat subjective. [NAME] finds a range of unit values of £306 - £580/ ft2.

24. No.1 [ADDRESS] a bungalow sold March 2024 at £425,000. Detached, modern, 3 bedrooms, 2 receptions, double garage on a 0.3 acre plot GIA 1388 ft2. Adjusted to the AVD gives £418,600. The Property has a bigger plot size.

25. No.2 Gatehouse 19, [ADDRESS] an older railway building sold March 2024 at £427,000, 3 to 4 bedrooms with partial air conditioning. Extended and converted to a dwelling also single level on 914 ft2 GIA. Off road parking but no garage. Adjusted to the AVD gives £420,500. The Property has a bigger plot size.

26. No.3 Flint Cottage [ADDRESS] a bungalow sold April 2023 at £395,000, 3 bedrooms and single garage, with 1140ft2 GIA, on a 0.22 acre plot. Adjusted to the AVD gives £399,244. The Property has a bigger plot size.

27. No.[ADDRESS] although its described as a much smaller but otherwise modern bungalow of 660 ft2, there are however no further details. The Tribunal makes nothing of this.

6 28. No.[ADDRESS] a bungalow of similar character and size to the Property and located across the road, but on a larger 1.34 acre plot. It was marketed around the start of 2023 at £550,00 but there was no sale and it was withdrawn. [NAME] includes a reference as a guide to the upper value limit at the AVD for the Property. 29. [NAME] on this occasion rejects the analysis of the comparables by direct value from unit prices and prefers to adopt a more robust approach. Based on the limited evidence of sales available, the Tribunal accepts that approach here, on this occasion.

30. From this material [NAME] draws the conclusion that as at the valuation date, the freehold capital value, of the Property unencumbered, at the AVD was £460,000. This is said to be based on the completed comparable sales provided in the Valuation Report. The Tribunal concurs with the value of £460,000.

31. The value of the landlord's interest in the Property then, is represented first by the capitalised value of the ground rent receivable under their lease. That income stream is typically capitalised by [NAME] at 7%, which the Tribunal accepts is robust and appropriate in a case where the rent is at a very low and fixed level. However in this case, in the complete absence of any ground rent due this element has no value for which the landlord should be compensated, so the term has NIL value.

32. The second element of the landlord’s interest is then represented by the hypothetical grant of a 50 year extension at the end of the existing 96 odd year term, but at a modern ground rent. [NAME] adopts the conventional approach of taking the freehold VP value of the house at the £460,000 referred to above, and a site value at some 40% of this, producing a sum of £184,000 for the site without a building. A yield expected from such investment is taken at 7%, resulting in a modern ground rent of £12,880 pa. Applying the yield of 5.5% for the second term of 50 years but deferred at 4.75% by the current unexpired term, creates a deferred site value for 146 years of some £2,426.59.

33. The third element of the landlord’s interest is the reversion to full vacant possession of the house £460,000 but, deferred some 96.92 years. Deferred at 4.75% yield following [NAME] as [NAME] suggests here, produces a final additional sum of £402.55. In this process [NAME] cites the ‘[COMPANY] case. [NAME] takes the view that the reduction in buyers for a ‘tenanted’ home as reason for them to make a substantial discount on this future value. The Tribunal is content with the foregoing approach taken here. 34. [NAME] then adopts a discount of 20% to represent the increased difficulty in the [NAME] obtaining full vacant possession from the leaseholder (by then a tenant of an assured tenancy under Scheduled 10 Local Government and Housing Act 1989) at lease end, rather than the

7 more usual shorthold. Whilst this tenant pays market rent they would by that stage enjoy increased protection from eviction, in law. [NAME] cites [NAME] decision from 2012 on No.33 High St. Foulsham, here, in support of a discount for the Property after the second reversion. This Tribunal finds that the effects of this issue in any event, have an almost insignificant effect on the final premium to be paid which in this case is really quite distant.

35. The Tribunal takes the view that even at the AVD here, the market was already expectant that any future AST tenants might soon be enjoying increased protection from eviction, much more along the lines of an assured tenancy. Although these trends have some way to go, the Tribunal believes by the time of final lease end the market would anticipate such tenant protection to be in place. This would render no particular relative advantage to the resident tenant and therefore no particular disadvantage to the landlord at the end of the second reversion. The Tribunal makes no discount for this, here, therefore.

36. Although there are sometimes small amounts of unpaid rent added to the premium to be paid to the [NAME] or their estate when found by the Court, as the rent is nil, there are no additional sums due, though this remains a matter for the Court to formally determine.

37. The Tribunal accepts the valuation approach, the three elements to be calculated, and the individual and total sum stated by [NAME] to be paid in his report save for removal of the discount: [NAME] had applied a 20% discount applied to the distant capital value of the freehold at the end of the second reversion or third element of overall value of the premium with which the Tribunal do not accept.

38. This Tribunal therefore uses the accepted freehold capital value at £460,000, rather than use [NAME]’s discounted value of £368,000 as set out above. This adjustment is very small but means the addition of £503.14 to the value of the second reversion, rather than of the Report’s figure of £402.55 at that point. This represents an increase in the final premium of £100.64. It is the Tribunal’s only alteration. The Tribunal has not therefore issued its own valuation.

39. The premium to be paid by the applicants for the freehold interest in the Property is £2,930 (Two thousand nine hundred and thirty pounds). Name: [NAME]: 27 May 2025

8

Appendix

Leasehold Reform Act 1967

Section 27 Enfranchisement where landlord cannot be found (1) Where a tenant of a house having a right under this Part of this Act to acquire the freehold is prevented from giving notice of his desire to have the freehold because the person to be served with the notice cannot be found, or his identity cannot be ascertained, then on an application made by the tenant the court may, subject to and in accordance with the provisions of this section, make such order as the court thinks fit with a view to the house and premises being vested in him, his executors, administrators or assigns for the like estate and on the like terms (so far as the circumstances permit) as if he had at the date of his application to the court given notice of his desire to have the freehold. (2) Before making any such order the court may require the applicant to take such further steps by way of advertisement or otherwise as the court thinks proper for the purpose of tracing the landlord; and if after an application is made to the court and before the house and premises are vested in pursuance of the application the landlord is traced, then no further proceedings shall be taken with a view to the house and premises being so vested, but subject to subsection (7) below— (a) the rights and obligations of all parties shall be determined as if the applicant had, at the date of the application, duly given notice of his desire to have the freehold; and (b) the court may give such directions as the court thinks fit as to the steps to be taken for giving effect to those rights and obligations, including directions modifying or dispensing with any of the requirements of this Act or of regulations made under this Act. (3) Where a house and premises are to be vested in a person in pursuance of an application under this section, then on his paying into court the appropriate sum there shall be executed by such person as the court may designate a conveyance in a form approved by the court and containing such provisions as may be so approved for the purpose of giving effect so far as possible to the requirements of section 10 above; and that conveyance shall be effective to vest in the person to whom the conveyance is made the property

9 expressed to be conveyed, subject as and in the manner in which it is expressed to be conveyed. (4) For the purpose of any conveyance to be executed in accordance with subsection (3) above, any question as to the property to be conveyed and the rights with or subject to which it is to be conveyed shall be determined by the court, but it shall be assumed (unless the contrary is shown) that the landlord has no interest in property other than the property to be conveyed and, for the purpose of excepting them from the conveyance, any underlying minerals. (5) The appropriate sum which, in accordance with subsection (3) above, is to be paid into court is the aggregate of— (a) such amount as may be determined by (or on appeal from) the appropriate tribunal to be the price payable in accordance with section 9 above; and (b) the amount or estimated amount (as so determined) of any pecuniary rent payable for the house and premises up to the date of the conveyance which remains unpaid. (6) Where a house and premises are vested in a person in accordance with this section, the payment into court of the appropriate sum shall be taken to have satisfied any claims against the tenant, his executors, administrators or assigns in respect of the price payable under this Part of this Act for the acquisition of the freehold in the house and premises.

Section 9 Purchase price and costs of enfranchisement (1) Subject to subsection (2) below, the price payable for a house and premises on a conveyance under section 8 above shall be the amount which at the relevant time the house and premises, if sold in the open market by a [NAME], (with the tenant and members of his family . . . not buying or seeking to buy) might be expected to realise on the following assumptions:— (a) on the assumption that the vendor was selling for an estate in fee simple, subject to the tenancy but on the assumption that this Part of this Act conferred no right to acquire the freehold, and if the tenancy has not been extended under this Part of this Act, on the assumption that (subject to the landlord’s rights under section 17 below) it was to be so extended; (b) on the assumption that (subject to paragraph (a) above) the vendor was selling subject, in respect of rentcharges . . . to which section 11(2) below

10 applies, to the same annual charge as the conveyance to the tenant is to be subject to, but the purchaser would otherwise be effectively exonerated until the termination of the tenancy from any liability or charge in respect of tenant’s incumbrances; and (c) on the assumption that (subject to paragraphs (a) and (b) above) the vendor was selling with and subject to the rights and burdens with and subject to which the conveyance to the tenant is to be made, and in particular with and subject to such permanent or extended rights and burdens as are to be created in order to give effect to section 10 below.

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 either party is dissatisfied with this decision, they may apply for permission to appeal to the Upper Tribunal (Lands Chamber) on any point of law arising from this Decision.

Prior to making such an appeal, an application must be made, in writing, to this Tribunal for permission to appeal. Any such application must be made within 28 days of the issue of this decision to the person making the application (regulation 52 (2) of The Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rule 2013).

If the application is not made within the 28-day time limit, such application 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 application for permission to appeal to proceed, despite not being within the time limit. The application 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 making the application is seeking. If the tribunal refuses to grant permission to appeal, a further application for permission may be made to the Upper Tribunal (Lands Chamber).