First-tier Tribunal Sets Freehold Transfer Premium

OUTCOME: Allowed

FIRST-TIER TRIBUNAL

[NAME] CHAMBER ([NAME])

Case reference : LON/00BB/OCE/2024/0114

[NAME] :

32 [NAME], London [POSTCODE]

Applicants : [redacted]

2. [COUNSEL] ([NAME])

Representative : [COUNSEL] (Solicitors)

Respondent: [redacted]

None

Interested Party : None

Type of application : To determine the premium payable under Schedule 6 as compensation to the landlord, arising from a collective application to purchase the freehold under S.50 (missing landlord) of the Leasehold Reform Housing and Urban Development Act 1993 (“the Act”)

Tribunal : Mr [NAME]. [NAME]

Venue :

10 [ADDRESS] [POSTCODE]

Date of decision : 29 October 2024

DECISION

Decision

The premium to be paid by the applicant to the respondent missing landlord for the freehold of [NAME] is £15,610 (Fifteen thousand six hundred and ten pounds). The Tribunal approves this figure and the form of draft transfer filed.

The applicants’ costs are to be deducted from this premium figure but the applicants’ unpaid rent up to the AVD are to be added to this premium figure. The former set out in the County Court judgment of Deputy District Judge Jamieson in the Order of 14 June 2024. The latter figure as certified to the County Court.

Introduction

1. This concerns an application made under Section 27 of the Leasehold Reform Housing and Urban Development Act 1993 (“the Act”) for a transfer of the freehold of [NAME]. This determination is of the premium to be paid by the [NAME] to the [RESPONDENT] of [NAME]. The relevant legal provisions are set out in the Appendix to this decision.

2. The [NAME] are each the long [NAME] of the two self contained flats at [NAME], held under the terms of two leases which cover the entirety of the freehold. The key lease terms for each flat are essentially identical: A term of 125 years from 7 July 1986 at rising rents of £100pa, £200pa, £300pa, £400pa and £500pa; for years 1-25, 25-50, 51-75, 76-100, 101-125 respectively.

3. All are registered derived from the superior freehold title EGL 188546: Flat 1 (Ground floor & Garden) on leasehold title EGL 343686. Flat 2 (First floor) on leasehold title EGL 267111.

4. The claim issue date and the valuation date for this application at County Court to vest the freehold jointly in the [NAME] is 29 January 2024. The lease of each flat had 87.81 years to run. These being in excess of the 80 year cap, no marriage value of the merger of interests was to be included in the premium payable, simply a term (the remainder of the lease) and the later reversion at lease end deferred to that lease end.

5. [NAME] is a semi-detached Edwardian house of traditional construction; brick faced walls, single lap concrete tiles to the main roof. It is in a long established residential area of East Ham, in LB Newham. Either side of similar houses, many of which have (like [NAME]) made into self contained flats in the 1980’s and 1990’s when the former non-self contained flats or houses were gradually vacated.

6. [NAME] was converted into 2 flats and then sold off on two long leases, by the [RESPONDENT]. The Ground floor flat to [RESPONDENT] to [RESPONDENT] [NAME], the first floor initially to [NAME] et al. and thence to [NAME] and [NAME] [NAME]. The key lease terms are substantially the same for each flat.

7. Under the Order for application L00EC516, issued 14 June 2024, by the County Court at Clerkenwell and Shoreditch by Deputy District Judge Jamieson the respondent’s freehold was vested in the two applicants, in accordance with section 26 and 27 of the Act.

8. The Tribunal’s jurisdiction is derived from the vesting order issued by the Court above which referred the form of transfer and determination of the premium to the Tribunal. The Tribunal considered the issue on the papers submitted by the applicants, without a hearing.

Statutory basis of valuation

9. The price to be paid for the freehold, according to Schedule 6, Part II of the Leasehold Reform, Housing and Urban Development Act 1993, shall include: income received from ground rents (the term); reversionary value of the freehold on expiry of the leases (the reversion); the marriage value of other interests; injurious affection (compensation for other losses). The marriage value is taken as the latent increase in value arising from the joining of the freehold and leasehold interests and the Act requires that this potential profit shall be shared between the parties. The proportion of the split of marriage value is fixed by the legislation at a 50:50 division between the landlord and the RTE company or in this case the [NAME].

10. 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 willing seller (with the nominee [NAME], 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

11. The applicants provided a valuation report dated 30 August 2024 by [NAME] of Talbots Chartered Surveyors (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.

12. Having considered the contents of the Valuation Report and the opinions expressed in that report the Tribunal is broadly satisfied that the method adopted is appropriate to determine the enfranchisement price for [NAME]. The Tribunal accepts the description of [NAME] and its location as stated in the Valuation Report.

13. From the details of the exterior and interior of [NAME] included in the Valuation Report. The Tribunal did not consider it necessary or proportionate to carry out an inspection of [NAME].

Valuation

14. According to the Valuation Report, [NAME] is of two levels, a traditionally constructed former house with brick walls and with concrete single lap tiles to a double pitched main roof. [NAME] originally dated from the early Edwardian period.

15. Formerly a single semi-detached house it was converted into 2 self contained flats in the mid 1980’s. The flats share the front access to a communal ground floor. The rear garden is included in the lease to the ground floor flat. There is no off road parking to [NAME]. Overall the condition of [NAME] might be described as fair.

16. Details of any tenants improvements to any of the individual flats, the value of which might be discounted in this transfer were not provided. [NAME] consisting of the two flats as converted are valued as they stood at the AVD 29 January 2024.

17. At Flat 1 the ground floor flat, the accommodation comprised; ground floor hallway, living room/kitchen, bathroom/wc and 2 bedrooms off. At Flat 2 the first floor flat, (GIA 56m2) the accommodation comprised; first floor hallway, living room/kitchen, bathroom/wc and 3 bedrooms.

18. There was no mention of full gas fired central heating and water but it is very likely that a flat from this period would have had it included. The flats use the same shared pedestrian access from the public road. There is no off street parking.

19. The Valuation Report referred to the recent sales, either side of the valuation date. Generally from sales particulars of those sold they were in good condition. All were of flats within former houses of late Victorian or Edwardian periods, since converted. The Valuation Report included the relevant extracts from HMLR records to support the sales details provided in each case.

20. For each comparable the Valuation Report made adjustments for the floor area, date of sale, the tenure, floor level and apparent condition. The Tribunal is content with the number, identity, direction and extent of the adjustments made to all comparables so as to generate a series of values in terms per square metre for each of the 2 flats at [NAME]. The comparable sales provided are set out briefly below.

21. 16b [NAME] [POSTCODE] of 700ft2, identical with the first floor at [NAME]; with 2 bedrooms, first floor, no outside space, on a 90 year lease extension sold for £312,500, January 2024. [NAME] has a third bedroom rather than the kitchen at this comparable.

22. 6 [NAME], [POSTCODE] similar but, exceptionally “well presented” to the ground floor at [NAME] with 2 bedrooms, ground floor, a converted basement office, wide corner plot with outside space, the whole garden and secure off street parking, on a 999 year lease, sold for £393,000, April 2023.

23. 94 [ADDRESS], [POSTCODE] a very nearby a [NAME] bedroom mid terrace double bay 2 storey house in well maintained but unimproved order, sold for £490,000, January 2024.

24. 86a [ADDRESS], [POSTCODE] a well presented nearby ground floor 2 bedroom flat with the whole rear garden with period features on a 155 year lease sold for £400,000, September 2023.

25. 82 [ADDRESS], [POSTCODE] a well presented nearby ground floor 2 bedroom flat with shared use of the rear garden with an extended lease, sold for £353,000, February 2024.

26. On application of the range of values derived from a careful analysis of these five comparable sales the [NAME] concluded the following values for the virtual freehold for each part of [NAME] being: Ground floor £325,000 LH adding 1% to the FH equivalent £328,250. First floor £375,000 LH adding 1 % to the FH equivalent £ 378,750. The Tribunal is content with this approach and these capital values at the AVD.

27. The Tribunal is satisfied with the relevance and details of the five completed [NAME] transactions by the [NAME] engaged by the applicants. In the analysis of comparable sales the Tribunal accepts the conventional 1% uplift differential between long leaseholds and freeholds as adopted in the Valuation Report. All leases having more than 80 years unexpired any marriage value from the merger of interests here is required to be ignored as the Report does.

28. The value of the landlord's interest in each flat at [NAME] is therefore represented first by the capitalised value of the ground rent receivable under each lease. That income stream is capitalised in the Report at 8%, which the Tribunal accepts is appropriate in a case where the rent is at a low though rising level: And secondly by the deferred capital receipt by the landlord at lease end Such values are derived using a deferment rate of 5% yield, following [NAME]. The Tribunal is content the 8% for the term and the 5% for the deferred capital receipt as adopted in the Valuation Report here.

29. Though there are no reports of any sums accruing as owed by either of the [NAME], any small elements of unpaid ground rents from the start of each lease, must be added by the Court to the premiums due. The applicants should formally certify details to the Court of any and all rents due to the landlord but, unpaid, up to the AVD. These sums must be added to the overall premium paid.

30. The Tribunal is content with the valuations of the interests here as presented in the Valuation Report for each element. In view of this the Tribunal does not provide its own valuation.

31. The premium to be paid by the applicants for the freehold interest in [NAME] is therefore £15,610 (fifteen thousand, six hundred and ten pounds). The applicants’ costs are to be deducted from this premium figure but the applicants’ unpaid rent up to the AVD are to be added to this premium figure.

Name: [NAME]: 29 October 2024

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 [NAME], 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 [NAME] 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 [NAME] 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 [NAME] other than [NAME] 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 [NAME], 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 willing seller, (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 [NAME] 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 [NAME] was selling subject, in respect of rentcharges . . . to which section 11(2) below applies, to the same annual charge as the conveyance to the tenant is to be subject to, but the [NAME] 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 [NAME] 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.