First-tier Tribunal Sets Lease Extension Premium

OUTCOME: Dismissed

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FIRST-TIER TRIBUNAL [APPELLANT] CHAMBER ([APPELLANT]) [APPELLANT] : LON/00AC/OLR/2020/0853 V: [APPELLANT] : [ADDRESS] [POSTCODE] Applicant : [redacted] : Mr [RESPONDENT] Respondents : [redacted] [RESPONDENT] : [COMPANY] Mr [RESPONDENT] of [NAME] : Lease extension Tribunal : Judge Tagliavini Mr K [ADDRESS] and [APPELLANT] of hearing : 10 [ADDRESS] [POSTCODE] V: VIDEREMOTE 7 April 2021

[APPELLANT] of decision : 5 May 2021

DECISION

2 Covid-19 pandemic: description of hearing This has been a remote video hearing which has been consented to by the parties. The form of remote hearing was V: VIDEOREMOTE. A face-to-face hearing was not held because it was not practicable, and all issues could be determined in a remote hearing. The tribunal was referred to the applicant’s bundle of documents numbered 1 to 304. The order made is described at the end of these reasons. _____________________________________________________ Summary decision of the tribunal (1) The tribunal finds that the [APPELLANT] payable by the applicant to the respondent for a 90-year lease extension of [ADDRESS] [POSTCODE] is £59,626. ________________________________________________ The [NAME]

1. This is an [NAME] for the grant of a new lease/lease extension under the provisions of section 42 of the Leasehold Reform, Housing and Urban Development Act 1993.

Background

2. Under a lease dated 16 July 1986 made between [NAME] ([NAME].) [APPELLANT] and [APPELLANT] [NAME] [APPELLANT] the applicant was granted a [APPELLANT] of 99 years of the subject [APPELLANT] at [ADDRESS] [POSTCODE] with effect from 29 September 1976.

3. By a Notice of Claim dated 12 February 2020 the applicant sought the grant of a new 90-year lease at a [APPELLANT] payable of £30,000. In a Counter Notice dated 7 August 2020 the landlord admitted the applicant’s right to a new lease but asserted that the [APPELLANT] payable is £83,750.00.

4. Since the [NAME] was made, the parties’ valuers agreed the following issues:

(i) [APPELLANT] of 13 February 2020

(ii) [APPELLANT] granted of 99 years from 29/06/1976

(iii) Ground rent - £50 per annum until 25/03/2009; £100 per annum for the next 33 years and £200 per annum for the residue of the [APPELLANT]

(iv) [APPELLANT]: 55.62 years

(v) Ground rent capitalisation rate: 6%

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(vi) Deferment rate: 5%

(vii) Freehold value of the flat is worth 1% more than the long leasehold value

(viii) GIA of 450 sq. ft (41.81 sq.m)

(ix) There are no improvements that have added value

(ix) The terms of the new lease

5. Therefore, the only issues in dispute for the tribunal’s determination are:

(i) Freehold value of the flat

(ii) Existing lease value/[APPELLANT]

(iii) The [APPELLANT] payable for the 90-year lease extension with a pepper ground rent

6. West Heath court is made up of two blocks of purpose-built flats on five floors. [ADDRESS], [POSTCODE] (‘the subject premises’) are a ground floor flat comprising two rooms, kitchen and bathroom and does not benefit from any demised outside space. The subject flat was sold for £195,000 in August 2006

The applicant’s evidence

7. The applicant sought to rely upon the expert valuation evidence of Mr [RESPONDENT] dated 29 March 2021. In his oral evidence to the tribunal, Mr [RESPONDENT] relied upon his report as his evidence in chief and was cross-examined on this by the respondent’s valuer Mr [RESPONDENT] and answered the questions asked by the tribunal. In his report, Mr [RESPONDENT] provided a valuation with the revised [APPELLANT] of £39,998.

8. In his report, Mr [RESPONDENT] stated that he had had regard to the Court of Appeal case of [NAME] v [NAME] of the Sloane Stanley Estate [2018] EWCA Civ 35 and the Upper Tribunal decision in [COMPANY] ([COMPANY] v Ms [NAME] [NAME] [2020] UKUT 0164 (LC) although the latter had been published after the [APPELLANT] of the subject [APPELLANT]). Mr [RESPONDENT] also referred to Mallory v Orchidbase [2016] UKUT 468 (LC) in carrying out his valuation.

9. In his evidence Mr [RESPONDENT] relied upon comparable properties located at Flats 10, 26A and 48 [ADDRESS] [POSTCODE]; Flats 114 and 126 [ADDRESS] [POSTCODE] and Flats 6, 9, 10 (2 transactions), 21 and 40 at the subject building of [ADDRESS] and supported this evidence with copies of Office Copy entries.

10. By comparing the value prices per square metre for [ADDRESS] with [ADDRESS] and [ADDRESS] with 48 Waterlow court then relating

4 them to the sale of [ADDRESS] he arrived at a value of £284,000. Mr [RESPONDENT] then carried out a similar exercise for flats 126 Britten close and [ADDRESS] and concluded that the subject flat had a value of £310,000 as at the [APPELLANT] and having made a visual inspection of the inferior positioning of the subject flat (close to the e highway and service road and rubbish bins) he concluded that £310,000 was at the [APPELLANT] the extended lease value of the subject [APPELLANT].

11. In explaining his mathematical approach to the calculation of [APPELLANT], Mr [RESPONDENT] adopted an approach that utilised data provided by the [NAME] and the Land Registry to relate the price paid for the short lease to the price paid for the long lease in respect of his comparable properties. This method produced a revised price for the short lease as at the [APPELLANT] of sale of the long lease. The revised price of the short lease was then divided by the sale price of the long lease to obtain an enfranchiseable [APPELLANT]. Mr [RESPONDENT] then went on to use the Savills Table for its 2016 graph as the number of years remaining of the short lease at its actual sale [APPELLANT], deducted the difference shown between the enfrancisheable [APPELLANT] and unenfranchiseable [APPELLANT] to obtain an unenfranchiseable [APPELLANT].

12. Mr [RESPONDENT] then found the average unenfranchiseable [APPELLANT] from the two 2016 graphs ([APPELLANT] and [APPELLANT]). By considering the number of years of the short lease each comparable had remaining and the average unenfrachiseabe [APPELLANT] of the number of years remaining at the [APPELLANT] of the subject [APPELLANT]. By deducing one from the other to find the difference in relativities between the [APPELLANT] of the subject [APPELLANT] and the sales [APPELLANT] of the short lease comparable. From this figure, Mr [RESPONDENT] deducted the figure that represented the difference between the enfranchiseable and unenfranchiseable [APPELLANT]. By applying this method to the comparable properties relied upon, Mr [RESPONDENT] reached an average [APPELLANT] of 80.870% ([APPELLANT] 5 of report).

13. Mr [RESPONDENT] told the tribunal that he believed his approach followed the principles set out in [NAME] v [NAME] of Sloane Stanley Estate [2018] EWCA Civ 35 and [COMPANY] v Ms [NAME] [NAME] [2020] UKUT 0164 (LC) and that he was adapting the graphs appropriately by using a combination of the [NAME] and [NAME] graphs.

14. In his submissions to the tribunal, Mr [RESPONDENT] stated that his approach to the valuation had been focused on the market evidence he had obtained from the use of sales of comparables properties in the NW11 area. Mr [RESPONDENT] also stated that he tried to follow the approach taken in [NAME].

The respondent’s evidence

15. The respondent relied on the valuation evidence of Mr [RESPONDENT] (EST MAN), FRICS, [NAME] in a report dated 30 March 2021. Like Mr [RESPONDENT], [NAME] relied upon his report as his evidence-in-chief and was cross-examined on it by Mr [RESPONDENT] and answered questions asked by the tribunal. In his report [NAME] provided a [APPELLANT] payable of £66,120. This was subsequently revised to £59,626 after Mr [NAME] reduction of the FHVP value by 10%.

16. In his evidence, Mr [APPELLANT] asserted that the subject [APPELLANT] was located close to very high value properties in [ADDRESS] and part of the Borough of Barnet, the largest of the London Boroughs.

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17. Mr [NAME] stated that as there had been only one sale in the subject block since March 2017, which was of Flat 10, a five room flat and nearly three times the size of the subject flat on 17/01/2010 for £725,000, it was necessary to derive comparables from similar blocks in the NW11 area. Mr [NAME] relied on the sales of Flat 8 at [ADDRESS], [ADDRESS]11, Flat 66 Heathcroft, [ADDRESS], NW11 and Flat 2 at [ADDRESS], Corringway NW11. Mr [NAME] subsequently told the tribunal that another potential comparable [ADDRESS] should be disregarded as it is nearly twice the size of the subject premises and the sale was concluded during the COVID-10 ‘lockdown’ although the price was agreed beforehand.

18. Mr [NAME] preferred the comparable provided by [ADDRESS] as it is virtually the same size as the subject [APPELLANT] and needs only one adjust for floor level, being on the second floor and not the ground floor. In a Table appearing at page 230 of the bundle Mr [NAME] set out the comparable properties he relied upon together with the adjustments made. Mr [NAME] derived adjusted rate per sq. ft. of £950 giving a FHVP of £427,500.

19. Mr [NAME] subsequently accepted in his oral evidence to the tribunal that [ADDRESS] is a more valuable [APPELLANT] that the subject flat and therefore a reduction of 10% to FHVP value of the subject [APPELLANT] was required ([APPELLANT] 1%) of £380,941.

20. Mr [APPELLANT] stated that he relied on the binding decision in [NAME] and that the average of the [NAME] 2016 graphs for a lease of 55.62 years is 75.08% of the FHVP giving an existing lease value of £320,967.

21. In his closing submissions Mr [APPELLANT] submitted that only the FHVP value and the [APPELLANT] were in dispute. Mr [APPELLANT] criticised the mathematical approach adopted by Mr [RESPONDENT] to the valuation as this attempted to create a new form of graph using figures from the [NAME] and Land Registry data. Mr [NAME] asserted that reliance on this data was incorrect and illogical as it produced short lease values that were higher than the long lease values and this could not be correct. Mr [RESPONDENT] asserted that Mr [RESPONDENT] should have conceded the [APPELLANT] and focused upon the FHVP value.

22. Mr [APPELLANT] also criticised the choice of comparable properties utilised by Mr [RESPONDENT] as one was too close to a railway to be properly comparable.

The tribunal’s decision and reasons

23. The Tribunal preferred the evidence of Mr [RESPONDENT] to that of Mr [RESPONDENT] as it finds the evidence of the latter, illogical in part where the value of a short lease is higher than that of a long lease and therefore finds this evidence to unreliable. The tribunal also finds that the reliance on [NAME] which is published as index figures rather than actual sales data to produce an index rather than a figure for [APPELLANT], was an unusual approach and not one that provided the tribunal with much confidence in its reliability.

24. The tribunal also finds that Mr [RESPONDENT] has, unlike Mr [RESPONDENT] made no attempt to make any adjustments to his comparables to take into account their condition in comparison to the subject [APPELLANT]. The tribunal finds that Mr [APPELLANT] made the appropriate,

6 consistent adjustments to his comparables and conceded that a further adjustment of 10% was required to the FHVP.

25. Therefore, the tribunal finds that the [APPELLANT] payable as set out in Mr [APPELLANT] revised valuation (attached as [APPELLANT] I) is £59,626.

Name: Judge Tagliavini

Dated: 5 May 2021

Rights of appeal from the decision of the tribunal By rule 36(2) of the Tribunal Procedure (First-tier Tribunal) ([APPELLANT] 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 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 [APPELLANT], the [APPELLANT], 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]).

7 [APPELLANT] 1 Valuation for lease extension

[ADDRESS], [POSTCODE]

[APPELLANT] 13/02/2020

[APPELLANT] 29/09/1976

[APPELLANT] 99.00 years [APPELLANT] 28/09/2075 [APPELLANT]

55.62 years

Long Lease value

£380,940

Freehold VP value £384,749 +1% long lease value

[APPELLANT] 1 [APPELLANT] 2 [APPELLANT] 3

Ground rent £100.00 £200.00 £0.00

Reversion years

22.11 33.51 0.00

Capitalisation rate 6%

Deferment rate 5%

[APPELLANT]

£0.00

[APPELLANT] 75.08%

Diminution of Landlord's interest

Ground rent £100

[APPELLANT] 22.11 yrs @ 6.00% 12.07113

£1,207

[APPELLANT] 1 £200

[APPELLANT] 33.51 yrs @ 6.00% 14.30157

PV of £1 22.11 yrs @ 6.00% 0.27573

£789

[APPELLANT]2 £0

[APPELLANT] 0.00 yrs @ 6.00% 0

PV of £1 55.62 yrs @ 6.00% 0.03913

£0

Reversion to VP value £384,749

[APPELLANT] 55.62 yrs @ 5.00% 0.06629

£25,505

Value existing freehold

£27,501

L/lord's interest on reversion of new lease

[APPELLANT]

£384,749

PV 145.62 yrs @ 5.00% 0.00082

-£316

£27,185

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Landlord's share of Marriage Value

Val. Tenant's interest new long lease £380,940

Val. l/lord's interest after reversion of new lease

£316

£381,256

[APPELLANT]. tenant's interest existing lease [APPELLANT] 75.08% £288,870

Val. l/lord's interest existing lease £27,501

£316,371

£64,885

Marriage Value at 50% £32,443

[APPELLANT] £0

[APPELLANT] £59,626

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FIRST-TIER TRIBUNAL [APPELLANT] CHAMBER ([APPELLANT]) [APPELLANT] : LON/00AC/OC9/2021/0208

[APPELLANT] : [ADDRESS], [ADDRESS], [APPELLANT]11 Applicant: [redacted] [RESPONDENT] : [RESPONDENT] Respondent : [redacted] [RESPONDENT] : [COMPANY] of [NAME] :

[NAME] to determine costs payable under s.60 of LRHUDA 1993 Tribunal Members :

Judge Shepherd [APPELLANT] of Decision : 11th January 2022

DECISION

The [NAME] is dismissed. The Tribunal will not interfere with the legal costs claimed.

Reasons

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1. In this case the Applicant, [RESPONDENT] (“the Applicant”) has asked the tribunal to determine the costs payable under s. 60 Leasehold Reform, Housing and Urban Development Act 1993 (“The Act”).

2. The Respondents to this [NAME] are [COMPANY] ([NAME]) [COMPANY] (“the Respondents”).

3. The sums challenged covered work carried out by the Respondent in preparing and administering an extension of the lease pursuant to the Act. The Applicant was seeking to extend the lease of premises at [ADDRESS], [ADDRESS], London NW11 (the premises). Nothing turns on the history of this lease extension and therefore the facts will not be rehearsed here.

4. The Respondents provided a breakdown of the legal fees incurred. The firm they use for leasehold enfranchisement cases are [COMPANY]. Their total fee was £3324 plus vat. All of the solicitors involved in the work have been qualified for at least 16 years and their job titles suggest that they are specialists in the field of enfranchisement.

Challenge to solicitor’s fees

5. In her statement of case the Applicant does not challenge the amount of time spent by the solicitors but does challenge the hourly rates. In simple terms it is alleged that the work was routine and lower grade solicitors could have done more of the work with a Grade A solicitor performing an overseeing role.

6. The Applicant relies particularly on the Solicitors Guideline Hourly Rates updated on 1st October 2021 issued by HM Courts and Tribunals Service for the purposes of carrying out summary assessments of costs. The Applicant

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says that applying these guidelines to the present case the hourly rates would be reduced because the work could and should be performed by lower grade solicitors. In addition it is said that a discount on fees could have been achieved based on the negotiating strength of the lessors. The Applicant offers £2054 plus vat.

7. In support of this offer the Applicant relies on two invoices from different legal firms, [NAME] and [NAME] for lease extension work. The Tribunal cannot safely rely on these as like for like comparables because there is no detail as to the cases concerned or work involved. Similarly the completion statement is of limited value without further information.

Response to challenge

8. The Respondents unsurprisingly say that the costs are reasonable and payable pursuant to s.60 (see below). They detail the work carried out by solicitors involved all of which are Grade A fee earners. They cite cases in which their solicitors’ fees have been approved by the FTT. Whilst this evidence is instructive each case must be determined on its own merit.

9. The Respondents state that their solicitors have been acting for them for many years in this specialist area of work. They emphasise that enfranchisement work is complex and not routine and it is important that the work is done properly to avoid the risk of adverse consequences. They say that the County Court Guideline Hourly Rates are not applicable in relation to this type of work and even if they were the applicable rates would be London 1 Band.

The Law 10. Section 60 of the Act states the following:

60.— Costs incurred in connection with new lease to be paid by tenant.

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(1) Where a notice is given under section 42, then (subject to the provisions of this section) the tenant by whom it is given shall be liable, to the extent that they have been incurred by any relevant person in pursuance of the notice, for the reasonable costs of and incidental to any of the following matters, namely— (a) any investigation reasonably undertaken of the tenant's right to a new lease; (b) any valuation of the tenant's flat obtained for the purpose of fixing the [APPELLANT] or any other amount payable by virtue of Schedule 13 in connection with the grant of a new lease under section 56; (c) the grant of a new lease under that section; 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 purchaser would be void. (2) For the purposes of subsection (1) any costs incurred by a relevant person 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 tenant's notice ceases to have effect, or is deemed to have been withdrawn, at any time, then (subject to subsection (4)) the tenant'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) A tenant shall not be liable for any costs under this section if the tenant's notice ceases to have effect by virtue of section 47(1) or 55(2). (5) A tenant shall not be liable under this section for any costs which a party to any proceedings under this Chapter before [the appropriate tribunal]1 incurs in connection with the proceedings.

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(6) In this section “relevant person” , in relation to a claim by a tenant under this Chapter, means the landlord for the purposes of this Chapter, any other landlord (as defined by section 40(4)) or any third party to the tenant's

Determination

11. The Tribunal accepts the arguments put forward by the Respondents. The starting point is s.60 itself and in particular sub (2). The Respondents clearly consider that their solicitors can be relied upon to carry out enfranchisement work which is not without considerable risk if mistakes are made. In these circumstances where a relationship has built up over a number of years between specialist solicitors and their clients it would be difficult to come to any view other than the Respondents would consider their solicitors costs to be reasonable even if they were the party incurring the cost without any recourse to the leaseholder.

12. In addition, the Tribunal accepts that the work involved in an enfranchisement case is complex with particular risk attached such that the County Court Guideline Rates provided for the purpose of summary assessment by judges are of limited value. Finally, the costs themselves are reasonable. The suggestion that the Respondents should have obtained a discount is made without any evidential basis.

13. In these circumstances there is no reason for the Tribunal to interfere with the legal costs claimed and the [NAME] is therefore dismissed.

Judge Shepherd

11th January 2022

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ANNEX - RIGHTS OF APPEAL Appealing against the tribunal’s decisions

1. A written [NAME] for permission must be made to the First-tier Tribunal at the Regional tribunal office which has been dealing with the case.

2. The [NAME] for permission to appeal must arrive at the Regional tribunal office within 28 days after the [APPELLANT] this decision is sent to the parties.

3. 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.

4. The [NAME] for permission to appeal must state the grounds of appeal, and state the result the party [NAME] the [NAME] is seeking. All applications for permission to appeal will be considered on the papers 5. [NAME] to stay the effect of the decision must be made at the same time as the [NAME] for permission to appeal.