First-tier Tribunal Sets Premium for Lease Extension

OUTCOME: Allowed

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Case Reference

: LON/00BB/OLR/2018/1613

Property : [ADDRESS] [POSTCODE]

Applicant: [redacted] : [COUNSEL]

Respondent: [redacted] : [COUNSEL], MRICS

Type of [NAME] : Enfranchisement

Tribunal Members :

[NAME] [NAME] and venue of

8 May 2019 at Hearing

: 10 [ADDRESS] [POSTCODE]

Date of Decision : 8 May 2019

_______________________________________________

DECISION ____________________________________

The Tribunal determines that the premium payable by the Applicant in respect of the extension of his lease at [ADDRESS] [POSTCODE] is £37,250.

Introduction

1. This is an [NAME] made pursuant to Section 48 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) for a determination of the premium to be paid and the terms for a new lease. Background 2. The background facts are as follows:

(i) The flat: [ADDRESS] [POSTCODE];

FIRST - TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

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(ii) Date of Tenant’s Notice: 11 April 2018; (iii) Valuation Date: 11 April 2018; (iv) Date of [NAME] to the Tribunal: 14 December 2018; (v) Tenant’s leasehold interest: • Date of Lease: 29 September 1982; • Term of Lease: 99 years; • Ground Rent: £25. (vi) Landlord: [APPELLANT]; (vii) Tenant: [RESPONDENT] and [NAME]; (viii) Tenant’s Proposed Premium: £27,000; (ix) Landlord’s Proposed Premium: £40,775.

The Hearing 3. The hearing of this [NAME] took place on 8 May. The Applicant, tenant, was represented by Mr [APPELLANT]. The Respondent, landlord, was represented by [RESPONDENT], MRICS.

4. On 15 February signed a Statement of Facts and Issues in dispute. The following matters are agreed: (i) Valuation Date: 12 April 2018; (ii) Unexpired Term: 63.46 years; (iii) Capitalisation Rate: 7%; (iv) Deferment Rate: 5%; (v) Unimproved Extended Lease Vacant Possession Value: £350,000; (vi) Uplift to Freehold VP Value: 1%. (vii) Freehold VP Value: £353,500.

5. The one issue in dispute was relativity. The matter had been set down for two days. The [NAME] was only filed on the morning of the hearing. It should have been filed one week before the hearing. Both experts agreed that this was a half day case. In these days of financial stringency, it is not acceptable for the parties to file bundles late and to fail to give the tribunal an unrealistic estimate of the time required for the hearing. Relativity 6. Despite the guidance given by the Upper Tribunal (“UT”) in Sloane Stanley Estate v Mundy [2016] UKUT 223 (LC); [2016] L&TR 32, neither party adduced any evidence of short lease sales in the locality. The experts had agreed that there was no relevant evidence of such sales and that the Tribunal should therefore resort to the use of graphs. We find the absence of evidence of local transactions extremely surprising.

7. Mr [APPELLANT], for the tenant, urged us to adopt a figure of 88.3% which was an average of the five non-[NAME] graphs from the RICS Report. He stated that [NAME] was “not a particularly important decision with regards

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properties outside of [NAME]”. We disagree. The guidance given by the UT as to the approach to be adopted is as relevant anywhere in England and Wales. Neither did he provide the full background notes to the RICS Graphs or identify the respective strengths and weaknesses of the five graphs. His approach was rather that the [NAME] in Forest Gate would have equal regard to each of these five graphs.

8. Mr [NAME] rather urged us to adopt a figure of 80.5%. He argued that the most appropriate evidence is to be derived from the recent graphs published by [NAME] in June 2016 and [NAME] in 2016. These both support his suggested figure. He suggested that these had now superseded the earlier graphs. He accepted that these related primarily to [NAME]. However, he suggested that they would be equally relevant to Forest Gate. He referred us to two UT decisions: (i) [NAME] v Ironhawk Ltd [2018] UKUT 311 (LC), a decision involving [ADDRESS] N17 (Tottenham). The agreed long lease value of the property was £250,000, suggesting that it was at the lower end of the market. The UT assed a relativity rate of 86.9% for an unexpired term of 75.23 years. [NAME] concluded that there was no reliable local evidence, and chose to rely on the 2015 [NAME]’ enfranchiseable graph [NAME] a 2.5% deduction to compute the relativity without Act rights. (ii) [COMPANY] ([COMPANY]) [2017] UKUT 494 (LC), a decision involving [ADDRESS], Chelmsford. The UT assessed a relativity of just under 82% for an unexpired term of 66.8 years for an unexpired term of 66.81 years based on short lease sales. This was an appeal by the landlord, in which the tenant did not participate. In such circumstances, [APPELLANT] was reluctant to embark upon an extensive analysis of the landlord’s written representations. Our Determination 9. This is yet a further case in which the tribunal is required to determine the issue of relativity on the basis of evidence that is far from satisfactory. Relativity may vary over time, reflecting changes in the market and the economic environment. Changes to interest rates, the property tax regime, the availability of mortgages for short leases and the numbers of buy-to-let landlords and foreign investors all impact on relativity.

10. The impact of these changing market conditions will vary on the different property markets. The UT in Mundy considered the influence that relativity graphs may have had upon the market in the past. It is possible that the market might perform differently in the future. For example, less weight may be given in the [NAME] to a particular graph or a new graph might emerge. If such developments affect market behaviour, then they must be taken into account. Tribunal decisions may also influence

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valuers, and in turn influence parties in the [NAME]. If this were to occur, then the changed market circumstances before a relevant valuation date, must be taken into account when considering market value at that date.

11. In determining relativity, we must focus on the state of the market in Forest Gate at the valuation date. In the absence of any evidence of local transactions, we must consider what relativity graph was used by the [NAME] at the time or which graph best reflects the operation of that [NAME].

12. Mr [APPELLANT], for the tenant asks us to have regard to the average of the five 2009 RICS graphs. All of these have been criticised. However, they seek to reflect the market outside [NAME], albeit in 2009.

13. Mr [RESPONDENT], for the landlord, asks us to have regard to the [NAME] 2016 Graph and the Gerald Eve 2016 Graph. Both give a similar figure. [NAME] provide a detailed analysis of their methodology. We would have no hesitation in accepting it as the best market evidence for [NAME] at the valuation date. The problem is that we are not dealing with [NAME].

14. In our experience as an expert tribunal, the [NAME] in Forest Gate is quite different from [NAME]. This reflects a range of factors. The market is less well informed. There is a greater demand for shorter leases.

15. We prefer the landlord’s evidence, but consider that some adjustment must be made for the [NAME] in Forest Gate. We therefore taking the landlord’s figure of 80.5% as our starting point, but add 2% to reflect the [NAME] conditions in Forest Gate. Conclusion 16. We make the following determinations on the three issues in dispute: (i) Relativity is to be taken as 82.5%; (ii) We determine the premium payable to be £37,250. Our working calculation is set out in the Appendix.

Judge Robert Latham

8 May 2019

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RIGHTS OF APPEAL

1. If a party wishes to appeal this decision to the Upper Tribunal (Lands Chamber) then a written [NAME] for permission must be made to the First-tier Tribunal at the [NAME] which has been dealing with the case.

2. 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].

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 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.

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