First-tier Tribunal Sets Premium for New Lease Under Leasehold Reform Act

OUTCOME: Allowed

1

Case Reference : CAM/00MD/OLR/2020/0147

HMCTS code : P:PAPERREMOTE

Property : 304 [ADDRESS] [POSTCODE]

Applicant: [redacted]

Respondent: [redacted] : Determination of the premium to be paid for a new lease - Leasehold Reform Housing & Urban Development Act 1993

Tribunal Members : Mrs [NAME] (Hons)

Date of Decision : 24 March 2021

_______________________________________________

DECISION ____________________________________

© CROWN COPYRIGHT

Covid-19 pandemic: description of hearing A. This has been a remote hearing on the papers which the parties are taken to have consented to, as explained below. The form of remote hearing was P:PAPERREMOTE. A face-to-face hearing was not held because it was not practicable and all issues could be determined on paper. FIRST - TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

2 Decision of the Tribunal

The Tribunal determines that the premium payable for the new lease for the property at 304 [ADDRESS] [POSTCODE] is £11,699.

Background

1. This is an [NAME] for a determination of the premium of the new lease under section 48 of the Leasehold Reform Housing and Urban Development Act 1993 (the Act)

2. On 13 March 2020 the Applicant, [APPELLANT], gave notice to the Respondent, [RESPONDENT] under section 42 of the Act seeking a new lease to the Property. The notice of claim under section 42 indicated a proposed premium of £6,000 in respect of the grant of the new lease

3. On 13 May 2020 the Respondent landlord served a counter notice under section 45 accepting the tenant’s right to a new lease. They, however, rejected the proposal for the premium, instead suggesting a proposed premium of £16,447.

4. A copy of the Lease dated 25 November 1996 between [COMPANY]) [COMPANY] and [NAME]) [COMPANY] and [NAME] [NAME] [NAME] and [NAME] for a term of 99 years from 25 December 1995 was provided. The Applicant acquired the lease on 16 March 2018 under title number BK341946.

5. Matters could not be agreed and an [NAME] was made to the Tribunal on 12 November 2020 under section 48 of the Act seeking a determination as to the premium to be paid.

6. A directions order was issued by the Tribunal dated 19 November 2020 indicating that the determination would take place based on the submissions from both parties unless either party requested a hearing. There was no request for a hearing.

7. The premium for the extended lease remains in dispute.

The Law

8. The method of calculation of the premium under section 48 of the Leasehold Reform Housing and Urban Development Act 1993 is by reference to Schedule 13 of the Act.

The Property

9. Valuation reports provided by [NAME] of [APPELLANT] [NAME], Chartered Surveyors for the Applicant and by [APPELLANT] of [APPELLANT], for the Respondent describe the property as a ground-floor flat within a three-storey purpose built block of flats known as 302-[ADDRESS]. The building dates from the 1990’s. The development is of traditional brick construction with a pitched tiled roof.

10. There are communal gardens and car parking.

3 11. The accommodation comprises a hall, living room, kitchen, 1 bedroom and bathroom /wc.

Matters agreed

12. The following matters have been agreed

 Property description and accommodation  Date of Valuation – 26 February 2020  Unexpired term – 74.82 years  Ground rent for flat £90pa increasing to £180 pa in 8.83 years and £270 pa in 41.83 years  Capitalisation rate – 6%  Deferment Rate – 5%

Matters to be determined

13. The matters that could not be agreed and that require to be determined are

 Long Leasehold value of flat  Existing Lease Value of flat  Relativity

And therefore, the Premium payable for the new lease.

Applicant’s Evidence

14. [APPELLANT] for the Applicant had measured the flat and found it to be 41.63 m² (448ft²). The property was in reasonable condition with a new kitchen and bathroom but was heated mainly by portable electric heaters which was below the standards required in today’s market.

15. To arrive at the long leasehold value, he had looked at comparable sales in the locality.

16. In terms of comparables he had relied on 6 comparables:

Date Address Unexpir ed Features Price Analysis before/ after adjustments Years £ £

03/20 74 Lowestoft Dr 98 1 bed/1 bath New kitchen (£5000) 190,000 346/337 12/19 [ADDRESS] 165 1 bed/1 bath Loft storage New kitchen/floor (£7500) 206,000 426/412 12/19 152 Lowestoft Dr 98 1 bed/1 bath Loft storage

200,000 395/397

4 10/19 [ADDRESS] 166 1 bed/1 bath Loft storage New kitchen (£5000) 185,000 401/392 07/19 [ADDRESS] 99 1 bed/1 bath New kitchen & Elect heat (£7500) 185,000 441/423 02/18 [ADDRESS] 195 1 bed/1 bath Elect heat /white goods (£3500)

196,000 374/363

17. He had regard to the Nationwide House price index for the Outer Metropolitan area and adjusted for time using this but felt that the sales of flats with long leases close to the valuation date were the best evidence.

18. The value of the subject property was on the basis of ignoring the effect on value of any tenant’s improvements and therefore he had made an adjustment to the comparables to reflect this. He had also adjusted to reflect the lack of central heating in the subject property and had discounted the comparables where there was loft storage which he believed to be of considerable benefit.

19. Having made adjustments to the comparables to arrive at his analysis of price per square foot he had then weighted them in terms of evidential value and placed most weight on [ADDRESS], less weight on [ADDRESS], [ADDRESS], [ADDRESS] and [ADDRESS] and some weight on [ADDRESS].

20. The average of all six transactions as adjusted was £387 per ft² whilst the transaction to which he had attached most weight was £412 per ft². However, he considered all the comparables superior to the subject property and taking everything into account he had arrived at a price per ft² of £380 giving an extended lease value of £170,278.

21. To arrive at the freehold value, he had applied the usual 1% adjustment to the extended lease value and arrived at a freehold value of £171,998

22. In arriving at the existing lease value, he had had regard to the decision in [COMPANY]([COMPANY] and [NAME] [NAME] [NAME](2020) and had considered whether there was any transactional evidence.

23. He had identified sales of 3 flats in [ADDRESS], Slough with 163 years unexpired in June – September 2018 and when comparing the average price of these with a sale of a flat with 73.5 years expired in October 2017 the relativity was 95.14%.

24. He had also acted on behalf of the tenants in lease extensions on two flats in [ADDRESS] in October 2019. The leases had 71.5 years unexpired and he had agreed a relativity of 93.3% for each.

25. He had also had regard to sales of 4 flats in a nearby development known as Oppidan on [ADDRESS] where the leases had 84 years unexpired and a further sale of a flat in the same development with a new 125 years lease. Whilst the Savills

5 and [NAME] graphs suggested relativities of 91.5% and 92.35% respectively the sales prices were similar, notwithstanding the difference in lease length.

26. Having regard to these factors he had adopted a relativity of 95.75% of the unimproved freehold value to arrive at a value of the subject property with the existing lease of £164,688.

27. Capitalising the ground rent at the agreed rates and adding the marriage value derived from the values he had adopted he had arrived at a lease extension price of £7,096.

Respondent’s evidence

28. Mr [RESPONDENT] for the Respondent had not inspected the property but had assumed it to be in good repair. He agreed that the original kitchen and bathroom fitments had been replaced He felt that the subject block occupied a ‘preferable location’ on the estate. It had more extensive external communal grounds than other blocks and was less impacted by passing

29. In terms of comparables for the long leasehold value he had regard to the same sales as Mr [NAME], as set out in paragraph 16 above, with the exception of [ADDRESS]. Whilst not tabulated in his evidence a summary of his conclusions is set out by the tribunal below. He had adjusted for time using the Land Registry House price index (LRHPI) for Slough.

Date Address Unexpired Features Price Adjustments Adjusted price Years £ 12/19 [ADDRESS] 160+ 1 bed New kitchen New bath Same layout 206,000 LRHPI Kitch £4000 Bath £2000 £203,187 12/19 152 Lowestoft Dr 98 1 bed New kitchen New bath Same layout 200,000 LRHPI Kitch £4000 Bath £2000 Lease £4,500 £201,594 03/20 74 Lowestoft Dr 98 1 bed New kitchen Slightly larger 190,000 LRHPI Kitch £4000 Lease £4,500 £188,367 10/19 [ADDRESS] 160+ 1 bed New kitchen Same layout 185,000 LRHPI Kitch £4000 Bath £2000

£175,792 07/19 [ADDRESS] 98 1 bed New kitchen New bath Smaller

185,000 LRHPI Kit/bath £4000 Lease £4,400 £175,434 30. He explained that he had made upward adjustment to reflect the value of the retained interest on those leases with 98 years remaining. He felt that such leases were not as valuable as a statutory lease extension and so had calculated the value of the lease

6 for each by capitalising the ground rent using a 6% yield and a reversionary yield to FHVP value.

31. He believed that the most reliable evidence was [ADDRESS] as similar to the subject property and with the benefit of a statutory lease extension. He also felt that [ADDRESS] was strong evidence and associating more weight to these transactions he has adopted an unimproved long leasehold value for the subject property of £200,000.

32. He had analysed many transactions on the subject estate and was not aware of any recent short leasehold transactions or indeed historic sales (more than 2 years previous).

33. However, the subject property was purchased by the current leaseholder in December 2017 at £195,000. He had adjusted this for time using the LRHPI for Slough and for tenant’s improvements and arrived an at unimproved short leasehold value of £177,937.

34. He appreciated that this evidence was over 2 years old but considered it a useful guide when used as a ‘cross check’ and at 88.08% was broadly in line with the 2016 [NAME] (87.77%) and Savills (86.96%) graphs.

35. He had had regard to various recent Upper Tribunal decisions in respect of relativity including [COMPANY]([COMPANY] and [NAME] [NAME] [NAME] (2020), Re Judith Reiss and [COMPANY] (2018), Oliyide and [COMPANY] (2019) and Trustees of Barry and Peggy High Foundation and [NAME] and [NAME] (2019) . He was of the opinion that the Gerald Eve 2016 and Savills Unenforceable Graph should be taken into account

36. He had adopted a leasehold value of £176,505 in line with the average of the two graphs.

37. As part of his conclusion he referred to the sale of the subject property in December 2017 at £195,000 which he had adjusted to £177,937 which equated to a relativity of 88.08%. This allowed a ‘cross check’ to support the graphs adopted.

Determination

38. The [NAME] for the applicant and the respondent have relied on the same set of comparables – with the exception of an additional comparable from the applicant’s valuer – [ADDRESS] – on which Mr [APPELLANT] says he has placed less weight.

39. [NAME] place most weight on the sale of [ADDRESS] in December 2019 for £206,000 and whilst Mr [NAME] favoured [ADDRESS] as the next most comparable being in the same block and also backing onto the railway line Mr [NAME] favoured [ADDRESS] as forming part of the same estate and having the same layout as the subject property.

40. The tribunal agrees with the [NAME] that [ADDRESS] would appear to be a good comparable, albeit slightly larger and on the top floor as opposed to the ground floor. It also has a new kitchen and flooring. However, I am not convinced from the information provided that the loft space is within the demise.

7 41. I have also had regard to the other properties that the [NAME] have suggested are comparable as the sale of 310 would appear to be somewhat at the top end of the range in the vicinity.

42. I am not persuaded by Mr [NAME] methodology for adjusting for the length of the lease nor that in this vicinity there is any evidence presented that the sales of flats with 98-year leases was significantly different from those with longer leases.

43. Having regard to all of the above, the tribunal determines that the value of the subject property with an extended lease is £195,000 and, after adjusting for tenant’s improvements the extended lease value is £190,000 and the freehold value after applying the agreed 1% upwards adjustment is £191,900.

44. Turning to the existing lease value the tribunal has looked first to any comparables transactions put forward by the parties.

45. Mr [NAME] had advanced a set of sales of 3 long leasehold flats and one short lease (73.5 years) in a nearby development where he had analysed the relativity at 95.14%. He had also acted on behalf of the tenants in lease extensions on two flats in the same development with 71.5 years unexpired where he said he had agreed a relativity of 93.3%. Sales of flats in another development with 84(4 flats) and 125 years (1 flat) outstanding showed no difference in values

46. Mr [NAME] had referenced the sale of the subject property with an unexpired lease of 78 years in December 2017 at £195,000 and arrived at a value of £177,937 after [NAME] adjustment for land registry HPI and tenants improvements.

47. I applaud both [NAME] for seeking to identify transactional evidence as this is far preferable to moving straight to graphs of relativity, however, as they have found it is not always in abundance.

48. Mr [NAME] evidence is not totally persuasive as in both instances it compares sales of longer leases against a single short lease with little evidence of how comparable they are, and in respect of his agreement there is no note as to the existing lease/freehold value (and starting point of the analysis) being agreed.

49. I am somewhat persuaded by Mr [NAME] arguments in respect of the use of the sale of the subject property. I also don’t necessarily agree with his adjustments but his adjusted value of £177,937 would suggest a relativity against the tribunals determination of £191,919 of 92.7%.

50. Taking all the evidence into account I determine that the value of the existing lease, discounting for improvements and reflecting the requirement of a ‘no act ‘world is £174,000.

51. The Tribunal determines that, on the basis of the elements of the valuation set out above the premium payable for the lease extension of the flat is £11,699. The Tribunals valuation is at Annex 1.

8 Annex1

Tribunal's valuation Valuation date

26/02/2020 Unexpired term 74.82 Ground rent at date valuation £90 Capitalisation rate 6% Deferment rate 5% Extended lease value £190,000 Freehold value £191,900 Existing Lease value £174,000 Calculations Diminution of freehold Loss of ground rent £ 90 Years Purchase 8.82years @ 6% 6.6977 £603 Loss of ground rent £ 180 Years Purchase 33years @ 6% 14.2302 Present value of £1 in 8.82years @ 6% 0.5981 £1,532 Loss of ground rent £ 270 Years Purchase 33years @ 6% 14.2302 Present value of £1 in 41.82years @ 6% 0.0874 £336 Reversion to Freehold Capital value £ 191,900 Present value of £1 in 74.82years @ 5% 0.0260 £4,985 £7,456 Less Freehold reversion after extension Freehold value £191,900 PV £1 deferred 164.82 years @ 5% 0.0003 £58 £7,398 Marriage Value calculation Value of proposed interests Freeholder £58 Leaseholder £190,000 £190,058 Value of existing interests Freeholder £7,456 Leaseholder £174,000 Sub-Total £181,456 Total marriage value £8,601 Landlords share @ 50% £4,301

Enfranchisement Price £11,699

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ANNEX 2 – 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 at the Regional Office which has been dealing with the case.

2. 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].

3. If the [NAME] is not made within the 28-day time limit, such [NAME] must include a request to 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 (ie 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.