First-tier Tribunal Sets Premium for Property Enfranchisement

OUTCOME: Allowed

© CROWN COPYRIGHT

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case reference : LON/00AQ/OCE/2020/0035

HMCTS code (paper, video, audio) :

P:PAPERREMOTE Property : 17 and 17A [ADDRESS] [POSTCODE] Applicants : [redacted] [COUNSEL] : [NAME] Respondent : [redacted] : [NAME] of [NAME] : Section 26 of the Leasehold Reform, Housing and Urban Development Act 1993 Tribunal members : Mr [NAME] Date of determination and venue : 14 December 2021 at 10 [ADDRESS] [POSTCODE] Date of decision : 14 December 2021

DECISION

Covid-19 pandemic: description of determination This has been a determination by remote hearing on the papers. The form of remote hearing was P:PAPERREMOTE. A face-to-face hearing was not held because no-one requested one, or it was not practicable, and all issues could be determined on paper. The documents that the tribunal was referred to are a bundle of 117 pages, the contents of which the tribunal has noted.

2 Summary of the tribunal’s decision (1) The appropriate premium payable for the collective enfranchisement is £57,626. (fifty seven thousand six hundred and twenty six) Background 1. This is an [NAME] made by the applicant qualifying tenants pursuant to section 26 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) for a determination of the premium to be paid for the collective enfranchisement of 17/17A [ADDRESS] [POSTCODE] (the “property”) where the Landlord cannot be found.

2. By an Order of the Willesden County Court dated 12 February 2020 the requirement to serve notice under section 13 of the Act, was dispensed with.

3. On 12 February 2020 the Willesden County Court ordered that the freehold shall be vested in such person or persons as may be appointed for that purpose by the Claimants on such terms as may be determined by the tribunal.

4. On 18 February 2020, the Applicants applied to the tribunal for a determination of the premium and terms of acquisition. The issues 5. In the absence of the Landlord there are no matters agreed. The applicants have submitted a valuation report prepared by Mr [NAME], an RICS registered Valuer dealing with the following matters: (a) The subject property is a two-storey right-handed semi-detached house converted into two self-contained flats. Number 17 is on the ground floor and 17A on the first floor. The rear garden is divided between the two flats and the pathway between 17And [ADDRESS] provides the only access to the first-floor flat’s rear garden area. (b) The valuation date is the date of the court order being 12 February 2020. (c) Details of the tenants’ leasehold interests: (i) Dates of leases: both flats are let for 99 years commencing on 25 December 1985 (ii) Ground rents: the initial ground rent was £50 per annum for the first 33 years rising to £100 per annum for the next 33 years and finally £150 per annum for the residue of the lease.

3 (iii) Unexpired terms at valuation dates: 64.87 years; The tribunal regards these matters as uncontroversial and are supported by documents in the bundle. The tribunal will consider the evidence on the following matters: (d) Capitalisation of ground rent: 6.75% per annum (e) Deferment rate: 5%. (f) Freehold value (g) Relativity; 83.53% (h) Development hope value; Nil (i) The premium payable. £57,649.00 (Fifty seven thousand six hundred and forty nine pounds. The hearing 6. The case was dealt with on the papers on 14 December 2021 with the necessary documents provided in a bundle by the Applicant’s representative.

7. The tribunal was not asked to inspect the property and the tribunal did not consider it necessary to carry out a physical inspection to make its determination.

8. The applicant relied upon the expert report and valuation of Mr [APPELLANT] dated 18 June 2020. Capitalisation rate 9. Mr [NAME] considers that in recent years a generic capitalisation rate of 7% has become standard in many cases. However, he considers that this type of income stream has become more valuable and at 6.5% may be more appropriate. As ground rents can be time-consuming to collect, he proposes a rate of 6.75%. The tribunal’s determination 10. The tribunal determines that the rate to be used is 7%. Reasons for the tribunal’s determination 11. The tribunal notes that a rate of 7% has become standard in many cases and in the absence of any specific evidence to show that this should be varied in this case the tribunal will adopt the generic rate.

4 Deferment rate 12. Mr [NAME] speaks to the Sportelli rate of 5%. The tribunal’s determination 13. The tribunal determines that 5% is appropriate as the deferment rate . Reasons for the tribunal’s determination 14. The tribunal sees no reason to depart from the Sportelli rate. Freehold value 15. Mr [NAME] values the freehold interest in flat 17 at £267,500 and 17A at £275,000 The tribunal’s determination 16. The tribunal determines that the value of the freehold interest in flat 17 is £267,500 and 17A is £275,000 Reasons for the tribunal’s determination 17. Mr [NAME] has presented five comparable properties all of which have gas central heating and double glazing. His report includes sale particulars and title documents supporting their use. In his view all require some adjustment and possibly a slight reduction to reflect a drop in values in the period running up to February 2020 and he takes that into consideration. At the valuation date the impact of Covid 19 had not impacted the market although sales agreed around the valuation date may have subsequently been adjusted.

18. The comparable properties are summarised in the table below and the tribunal considers that the evidence presented supports the values utilised by Mr [NAME].

5 Address date Description size sq ft lease price Comment [ADDRESS]-19 First floor converted flat 2 beds reception kitchen bathroom in good condition 602 155 yrs unexpired £ 300,000 Larger than 17A [ADDRESS]-19 Ground floor converted 1 bed flat 559 96 yrs unexpired £ 292,000 agents say exceptional condition and premium price [ADDRESS]-19 ground floor converted 1 bed flat garden 556 92 yrs unexpired £ 265,000 further form tube but quieter and more desirable area [ADDRESS]-19 ground floor converted 1 bed flat garden 473 995 yrs unexpired £ 265,000 virtual freehold [ADDRESS]-19 First floor converted 1 bed flat 473 share of freehold £ 270,000 parallel to [ADDRESS]

19. The tribunal determines that 83.525% is appropriate as the relativity rate.

20. Both flats have an unexpired term of 64.87 years. Mr [NAME] states he has been unable to find any comparable sales of similar length leases.

21. Flat 17A was sold to the current lessee on the open market in October 2018 with an unexpired term of 66.18 years for a price of £250,000. The flat was purchased with the benefit of an assigned section 42 notice from the previous leaseholder offering a premium of £10,200 for a statutory lease extension. Mr [NAME] considers that an inflated figure was paid for the short lease and that valuation advice had not been taken on the likely level of premium which he assessed at that date has been £26,895. He places little weight on the sale in consequence.

22. The tribunal agrees with that assessment.

23. Mr [NAME] quotes the case of Trustees of the [NAME] v [NAME]/Zantre (2019 UKUT 0242 (LC) which stated that the First-tier Tribunal should have taken into account the Savills 2015 enfranchisable graph, the Savills 2016 unenfranchisable graph and the Gerald Eve 2016 unenfranchisable graph. Mr [NAME] then gives details of a number of transactions which he has agreed in the market. He concludes that while accepting the general principles set out in [NAME] there does seem to be a wide variation in relativity is set by tribunals. The decision does not rule out reference to non-prime central London graphs. In Mr [NAME] view an average of Savills at 81.44% and [NAME] at 81.61% is appropriate with an addition of 2% to fully reflect all the issues. He therefore adopts 83.525%.

6 24. This figure is derived from use of standard tables adjusted by reference to the experience of an expert witness. The tribunal considers it is properly supported and therefore adopts this figure. Development hope value 25. The tribunal determines that there is no development hope value to be included in the calculation. Reasons for the tribunal’s decision 26. Mr [NAME] sets out that during his inspection he noted that there was a single-storey conservatory at the rear of the ground floor flat. While this is of indeterminate age, it post-dates the grant of the lease and is likely to be a tenants improvement which he disregards.

27. Mr [NAME] also noted that the upper flat had been extended into the roof space which is included in the demise but that consent would have been required for the works which was not to be unreasonably withheld. As the landlord could not be found there is no consent.

28. The tribunal is of the view that this should be disregarded as a tenants improvement as the works are not such that a landlord could reasonably withhold consent. The premium 29. The tribunal determines the appropriate premium to be £57,626. (fifty seven thousand six hundred and twenty six pounds A copy of its valuation calculation is annexed to this decision.

Name: [NAME]: 14 December 2021

Appendix: Valuation setting out the tribunal’s calculations

7 Address EXISTING FREEHOLD TERM VALUE Valution Date 12 February 2020 Existing lease Expiry Date 24 December 2084 TERM VALUE Years unexpired 64.87 Rent Years Yield Cap Rate P/V Multiplier Term Value Existing Ground Rent £100 Basis of review fixed Term 1 £100 31.87 7.00% 12.6316 1 12.6316 £1,263 Date of 1st review 25 December 2051 Years to 1st review 31.87 Length of period 33 1st Review £150 33 7.00% 12.7538 0.1158 1.4767 £221.51 Rent at 1st review £150 Capitalisation Rate 7.00% £1,485 Deferment Rate 5.00% Long Lease Figure £264,825 REVERSION VALUE F/H to Long lease change 99% Capital Value Years to Reversion Deferment Rate P/V Reversion Value Freehold figure £267,500 £267,500 64.87 5.00% 0.0422 £11,295 Real World Short Lease Value No Act Discount TOTAL EXISTING FREEHOLD VALUE £12,779 Relativity Rate 83.53% Current Lease Value £223,429 MARRIAGE VALUE CALCULATION Value of Freeholders Current Interest £12,779 Value of Leaseholders Current Interest £223,429 £236,209 Value of Leaseholders New Interest £267,500 Difference £31,291 50% of Difference £15,646 Leaseholder Payment £28,425 Address [ADDRESS] EXISTING FREEHOLD TERM VALUE Valution Date 12 February 2020 Existing lease Expiry Date 24 December 2084 TERM VALUE Years unexpired 64.87 Rent Years Yield Cap Rate P/V Multiplier Term Value Existing Ground Rent £100 Basis of review fixed Term 1 £100 31.87 7.00% 12.6316 1 12.6316 £1,263 Date of 1st review 25 December 2051 Years to 1st review 31.87 Length of period 33 1st Review £150 33 7.00% 12.7538 0.1158 1.4767 £221.51 Rent at 1st review £150 Capitalisation Rate 7.00% £1,485 Deferment Rate 5.00% Long Lease Figure £272,250 REVERSION VALUE F/H to Long lease change 99% Capital Value Years to Reversion Deferment Rate P/V Reversion Value Freehold figure £275,000 £275,000 64.87 5.00% 0.0422 £11,611 Real World Short Lease Value No Act Discount TOTAL EXISTING FREEHOLD VALUE £13,096 Relativity Rate 83.53% Current Lease Value £229,694 MARRIAGE VALUE CALCULATION Value of Freeholders Current Interest £13,096 Value of Leaseholders Current Interest £229,694 £242,790 Value of Leaseholders New Interest £275,000 Difference £32,210 50% of Difference £16,105 Leaseholder Payment £29,201 Total Premium £57,626 Basic Infomation [ADDRESS] Basic Infomation

8 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 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 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 date, the property 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 (Lands Chamber).