Freehold Interest Value Determined by First-tier Tribunal

OUTCOME: Allowed

© CROWN COPYRIGHT 2019

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case Reference : LON/00AW/OCE/2018/0266 Property : 18 [NAME], London [POSTCODE] Applicant : [redacted] : Mr [COUNSEL] Counsel Respondent : [redacted] : [RESPONDENT] [NAME] of [NAME] : S24 Leasehold Reform, Housing and Urban Development Act 1993 – determination of terms of acquisition in dispute Tribunal Members : Judge John Hewitt Mr W [NAME] and venue of Hearing : 30 April and 1 and 16 [ADDRESS] [POSTCODE] Date of Decision : 20 June 2019

DECISION

2 NB In this Decision to a number in square brackets ([1/1]) is a reference to the volume and page number of the hearing files provided to us for use at the hearing.

The issue before the tribunal and its decision 1. The sole issue before the tribunal was the price payable by the applicant

to the respondent for the freehold interest in 18 [NAME],

London [POSTCODE] which is registered at HM Land Registry with title

number BGL94782 (the property)

2. The decision of the tribunal is the price payable is £26,490 made up

as shown on the valuation appended to this decision.

3. The reasons for this decision are set out below.

Procedural background and facts not in dispute 4. On 3 June 2014 the respondent was registered at HM Land Registry as

the proprietor of the freehold interest in the property. Paragraph three

of the Proprietorship Register records that the price said to have been

paid on 6 January 2014 was £32,000 [1/39].

Evidently the respondent’s bid at an auction was successful.

The respondent is thus the reversioner for the purposes of Part 1

Chapter 1 Leasehold Reform, Housing and Urban Development Act

1993 (the Act).

5. The Schedule of leases which forms part of the Charges Register

records the grant of five leases out of the freehold interest:

[NAME] of lease Term granted

1 (Lower ground) 22 March 2013 125 years from 28.03.2013

2 (Ground floor) 2 May 2013 150 years from 01.01.2013

3 (First floor) 10 June 2013 -ditto-

4 (Second floor) 27 June 2013 -ditto-

5 (Third floor) 2 May 2013 -ditto-

6. All five [NAME] are qualifying tenants for the purposes of s5 of the Act.

7. By an initial notice dated 8 June 2018 and given pursuant to s13 of the

Act, the [NAME] (as participating tenants) gave

notice seeking to exercise the right to the collective enfranchisement of

the property [1/24].

That notice:

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7.1 Defined the ‘Specified Premises’ to be 18 [NAME] …

registered at HM Land Registry under title number BGL04782;

7.2 Stated the property to be acquired by virtue of s1(2)(a) of the

Act was shown edged green on a plan annexed to the notice and

was described to be:

(a) The garden to the rear of the Specified Premises and

currently demised to [NAME]; and

(b) The front garden, pathways, basement vaults and main

entrance (including the steps leading thereto over which the

participating Tenants have rights of access):

(Together the ‘Additional Freeholds’)

7.3 Proposed a price of £25,889 for the freehold of the Specified

Premises and a price of £10 for the Additional Freeholds;

7.4 Named the applicant as the [NAME]; and

7.5 Specified a response date of 16 August 2018.

8. It will be noted that the [NAME] of [NAME] 3 in a non-participant. The lease

of [NAME] 3 is registered at HM Land Registry with title number B

GL97801. On 24 June 2013 [COMPANY] ([NAME]) ([NAME]) was registered as proprietor of the

lease. Paragraph 2 of the Proprietorship Register records that the

price said to have been paid on the grant of the lease was £472,500

[1/55].

[NAME] was incorporated on 14 April 2010. Its sole officer

appointed on that date is recorded as being [APPELLANT].

The applicant was incorporated on 18 December 2013. Its sole officer

appointed on that date is recorded as being [NAME].

The registered office of [NAME] and Mr [NAME] (Mr

[NAME]) correspondence address are recorded as being at 8 [ADDRESS] [POSTCODE].

It was not in dispute that Mr [NAME] controls [NAME].

9. By a counter-notice dated 15 August 2018 and given pursuant to s21 of

the Act, the respondent admitted that on the date when the initial

notice was given the participating tenants were entitled to exercise the

right to collective enfranchisement in relation to the Specified

Premises [1/31].

The counter-notice stated the respondent did not accept the proposals

contained in the initial notice as to the prices for the freehold of the

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Specified Premises and for the Additional Freeholds and counter-

proposed £60,266 and £20,000 respectively.

10. The parties were unable to agree all of the terms of acquisition. An

[NAME] dated 22 October 2018 made pursuant to s24 of the Act was

filed with the tribunal by the applicant [1/1].

Directions were given [1/18]:

As regards valuation matters they were:

5. 27 November 2018: Parties’ valuers to exchange calculations and

to meet to clarify issues in dispute;

6. 1 January 2019: Exchange of statements of agreed facts and

disputed issues; and

7. Exchange of expert reports ‘at least two weeks before the hearing

date’

11. It does not appear that the respective valuers met but in December

2018 they exchanged valuation calculations as follows:

Applicant: [redacted]

capitalisation of the ground rents)

Respondent: [redacted]

12. The hearing window was specified to be 4 February to 15 March 2019.

The parties were notified a hearing date of 13 February 2019. On 6

February 2019 a postponement hearing was held at Mr [NAME]

request. Mr [NAME] sought a postponement to a date in early April

2019. The basis of his [NAME] was the Listing Questionnaire had

been completed by his then solicitor and the solicitor had not taken into

account the time for Mr [COUNSEL] to ‘oversee’ the case and the extent of

his active involvement in it. Evidently, whilst Mr [RESPONDENT] had been

instructed as the expert valuer, Mr [RESPONDENT] had, two days previously,

instructed a Mr [NAME] (an architect to assist him [Mr

[NAME]]) with an overview as regards development potential of

communal spaces which had not been taken fully into account. Mr

[NAME] thus sought a postponement ‘to allow his new expert to carry

out an inspection and provide a detailed report’.

13. The [NAME] to postpone was granted, the hearing was re-listed for

26 and 27 March 2019 and revised directions given:

1. 27 February 2019: The parties’ valuers must exchange valuation calculations and to meet to clarify the issues in dispute;

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2. 13 March 2019: The parties must exchange statements of agreed facts and disputed issues and send copies to the tribunal;

3. 20 March 2019: The parties must exchange expert reports; and

4. 22 March 2019: Applicant to lodge and serve on the respondent a hearing file in accordance with direction 11 of the previous directions.

These directions were notified to the parties by letter dated 6 February 2019 [1/22].

14. In the event the respective valuers did meet. On 4 March 2019 they exchanged valuation calculations:

Applicant: [redacted] £25,985

Respondent: [redacted]

£188,727

15. The valuers exchanged reports on 21 March 2019 and they spoke to

values:

Applicant: [redacted] £22,014 [2/330]

Respondent: [redacted]

£188,727 [2/476]

16. Mr [APPELLANT]’s valuation of £22,014 was in respect of rent and

reversion only.

Mr [RESPONDENT]’s valuation of rent and reversion was at £38,511.

In addition he sought compensation in respect of a range of matters

[4/476], namely:

16.1 Value of 2 outside vaults (2 & 3)

£40,725§

16.2 [NAME] – contravention of lease and planning £46,795§

16.3 [NAME] – additional extension area- breach

of planning and licence for alterations

£ 8,022§

16.4 [NAME] – additional extension into the garden

£33,091§

16.5 Additional areas – common parts/stairs

£ 578*

16.6 Additional areas – infill on ground & 1st

£ 76*

16.7 Reconfiguration of [NAME] 4 & 5

£ 3,530§

16.8 Building a basement

£17,500§

£150,216

§ Claims modified during the course of the hearing * Claims withdrawn during the hearing

6 17. There was broad agreement that the property is a typical mid-terraced

late Victorian building originally constructed as house over basement,

ground and three upper floors. As some point the property has been

adapted to create five self-contained [NAME]; one on each floor. There is

no lift.

[NAME] is a cul-de-sac at the northern end of [NAME], just south of the M40 flyover. There are several shops close to

[NAME], along with an eclectic mix of retailers, antique

centres and the [NAME] of [ADDRESS] also nearby.

[NAME] underground station (Circle and Hammersmith and

City lines) is approximately 200 yards from the property, a (2-minute

walk).

Both valuers accepted that the property is not on the grand scale of

some properties to be found in [NAME] area. There was some

nuanced dispute about the desirability of the location and whether it

can properly be regarded as prime central London (PCL).

The hearing 18. At the hearings:

The applicant was represented by Mr [COUNSEL] of counsel together with representatives of the [NAME] and Mr [APPELLANT] and Mr [NAME] of Egertons.

The respondent was represented by [RESPONDENT] together with Mr [RESPONDENT] and his parents. On the first day Mr [RESPONDENT], an architect, was also present. Mr [RESPONDENT] is the principle of [NAME] [RESPONDENT] [NAME], His office is in Watford.

19. Some preliminary matters arose.

Supplemental report of Mr [APPELLANT]

[NAME] sought permission to file and rely upon a supplemental report by the applicant’s expert witness, Mr [APPELLANT].

20. [NAME] submitted that on 4 March 2019 the respective valuers had exchanged valuations. Whilst Mr [APPELLANT] was aware that Mr [RESPONDENT]’s figure had gone up from £80,795 to £188,272 there was no explanation provided as to how that figure had been arrived at. It was not until reports were exchanged on 21 March 2019 that Mr [APPELLANT] learned the reasoning and basis on which the additional claims were made. Mr [APPELLANT] prepared a supplemental report by way of a reply. It is dated 1 April 2019 and was served 3 April 2019 [5/1]. Most of its contents focus on the claims for additional compensation which total just over £150,000. Mr [RESPONDENT] had been invited to serve a response if he wished to do so.

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Mr [APPELLANT] further submitted it was a proper written expert report containing material evidence of assistance to the tribunal and the respondent would not suffer prejudice if it was adduced in evidence.

21. Mr [RESPONDENT] opposed the [NAME]. He submitted that at the hearing which granted the postponement the issues were clear and it was open to both parties’ experts to make such further inspections and enquiries as they saw fit, including advice from an architect. He submitted that the reports exchanged should have dealt with all elements.

Mr [RESPONDENT] accepted that there was no prejudice to the respondent if the supplemental report was adduced in evidence.

22. The tribunal granted permission for the supplemental report to be adduced in evidence.

Valuers’ correspondence 23. Mr [NAME] sought permission to put in evidence a bundle of open correspondence passing between the respective valuers – volume 4. Mr [APPELLANT] submitted that volume 3, a file of correspondence which the respondent wished to be included, contained some but not all of the material correspondence. Mr [APPELLANT] submitted that his bundle contained the full set in chronological order, paged numbered 1-152, for ease of reference for all during the course of the hearing. Its relevance would depend upon how the evidence panned out during the hearing. He said the respondent had seen all of the contents of the file and it contained nothing to take it by surprise. The file was submitted to the respondent on 26 March 2019

24. Mr [RESPONDENT] opposed the [NAME] simply on the ground that it was late and not in accordance with the directions and that the bundle contained some omissions.

25. The tribunal granted permission for volume 4 to be referred to if need be. It also granted permission for the respondent to put in any omitted materials, subject to first showing them to Mr [NAME] so as to give him an opportunity to object. If an objection was made the tribunal would hear argument and determine it.

Report of Mr [NAME](Arch), RIBA, [NAME]. With reference to paragraph 12 above by an email dated 7 February

2019 [4/45] the respondent sought the opportunity of further internal

inspection of [NAME] 1, 2 4 and 5 by Mr [RESPONDENT] and [NAME], this time to

be accompanied by Mr [NAME]. Facilities were provided but in an email

dated 8 February 2019 [4/48] Mr [APPELLANT] raised the question of

compliance with tribunal directions.

27. Evidently the inspection took place on or about 15 February 2019. Mr

[NAME] prepared a report. It is dated 22 March 2019. It was served on

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the [NAME] on the afternoon of Friday 26 April 2019 – just

one clear working day prior to the hearing.

The report has been included in volume 3 filed with the tribunal by the

respondent but the members of tribunal have not read the report.

Mr [RESPONDENT] sought permission to adduce the report in evidence and to call

Mr [NAME] to speak to it. Mr [NAME] opposed the [NAME]. He

reminded us that no [NAME] to the tribunal for permission to

adduce a report from an expert architect had been made until the

morning of the hearing. He also told us that the report was not

compliant with rule 19. It is not addressed to the tribunal and it does

not contain an expert declaration.

28. Mr [RESPONDENT] submitted that Mr [RESPONDENT], as a layman, was not aware of the

requirement to seek and obtain permission to adduce the report; he

thought it sufficient that in correspondence to both the tribunal and to

the [NAME] he had mentioned his intention to take advice

from Mr [NAME]. Also, that when [NAME] prepared volume 3 on 25

March 2019 he flagged up to the [NAME] that ‘[APPELLANT]

report would follow. It may be noted that whilst Mr [NAME] is a

layman as regards these proceedings, he is in fact a qualified solicitor

who was once (some years ago) employed in the property department

of a firm of solicitors, his focus in now on financial investment projects.

29. With regard to delay, we were told that the report had been attached to

an email sent to Mr [NAME] on 22 March 2019, but Mr [NAME] was

unable to open the attachment. He could not do so until later and after

Mr [NAME] had returned from holiday. We were not told when that

was.

30. Mr [RESPONDENT] confirmed that when he finalised his own report (that is Mr

[RESPONDENT]’s report) he had before him [NAME]’s report but he did not

mention it at all when formulating the details or component parts of his

valuations.

31. Mr [RESPONDENT] acknowledged that Mr [RESPONDENT] report was deficient in

compliance with a number of the requirements of rule 19 but he was

confident they could be overcome. Mr [RESPONDENT] submitted that the report

addressed development value issues and that Mr [NAME] evidence

would be of assistance to the tribunal when considering those issues.

32. Mr [NAME] urged caution and that the tribunal’s procedures were the

gateway to expert evidence. No prior [NAME] for permission had

been made until the morning of the hearing on 30 April 2019 even

though Mr [NAME] had mentioned the involvement of Mr [NAME] at

the postponement hearing on 6 February when the original hearing

date was adjourned for Mr [NAME] benefit and at which further

directions were given. In the context of Mr [APPELLANT] inspecting, Mr

[APPELLANT] had drawn attention to tribunal procedures in his email to

Mr [NAME] dated 8 February 2019.

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33. Mr [NAME] submitted it would be wrong and wholly inappropriate to

allow admission of the report. He also reserved his position as to a

further adjournment in the event permission was given.

34. In reply Mr [RESPONDENT] submitted that the [NAME] were aware an architect

was [NAME] inspections; and that Mr [NAME] evidence was not new in

that it supported development opportunities and how and why

development can be done.

35. The tribunal adjourned for a short while to consider the rival

submissions. The tribunal refused permission for the following reasons:

• The [NAME] was far too late; • The respondent has had the report for some time but was not able to put forward any credible or acceptable explanation as to why the report was not provided to the applicant until Friday 26 April and the [NAME] was not made to the tribunal until 30 April 2019; • That delay has caused prejudice to the applicant; • Admission of the report will cause prejudice to the applicant and • The report is deficient with rule 19 requirements in three material respects.

Matters agreed and matters in dispute 36. Prior to and during the course of the proceedings the parties were able to agree a good number of the components of the valuation exercise. A list of agreed matters as at 15 March 2019 is at 2/355.

37. Rather than focus here on the matters agreed, it is more convenient to set out the matters in dispute which the tribunal was invited to determine, namely:

37.1 The value £psf of [NAME] and hence the value of the loss of reversion at 5%;

37.2 The capitalisation rate to adopt in respect of the ground rents; and

37.3 The value of the additional losses claimed.

38. Until a very late stage the capital values` of all five [NAME] were in dispute. The rival contentions were:

[NAME] No. Mr [APPELLANT] £ Rate £psf [NAME] £ Rate £psf 1 560,141 900 840,973 1,337 2 556,600 1,150 664,489 1,337 3 590,000 1,250 651,119 1,337 4 431,250 1,150 505,386 1,337

10 5 496,650 1,050 637,749 1,337

39. In the event during the course of the hearing the parties were able to agree the capital values and hence the reversionary losses of [NAME] 2, 3, 4 & 5 at £2,126. Thus it was that the tribunal was only required to determine the capital value of [NAME].

[NAME] 40. [NAME] is the basement [NAME]. The whole of the rear garden is demised to the [NAME]. Since the grant of the lease the [NAME] sought and obtained a licence to construct a rear extension into part of the garden. The parties were agreed the extension was a tenant’s improvement which fell to be disregarded.

At the hearing the parties agreed the floor area of [NAME] for valuation purposes was 610 sq ft.

The rival valuations were:

Mr [APPELLANT]: £900 psf = £549,000

Mr [RESPONDENT]:

£1,337 psf = £840,973

40. The gist of Mr [APPELLANT]’s evidence was that in his extensive experience in the subject part of prime central London in a conversion such as at 18 [NAME], the basement or lower ground floor [NAME] has the lowest value and the first floor the highest value with the other floors in between differentiated, broadly as shown in the table in paragraph 38.

41. Mr [APPELLANT] identified as comparable four ground and lower ground floor [NAME] all with rear garden space. Mr [APPELLANT] made adjustments for size, condition and time where necessary. His adjusted values were:

Property Floor Adjusted value £psf

[ADDRESS] & lower ground 954 98 [NAME] 970 23 [NAME] & lower ground 1,089 5 [NAME] & lower ground 912

Mr [APPELLANT] set out his adjustments in his report.

His time adjustments were based on the [NAME]: Prime London Residential: Statistical Supplement: Quarter 4 2018. Mr [APPELLANT] produced a copy and took us through it. He said that in his experience in negotiating transactions in [NAME] adopt this index as it is considered to be the most reliable. That said, he accepted that the HM Land Registry index does not provide a very different outcome.

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Mr [APPELLANT] considered that 23 [NAME] was a rather dated transaction (April 2015) and thus of less assistance than the others.

42. Mr [APPELLANT] said he took into account that all of the comparables have some ground floor space and that [NAME] does not have any such space. He said that in his experience basement space in the subject location tends to be valued at about 75% of ground floor space.

He said that his best comparable was 5 [NAME] because it is in the same street and sold on 17 July 2018 which is very close to the valuation date of 8 June 2018, so that no time adjustment was required. Mr [APPELLANT] said he took into account this was a sale by an elderly [NAME] which had followed abortive transactions. On a floor area basis this property had a value of £912 but some of that space in ground floor and thus is better than [NAME]. It also had a slightly better layout and was accessed internally.

43. Mr [APPELLANT] said he stood back and considered his adjustments. Three of the comparables had some ground floor space to be taken into account. It was not appropriate to average. But standing back Mr [APPELLANT] adopted a value of £900 psf for [NAME].

44. Mr [RESPONDENT] adopted a different approach. He made no adjustments for location, floor level or condition. He adjusted for time adopting the appropriate HM Land Registry index and he adjusted for size.

Mr [RESPONDENT] identified nine comparables as follows:

Property Floor Adjusted value £psf

176 [NAME] Rd 1st 1,244 2/[ADDRESS] 1st/2nd 1,285 4/47-[ADDRESS] 1215 3/23 [NAME] 2nd 1,292 D/160 [NAME] Rd 1st 1,352 15 [NAME] 1st 1,579 C/12 St Mark’s Place 1st 1,336 1/23 [NAME] & lower ground 1,303 70 [NAME] ground 1,423

Mr [NAME] averaged those comparables to arrive at an adjusted value of £1,337.

45. Both valuers were challenged about certain features of the comparables upon which they relied. Mr [APPELLANT] was criticised for [NAME] subjective adjustments on condition where he had not inspected

12 internally and where he had relied upon selling agents particulars or comments. Mr [NAME] was criticised for not [NAME] any adjustments for condition, location or floor level. His approach that they all get sorted out in the mix when averaged was also criticised.

Discussion 46. Which index to use for adjustment of time is not overly critical. The subject property is on the edge of PCL. We accept Mr [APPELLANT]’s evidence that practitioners in PCL generally adopt the [NAME]. We have therefore accepted the time adjustments calculated by Mr [APPELLANT].

47. That said, of Mr [APPELLANT]’s comparables, we find that the most helpful is that concerning 5 [NAME] which does not need an adjustment for time. It hardly needs any adjustment at all. Mr [RESPONDENT] argued that it was an urgent sale of a property owned by an elderly [NAME] moving into a care home and thus it may be inferred the condition was dated and poor. Evidently Mr [NAME] obtained a copy of the sales particulars prepared by [NAME] [NAME]. They were emailed to him on 13 February 2019 [3/103]. Mr [NAME] does not exhibit the sales particulars but relies on two emails from [NAME]:

Ms [NAME]: “It actually sold for £912/ft. £805k. The property needed complete renovation more like £100k spend on it and the client was moving into a care home. They found something so wanted a very swift sale. Had two previous offers which fell through.”

Mr [NAME]: “As promised please see attached brochure for 5 [NAME]. The property seems from the photos to be totally unmodernised and requires a full refurbishment.”

In valuation terms we find that the condition is balanced out by it being a ground floor and lower ground floor [NAME] with a slightly better layout being accessed internally.

48. Mr [APPELLANT] has considerable experience of residential property in PCL gained over 40+ years working in the area. His evidence was impressive although not always accurate in every detail or particular. During the course of his oral evidence he made some adjustments to his opinions. On floor level we accept and prefer Mr [APPELLANT]’s evidence that in the subject type of conversion there is a differential in the values depending on floor level, with basement accommodation being the least valuable. This evidence struck a chord with the experience of the members of the tribunal. We reject Mr [RESPONDENT]’s approach that floor level is dealt with by averaging. That may be appropriate where the basket has equal numbers of the categories but here Mr [RESPONDENT]’s basket contains only one basement [NAME], one ground and lower ground [NAME], one ground floor [NAME], four first floor [NAME], one first and second floor [NAME] and one second floor [NAME].

13 49. Of Mr [RESPONDENT]’s comparables we reject those which are of first and/or second floors. We find the most helpful are those with lower ground floor space:

1/23 [NAME]. Time adjusted by [NAME] = £1,070 psf

This property is in the same street and no adjustment for location is required. Although we have adjusted for time we do have to bear in mind that the sale was as long ago as April 2015 since when the [NAME] has moved in different directions. Mr [RESPONDENT] makes no adjustments for condition or floor level. The value arrived at is very close to Mr [NAME] value of £1,089 after adjustments. At 622 sq ft this property is of a very similar size to the subject [NAME]. No evidence of condition was provided.

70 [NAME]. Time adjusted by [NAME] = £1,398 psf.

This property sold in March 2017 for £1.2m. There was no evidence of the condition of this property. At 811 sq ft it is a good deal larger than the subject. No evidence of condition was provided.

50. Standing back and looking at the five best comparables and doing the best we can with them on the imperfect materials before us we find the value of the subject [NAME] should be based on a value of £960 psf = £585,600.

Adopting the agreed deferment rate of 5% this produces a reversionary loss of £1,698 which we have entered into our calculation.

Capitalisation rate The rival positions

51. Initially, in December 2018 Mr [APPELLANT] was advocating a rate of 6% [3/9]. In February 2019, in his first report, he cited 7.5% [1/230]. In his final report dated 18 March 2019 he considered it correct to calculate the ground rent on the basis of a yield of 8.5% [2/207].

Mr [RESPONDENT] has been at 5% throughout although he said he could support a slightly lower rate.

As at the hearing:

Mr [APPELLANT] - 8.5% = £18,609

Mr [RESPONDENT] at - 5% = £33,951

52. During the course of the hearing Mr [NAME] reminded those present that experts were expected to set out in their reports the evidence on which they relied to support their opinions; and that previous decisions of the tribunal on particular points in any given case was not evidence.

53. Mr [APPELLANT] was cross-examined very closely on the evidence he relied upon to support 8.5% and why he has steadily increased his view.

14 Mr [APPELLANT] said that his first proposal of 6% was a figure he (or rather the applicant) was minded to accept in order to achieve a fairly quick settlement without the need to spend time on research. When it became apparent that a settlement was not going to occur Mr [APPELLANT]’s office carried out some research.

54. Mr [APPELLANT] said that the main factor here was that the ground rents were fixed over a very long period and thus deteriorate as inflation devalues the return. Mr [APPELLANT] said that this is a complex area and that evidence of sales of ground rents is often hard to come by and buyers often have factors other than the investment value of the ground rent income stream in mind when they make their bids.

55. When it became apparent that a settlement was not going to occur Mr [APPELLANT] had his office carry out some research for him. He checked it and was prepared to adopt it. Mr [APPELLANT] exhibited a schedule of 8 sales of ground rents by [NAME] [2/312]. They are not fixed ground rents. The yield ranges from 6.15% to 10.86%. Using this evidence as a guide Mr [APPELLANT] arrived at 8.5%. Mr [APPELLANT] that in his experience the [NAME] takes a range of factors into account. As at the valuation date the [NAME] was aware that the Law Commission was undertaking a review of leasehold enfranchisement and also that residential ground rents was becoming a political issue for potential reform.

56. In cross-examination Mr [APPELLANT] was asked about some of the underlying details of some of the transactions he relied upon. Mr [APPELLANT] did not have the materials to hand but agreed to obtain them overnight. He did so and the next day he told the tribunal that he wished to withdraw three of the transactions as they were not appropriate. He apologised to the tribunal and agreed he ought to have checked the research put before him more closely before adopting it. The remaining five transactions relied upon by Mr [APPELLANT] ranged from 6.86% to 10.25%. Mr [APPELLANT] nevertheless remained of the firm opinion that 8.5% was the appropriate rate for the subject fixed ground rents.

57. Mr [RESPONDENT] is at 5%. In his report at [2/341] Mr [RESPONDENT] refers to a previous decision of the a tribunal – the [NAME] case – in which a rate of 3.35% was determined. Mr [RESPONDENT] said that he had that rate in mind and adjusted to reflect the fixed ground rents to arrive at 5%.

Discussion 58. Mr [RESPONDENT] did not produce any evidence to support his rate of 5%. The [NAME] case is not evidence of the rate to adopt to the subject property. The facts and the evidence presented in [NAME] were quite different to those applicable to the present case.

59. In the absence of any evidence from Mr [RESPONDENT], [NAME] submitted that we should accept the evidence of Mr [APPELLANT].

15 60. We have given careful consideration to the evidence of Mr [APPELLANT]. We are aware that the capitalisation rate is a complex matter and has been controversial and the subject of litigation in which eminent experts have given evidence.

61. We readily accept that here the ground rents are fixed for a very lengthy time and we accept this will affect the [NAME] rate for such an investment stream. We also accept that the amount of the ground rents are modest which also has an impact. We find that the evidence provided to support 8.5% is not so clear cut. In Mr [APPELLANT]’s schedule there is only one example of a yield above 8.5%. Three are between 6% and 7%, the other is 8.11%. Standing back and taking the evidence as a whole we find it is more supportive of a rate of 7.5% which is the rate we have adopted.

The additional claims to compensation. 62. Before discussing each claim it might be helpful to recap the relevant law.

Legal principles

Statutory provisions 63. S32 of the Act provides that the price to be paid by the nominee [NAME] for the freehold and other interests to be acquired is to determined in accordance with Schedule 6.

Of that Schedule:-

Paragraph 3 concerns the value of the freeholder’s interest. There are four main assumptions. It has been held that it does not prevent other assumptions being made if they reflect the amount which the freeholder’s interest might be expected to realise if sold on the open [NAME] – see subparagraph (2). In a number of cases potential development value has been allowed. The Upper Tribunal has given guidance in a number of cases to the effect that the correct approach is to analyse the [NAME]’s bid on the basis of a range of risk factors and uncertainties, one of which is planning control. This is discussed in paragraph 27-08 of Hague: Leasehold Enfranchisement Sixth edition.

Another potential element is what is now known as ‘hope value’. This is the expectation that the [NAME] might have the opportunity to do a deal with a non-participating tenant to extend his lease. This is discussed in paragraph 27-10 in Hague. In the subject case there is only one non-participating tenant, a company controlled by Mr [APPELLANT], which has a lease with about 145 years unexpired at the valuation date. The parties are agreed that here there is no hope value arising in this respect;

Paragraph 4 concerns marriage value – that does not arise in this case because each of the leases of the participating tenants has more than 80 years unexpired at the valuation date.

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Paragraph 5 is in these terms:

Compensation for loss resulting from enfranchisement 5.—

(1) Where the freeholder will suffer any loss or damage to which this

paragraph applies, there shall be payable to him such amount as is

reasonable to compensate him for that loss or damage.

(2) This paragraph applies to—

(a) any diminution in value of any interest of the freeholder in

other property resulting from the acquisition of his interest in

the specified premises; and

(b) any other loss or damage which results therefrom to the

extent that it is referable to his ownership of any interest in

other property.

(3) Without prejudice to the generality of paragraph (b) of sub-

paragraph (2), the kinds of loss falling within that paragraph include

loss of development value in relation to the specified premises to the

extent that it is referable as mentioned in that paragraph.

(4) In sub-paragraph (3) “development value” , in relation to the

specified premises, means any increase in the value of the freeholder's

interest in the premises which is attributable to the possibility of

demolishing, reconstructing, or carrying out substantial works of

construction on, the whole or a substantial part of the premises.

(5) Where the freeholder will suffer loss or damage to which this

paragraph applies, then in determining the amount of compensation

payable to him under this paragraph, it shall not be material that—

(a) the loss or damage could to any extent be avoided or

reduced by the grant to him, in accordance with section

36 and Schedule 9, of a lease granted in pursuance of Part III of

that Schedule, and

(b) he is not requiring the nominee [NAME] to grant any

such lease.

The above paragraph is discussed in paragraph 27-25 of Hague. The

concluding paragraph is in these terms:

It must be remembered that a claim to compensation under this

paragraph is only concerned with damage to the freeholder’s other

property interests caused by the loss of the specified premises. If

he owns no other property there can be no additional compensation

claim. In one case, an additional £5,000 was awarded under this

paragraph for loss of the possibility of developing the grounds which

were to be acquired. [Emphasis added].

17

For ease of reference we remind ourselves that in accordance with

s13(3) of the Act the initial notice defined the ‘specified premises’ to be

18 [NAME] … registered at HM Land Registry under title

number BGL04782.

Authorities 64. Mr [NAME] drew our attention to a number of authorities in which

relevant guidance has been given to include:

[NAME] v [NAME] [[NAME]/23/2004] and others. A decision of

[NAME] QC and [NAME] [NAME] dated 20 October

2005

Paragraph 112 Evidence – … The duty of the LVT in each case, in

which an element in the valuation which it is required to determine is

not agreed, and of this Tribunal on appeal, is to consider the evidence

adduced to arrive at a determination in accordance with the relevant

statutory provisions.

Paragraph 113 Previous tribunal decisions – The danger of treating one

valuation by a tribunal as a precedent for a subsequent decision, in

place of evidence was pointed out by the Court of Appeal in the context

of … fair rent in [NAME] v [NAME] [1999]

QB 92….

Paragraph 115 – LVT decisions on questions of fact or opinion are

indirect or secondary evidence and should be given little or no weight

in other LVT proceedings ad proceedings in this Tribunal, even if they

are admissible…

[COMPANY] v [ADDRESS] ([COMPANY]

[[NAME]/72/2005]. A decision of [NAME], The President of

the Lands Tribunal and [NAME] dated 31 October 2006

Paragraph 37 – relevance of LVT decisions as evidence … In our

judgment LVT decisions on relativity are not inadmissible, but the

mere percentage figure adopted in a particular case is of no evidential

value. The reason for this is that each tribunal decision is dependent

on the evidence before it, and thus, in order to determine how much

weight should be attached to the figure in a decision, it would be

necessary to investigate what evidence the LVT had before it and how

it had treated it. Such a process of investigation is potentially lengthy,

and it is inherently undesirable that LVT hearings should resolve

themselves into re-hearings of earlier determinations.

Paragraph 38 - It is certainly understandable that valuers

negotiating the settlement of an enfranchisement claim should have

regard to LVT decisions on relativity, since these might seem to them

to be the best guide of the likely outcome if they were unable to reach

agreement, even though, as Mr [NAME] said, the decisions are

18

disparate and fail to show any established pattern. But the decisions

themselves can constitute no useful evidence in subsequent

proceedings.

Trustees of the Sloane Stanley Estate v Mundy [2016] L&TR 32

a decision of Morgan J and Mr [NAME] sitting in the Upper Tribunal

(Lands Chamber) dated 10 May 2016. In this case the Tribunal

considered in great detail hedonic regression and the Parthenia model

as a tool in the valuation process. It decided that it had failed the test.

But starting at paragraph 163 the Tribunal gave some guidance about

future cases and with particular reference to the [NAME] said:

Paragraph 166 – Secondly, the valuations required under Sch.13 [for

material purposes the same as Sch 6] to the Act relate to [NAME]

values on the statutory hypotheses. … when the tribunal comes to

determine a dispute as to the amount of such a premium, the relevant

valuation date will generally be in the past. The parties and the

tribunal must focus on the state of the [NAME] at that date. What

matters is how the [NAME] performed at that date. … It is not open to a

party when discussing the [NAME] at a date in the past to suggest that

the [NAME] was badly informed or operating illogically or

inappropriately in order to invite the tribunal to replace actual

[NAME] forces with what are suggested to have been more logical or

appropriate considerations.

Gorst v Knight [2018] HLR 42, a decision of HHJ Paul Matthews

dated 28 March 2018 concerning the interpretation of long leases and

air space subsoils and subterranean space.

[COMPANY] and others v [ADDRESS]

Company Ltd [2018] UKUT 367 (LC), a decision of Martin Rodger

QC, Deputy President Upper Tribunal (Lands Chamber) dated 30

October 2018 concerning the right to acquire leases of air spaces and

sub-soil in a collective enfranchisement.

65. Mr [RESPONDENT] cited:

26/28 [RESPONDENT] v [RESPONDENT]

[LON/ENF/853/03] a decision of the LVT dated 3 October 2003 in

which the tribunal attributed hope value to two vaults and included

values of £3,750 and £1,250 into the valuation of the freehold interest.

The specific claims 65. In paragraph 28 of his written closing submissions Mr [RESPONDENT] stated that:

“Under Paragraph 5 of schedule 6, a freeholder has to be compensated

for his loss arising out of the enfranchisements. This includes losses

from the development value at the property.”

Mr [RESPONDENT] cited a passage adopted by Mr [APPELLANT] [2/208] from [NAME]

v [NAME] to the effect:

19

“If development or other value can be realised by agreement between

parties, then it is admissible to assume that a deal will be done,

adjusted for the likelihood of a deal happening.

Mr [RESPONDENT] then went on to itemise several areas of claim.

The vaults 66. Below the street level at the frontage of the property there appear to be

three vaults. The probability is these were originally constructed to

store coal or fuel for use within the property. The parties appear to have

assumed that the vaults are within the registered title to the property

and thus within the specified premises, as defined.

67. In general terms Mr [RESPONDENT] sought to rely upon 26/[ADDRESS]

and submitted there was hope value for a potential deal with regard to

the vaults. Mr [RESPONDENT] also submitted that other properties in [NAME] and [NAME] had the use of pavement vaults which

demonstrated there was a value to them.

68. Mr [RESPONDENT] had originally attributed a value of £20,000 to all three vaults.

Vault 1 69. It was not in dispute that: • the vault is not demised to the [NAME]; • the only access to the vault is from within [NAME]; • when the lease of [NAME] was granted the entrance door to the vault was boarded up; • the [NAME] has removed the boarding, has created a step down into the vault and has installed a washing machine/tumble dryer into the vault and may also be using it for storage; • the vault is difficult to access the doorway being just under 4 feet in height, but once inside the vault, the height is just over 6 feet albeit obstructed by some overhead pipework; • the floor area is 35 sq ft; • the [NAME] did not seek or obtain permission from the freeholder to carry out the above works and the [NAME] is trespassing; and • the vault is damp.

70. In his original report Mr [RESPONDENT] ascribed a capital value of £46,795

arrived at by 35 sq ft x £1,337 psf and claimed that sum as

compensation [2/343].

71. In cross-examination Mr [RESPONDENT] conceded that the claim could only arise

if it fell within paragraph 5 of schedule 6. Mr [RESPONDENT] withdrew the claim

to £46,795 and substituted it with a claim to £6,300. This was based on

the [NAME] having a damages claim in trespass for six

years at £5,250 per year (£100 per week) being 2014 – 2020 which

amounted to £31,500. Mr [RESPONDENT] accepted that there was a risk that such

20

a claim might not be successful and attributed a hope value of 20% to

arrive at a claim for £6,300.

Mr [RESPONDENT] accepted that he had not researched the [NAME] and he had no

evidence to support the basis of his claim as now put.

72. In his written closing submissions Mr [RESPONDENT] attributed a value of

£15,898. This was made up as to:

Gross value £46,795

Less cost of works £15,000

£31,795 – shared 50/50 = £15,898

73. Mr [NAME] submitted the question was what would the [NAME] pay for the ‘hope’ of successfully recovering damages from

the [NAME]. The informed [NAME] would have

regard to:

• The legal basis of such a claim; • The value of the claim; • Assessment of the risk inherent in such a claim and costs; and • The evidence required to support a claim

Mr [RESPONDENT] submitted that Mr [RESPONDENT] had not adduced any evidence to

support any of his claims in respect of the vault.

74. The evidence of Mr [APPELLANT] was that in his opinion the

[NAME] would not ascribe any value to potential to

obtain money from the [NAME] with regard to the vault.

Discussion 75. We prefer the evidence and submissions made on behalf of the

applicant. We ascribe a value of £nil to the claim. The vault is only

accessible from within [NAME]. There is no scope for the freeholder to do

a deal with any party other than the [NAME]. We find it most

improbable that the [NAME] would pay the full going rate £psf

for the right to use such inferior space, let alone a rate of £1,337 psf.

76. We are far from persuaded that the [NAME] would

conclude that he would be entitled to damages for trespass that

occurred prior to his purchase. We can see that he might conclude there

might be a claim to damages going forward but there was risk the [NAME]

might simply decide to cease using he space. Having regard to the

costs of litigation. the risk of failure, the risk of an adverse costs order

and the uncertainty about how much, if anything, might be recovered,

we conclude it is most unlikely that a [NAME] would

make any allowance for this head of claim when formulating his bid.

Vaults 2 & 3

21 77. Vault 2 is accessed from the basement common parts. Breezeblock has

been erected to create a wall separating it from what has been referred

to an [NAME]. Neither party adduced any evidence as to when or why

the breezeblock was erected and what might lay behind it.

Mr [RESPONDENT] is of the opinion that the area of the two vaults is 75 sq ft.

Vault 2 houses five meters, water pipework and [NAME]’s refuse. In the

opinion of Mr [RESPONDENT] the gas meters can be relocated externally in the

basement area.

78. In his original report Mr [RESPONDENT] estimated a rental value of £48 per week,

He adopted a yield of 6% to arrive at a value of £40,625. He equated

that to £541 psf; about 60% lower than his full value of £1,337 psf. Mr

[RESPONDENT] thus claimed £40,625 compensation.

79. In cross-examination Mr [RESPONDENT] conceded that in arriving at his value he

had not allowed for the cost of removing and relocating the gas meters

and water supply. He suggested those costs might be about £5,500. He

also allowed £2,500 for legal costs, thus reducing his claim to £32,625.

80. In his written closing submissions, Mr [RESPONDENT] formulated his claim in a

slightly different way.

Rental value

£40,625

Less apparatus removal £ 5,000

£35,750

Apportioned as to Vault 2 £15,400 and [NAME] £20,350.

Mr [RESPONDENT] also took issue with Mr [APPELLANT]’s evidence that a drain

extends beneath vault 2 and that vault 2 was used for storing [NAME]’s

rubbish.

81. Mr [APPELLANT] dealt with this issue in section 8 of his original report

[2/210] and section 7 of his supplemental report [5/13]. As mentioned

above he drew attention to the a manhole cover in the basement in

front of vault 2 and a drain which runs beneath the vault. He also states

the vault has a domed ceiling with a maximum height of less than 1.5

metres; is damp and is used for [NAME]’ rubbish. He also raises the

question that if the vaults are lettable, why has the respondent not let

them. Mr [APPELLANT] also stated that he has carried out a considerable

number of collective enfranchisements across most of the big estates in

and adjacent to PCL, all represented by professional valuers and he has

never had to agree a payment for under-pavement vaults similar to

those in question.

82. Mr [NAME] reminded us of the general approach of the informed

[NAME] mentioned in paragraph 73 above. He also

submitted that Mr [RESPONDENT] had not provided any evidence of the [NAME],

or of costs of relocating apparatus, or even that [NAME] exists. He also

22

submitted that 26/[ADDRESS] that Mr [RESPONDENT] sought to rely

upon is not evidence of the [NAME] or value. Mr [APPELLANT] urged us to

prefer the evidence of Mr [APPELLANT] .

Discussion 83. We find that before [NAME] an allowance in his bid the [NAME] would have regard to the ability to achieve a letting, the risk

that the [NAME] assert or are successful in asserting a right to use the

vaults, the amount of rental income (if any) that might achieved, the

cost and practicality of relocating apparatus and risks generally.

84. On the evidence before us we cannot see that a case has been made out

that the [NAME] would include in his bid anything like

£35,000. We find that is far too speculative.

85. We take into account Mr [RESPONDENT]’s original professional view that the

value of all three vaults was £20,000. We prefer and accept Mr

[APPELLANT]’s evidence of his extensive negotiation of enfranchisements

in or near PCL that freeholders do not seek compensation for under-

pavement vaults similar to those in question. This evidence strikes a

chord with the experience and expertise of the members of the tribunal.

In contrast with the extent of Mr [APPELLANT]’s experience, Mr [RESPONDENT]

told us in evidence that his transactional experience in PCL was very

limited.

We are further reinforced in our conclusion by the absence of any

evidence that the subject vaults have been rented out in the past and

that the freehold of the Property was sold at auction in January 2014

for £32,000.

86. Accordingly, we conclude it is most unlikely that the [NAME] would make any allowance for this head of claim when

formulating his bid.

Rear extension to [NAME] 87. A licence to erect a rear extension was granted to the then [NAME] on 22

August 2013 [2/417]. The licence does not make any reference to

payment of a premium. The permitted works are defined by reference

to drawings annexed to the licence. The licence imposes an obligation

of the [NAME] to complete the works in accordance with the drawings

and to obtain from all competent authorities all permissions that may

be required under the Planning Acts.

88. Planning consent was granted on 10 June 2013 [2/438].

89. The respondent alleges that the extension as built is not in compliance

with the annexed or approved drawings in a very minor particular. It is

said that the bifold doors leading into the extension are flush with the

rear elevation of the existing building and they should be rebated by

300mm.

23

90. In his original report Mr [RESPONDENT] stated the discrepancy gave to the [NAME]

an additional 6sq ft of space. On the basis of a value of £1,337 psf he

calculated the compensation payable was £8,022.

In addition Mr [RESPONDENT] contended that the extension as constructed is in

breach of planning.

In cross-examination Mr [RESPONDENT] conceded that his approach was flawed

and he withdrew the claim to £8,022. Instead he argued the extension

was an improvement carried out in the absence of consent and the

whole area of the extension fell to be considered. He suggested the floor

area of the extension was 100 sq ft, which at £1,337 psf gave a gross

value of £133,700. He assumed land value at 33% = £44,121 and he

said that one half of that would be payable for a consent. He thus

arrived at a premium of £22,000. He placed the hope value of an

[NAME] for consent at 15% to 20% and arrived at a compensation

figure of £4,400. Mr [RESPONDENT] said his advice to the [NAME]

would have been to allow £4,400 in his bid – ‘subject to legal advice’.

No relevant legal advice has been submitted.

In his written final submissions Mr [RESPONDENT] adopted the same line of

argument but refined his arithmetic to arrive at a claim for £4,412.

91. Mr [APPELLANT] took the view the difference (if any) in the 300mm

rebate was so minimal as to be irrelevant. In his opinion the extension

as built is within the local planning authority’s policy and that the

prospect of any enforcement action was negligible. He stated that the

extension did not breach Policy CL9 regarding extensions in that the

extension does not extend beyond rear elevation.

92. Mr [RESPONDENT] was highly critical of Mr [RESPONDENT]’s new approach as being

the ‘back of fag packet’ valuation. Mr [NAME] drew attention to

paragraph 81 of the [NAME] decision in which the tribunal was

critical of a valuer adopting a ‘back of fag packet’ assessment.

Mr [NAME] again drew our attention to the approach that the

informed [NAME] would adopt.

Discussion 93. We find it is by no means clear that the extension as built is not in

accordance with the drawings annexed to the licence. The evidence

before was not convincing. We accept there might be a case that the

extension as built in not compliant with a planning drawing in a very

small particular. We were not persuaded that a breach of planning

(whether technical or not) amounts to a breach of the licence, still less

that any such breach might be actionable such that a court would award

damages. We find a freeholder would struggle to establish damage.

94. We find that the [NAME] is most unlikely to include in

his bid any prospect of obtaining a net return on a claim for breach of

24

the licence. We consider that such a [NAME] would regard the time,

trouble and costs of pursuing a claim and the risk of an adverse costs

award far outweigh the amount of any award that might be achieved.

Additional extension into the rear garden 95. In his original report Mr [RESPONDENT] included a claim for £33,091. His

opinion was that the [NAME] might wish to erect a further extension into

the rear garden and would be willing to pay a premium for consent to

do so. He considered a further extension might create 75 sq ft of space,

which at £1,337 psf would achieve a value of £100,275, and that the

freeholder could expect to receive 33% of that. Hence a claim to

compensation of £33,091.

96. In cross-examination Mr [RESPONDENT] conceded his approach to valuation was

wrong and he withdrew the claim to £33,091. He accepted that if this

claim did not fall within paragraph 5 of Schedule 6 it falls away. His

revised approach was a claim for £1,283.

This was arrived at by

The value of the extension if built £100,275

Less build cost

£ 22,500

£ 77,775

Premium payable for consent £25,667. Hope value that [NAME] might

seek a consent at 5% = £1,283.

97. In his written closing submissions Mr [RESPONDENT] adopted a different

approach. His arithmetic does not quite work. Mr [RESPONDENT] arrived at a land

value of 33% which he said = £25,666. He said the [NAME] might share

that 50/50 so the premium for the consent would be £12,833. Mr [RESPONDENT]

accepted the [NAME] might not pay the full amount of

the premium but would pay ‘hope value’ of 20% = £2,567. No evidence

as to how the 20% was arrived at was put forward.

98. The opinion of Mr [APPELLANT] was that [NAME] do not have permitted

development rights and that with the Property being in a conservation

area the local planning authority was generally very resistant to any

extensions beyond rear closet wings. He thus concluded that the

[NAME] would not attribute any value to the future

prospect achieving a premium for a consent to extend into the rear

garden.

99. In his closing submissions [NAME] again likened Mr [RESPONDENT]’s

revised approach to the ‘back of a fag packet’.

Discussion 100. We preferred and accept the evidence of Mr [APPELLANT] on this matter.

On the evidence before us we find that on its current policy the

prospect of the local planning authority granting permission for such

an extension to be negligible. It is also very speculative that at some

25

future unspecified time the [NAME] would seek permission to

extend further.

101. Accordingly, we conclude it is most unlikely that the [NAME] would make any allowance for this head of claim when

formulating his bid.

[NAME] 4 & 5 102. In his original report Mr [RESPONDENT] gave the opinion that if [NAME] 4 and 5

came into common ownership the [NAME] might want to carry out works

to the stairs to combine them into one unit. If this was done it might

release an additional 80 sq ft of living space. Mr [RESPONDENT] adopted a value

of £441.21 £psf being 33% of £1,337 psf. That equates to a value of

£35,297. Mr [RESPONDENT] adopted a ‘hope value’ of 10% to arrive at a claim for

£3,530.

103. In cross-examination Mr [RESPONDENT] conceded his approach to valuation was

wrong and he withdrew the claim to £3,530. Mr revised his claim to

£1,352. He allowed for conversion costs of £25,000 to reduce the net

value to £81,960. One third of that = £27,046 which is the premium the

[NAME] might be willing to pay. He adopted a ‘hope value’ of between 5%

and 7.5% to arrive at a claim for £1,352. No evidence to support that

was adduced.

104. Mr [APPELLANT] was critical of the lack of evidence provided by Mr [RESPONDENT]

to support the notion that an owner of [NAME] 4 and 5 might wish to

combine them. He was doubtful that planning would be achieved due to

the loss of a residential unit and the [NAME] was stronger for smaller

units, rather than larger ones.

105. The opinion of Mr [APPELLANT] was that the [NAME]

would not attribute any value to such a speculative future circumstance.

106. Mr [NAME] submitted this was not a claim under paragraph 5 of

Schedule 6 as it concerned the specified premises and not ‘other’

premises. Mr [NAME] again drew our attention to the approach that

the informed [NAME] would adopt. An additional risk

factor was the obligation on the freeholder of the ‘so-called’ right of

first refusal arising under s5 Landlord and Tenant Act 1987.

Discussion 107. We prefer the evidence of Mr [APPELLANT] and the submissions of Mr

[APPELLANT]. We find that the prospect of the two [NAME] coming into

common ownership and the [NAME] willing to incur the substantial costs

in combining the [NAME] is so remote that the [NAME]

would not attribute any value to the prospect of achieving a premium at

any future time.

[NAME] sub-basement 108. In his original report Mr [RESPONDENT] included a claim for £17,000 on the basis

that the [NAME] - a basement [NAME] might wish to create a sub-

26

basemen beneath the existing building and beneath the garden. Such a

sub-basement might have an area of 700 sq ft . The claim was arrived at

as being a premium of 25% of the value of the basement at £1,000 psf

= £175,000 and allowing for a ‘hope value’ at 10%.

109. In cross-examination Mr [RESPONDENT] conceded this was not a paragraph 5,

Schedule 6 claim because it was within the specified premises and he

withdrew the claim. Instead Mr [RESPONDENT] put the claim at £4,375. This was

arrived at:

Gross value 700sq ft at £1,000 psf = £700,000

Less buildings costs

£350,000

£350,000

Land value at 25% (due to risk) = £ 87,500

Hope value at 5%

= £ 4,375

110. Mr [RESPONDENT] said in cross-examination that he had no evidence of planning

or build costs. In his written closing submissions he asserted that space

was at a premium in [NAME] and that many people prefer to carry

out rear or basement extensions as it is cost effective compared to the

cost of moving and other costs such as stamp duty. No evidence to

support these assertions was provided.

111. Mr [APPELLANT] described the notion as far-fetched and he was

surprised Mr [RESPONDENT] gave it any credence. Mr [APPELLANT] raised issues

such as planning, financial viability, cost of re-location whist the works

were carried out and [NAME] resistance to underground dwellings. He

said such a project was ‘completely unrealistic’.

112. Mr [NAME] again reminded us of the approach of the [NAME].

Discussion 113. Again for the reasons explained above we prefer the evidence of Mr

[APPELLANT]. It strikes a chord with the experience of the members of

the tribunal.

114. Accordingly, we conclude it is most unlikely that the [NAME] would make any allowance for this head of claim when

formulating his bid.

Additional areas common parts £587 and ground /first floor infill £76 115. For the sake of good order we record that these two claims were withdrawn and abandoned at an early stage of the hearing,

Overview and final conclusions

27 116. Having considered carefully the claims to additional compensation and

having rejected each of them we have stood back to reflect where we

are. That is a rent and reversion value of £26,490. We find that is a fair

and realistic value arrived at in accordance with the provisions of

Schedule 6. We are reinforced in this conclusion by the fact that the

freehold was sold at auction in January 2014 for £32,000. That was a

[NAME] transaction.

117. Mr [RESPONDENT] sought to explain the very substantial increase in value from

£32,000 in June 2014 to £188,000 in June 2018 by the fact that Mr

[NAME] was able to identify the scope to increase value which the

[NAME] had missed at the auction in June 2014.

We readily accept that prospective purchasers might have in mind a

range of factors to release value when formulating their bids but such a

dramatic increase is inexplicable in such a sophisticated [NAME].

Mr [NAME] reminded us of the passage in Mundy to the effect that it

is not open to a party discussing the [NAME] at a date in the past to

suggest the [NAME] was badly informed or acting illogically or

inappropriately.

118. For the above reasons we find that the sum payable by the applicant to

the respondent for the freehold interest is £26,490.

Judge John Hewitt 20 June 2019

ANNEX - RIGHTS OF APPEAL

1. By rule 36(2) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, the tribunal is required to notify parties about any rights of appeal they may have.

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

3. The [NAME] for permission to appeal must arrive at the regional office within 28 days after the date on which the tribunal sends out to the [NAME] the written reasons for the decision.

4. 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.

28

5. 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.

6. If the tribunal refuses permission to appeal, a further [NAME] for permission may be made directly to the Upper Tribunal (Lands Chamber)

29 18 [NAME], London [POSTCODE] Collective enfranshirement Valuation date 8 June 2018 Leases expire [NAME] 27/03/2138 119.8 yrs unexpired Ground Rent £500 pa fixed Flate 2 - 5 31/12/2162 144.56 yrs unexpired Ground Rent £300 pa per [NAME] fixed Capitalisation rate 7.5% [NAME] valued at £960 psf x 610 sq ft = £585,600 Loss to [NAME] £500 119.8 yrs @ 7.5% 6,666 [NAME] 2 - 5 £300 144.56 yrs @ 7.5% x 4 16,000 22,666 Loss of [NAME] 585,600 PV 119.8 yrs @ 5% 0.0029 1,698 [NAME] 2 - 5 Agreed reversionary values 2,126 Premium Payable 26,490