Tenant Entitled to Lease Extension Despite Unknown Landlord

OUTCOME: Allowed

Page 1 of 11

Case Reference

:

CHI/23UB/OLR/2020/0024

Property : [ADDRESS] [POSTCODE]

Applicant: [redacted]

:

[COUNSEL] LLP Solicitors

Respondents : [redacted] [NAME] [NAME] [NAME] [NAME] of Application

:

A determination of the premium and lease extension terms under the provisions of section 51 of the Leasehold Reform Housing and Urban Development Act 1993 where the Landlord cannot be found.

Tribunal Members

:

V Ward BSc (Hons) FRICS Judge D Barlow

Date of Decision : 2 April 2020

__________________________________________________________

DECISION ______________________________________________________

© CROWN COPYRIGHT 2020 FIRST - TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Page 2 of 11

Decision of the Tribunal

The Tribunal determines that the appropriate sum to be paid into court for the grant of a new lease of [ADDRESS] [POSTCODE] (‘[NAME]’) pursuant to section 51(5) of the Leasehold Reform, Housing and Urban Development Act 1993 (‘the 1993 Act’), is £19,215.00. (nineteen thousand, two hundred and fifteen pounds).

The application

1. On 21 January 2020, [COMPANY] issued a Part 8 Claim in the County Court at Gloucester seeking a vesting order under section 50(1) of the 1993 Act.

2. On 28 January 2020, District Judge Singleton (sitting on 29 January 2020), made an order that the case be transferred to the Residential Property Tribunal First- tier, and after the Tribunal has determined the price and terms on which the surrender of the Applicant’s lease of [NAME] and the grant of a new lease to the Applicant should take effect, the leasehold Property shall be vested in the Applicant on such terms and at such price as the Tribunal has determined in accordance with section 51(1) of the 1993 Act.

3. The relevant legal provisions are set out in Appendix 2 to this decision.

Background

4. Salient details of the lease in respect of [NAME] are as follows:

a) Date of lease; 4 December 1987 b) Lease Commencement date and term; 99 years from 29 September 1987. c) Ground Rent; For the first 3 years, £50 pa

For the next 33 years, £100 pa

For the remainder, £150 pa

5. [NAME]

(i) From the submissions made to the Tribunal, brief details of [NAME] are as follows.

(ii) [NAME] comprises a ground floor flat within a converted basement formed out of converted mid terraced house. The house was believed to have been originally constructed circa 1920 and has rendered elevations under a double pitched slate tiled roof. Access to the flat is via a communal staircase.

(iii) [NAME] offers the following accommodation:

Page 3 of 11

Ground Floor

Hallway Two double bedrooms Bathroom with shower over bath, toilet and wash hand basin

Basement

Lounge Kitchen Restricted height storage room

There are no parking spaces or external areas included within the demise

(iv) [NAME] benefits from gas fired central heating and hot water.

(v) [NAME] lies within easy walking distance of Cheltenham town centre to the west. [NAME] fronts onto [ADDRESS] close to its junction with [ADDRESS] and is opposite a public car park. [ADDRESS] is a mixture of residential and commercial occupiers.

The Issues

6. The Tribunal is required to determine the terms of the new lease pursuant to section 51(3) of the 1993 Act and the appropriate sum to be paid into court pursuant to section 51(5).

7. The Applicant did not seek any amendments to the terms of the new lease from the original.

8. The Tribunal did not consider that an inspection of [NAME] was necessary, nor would have been proportionate to the issues in dispute and has therefore determined this matter on the basis of the written submissions of the Applicant.

The Valuation

9. The Applicant’s valuation was prepared by [APPELLANT] [NAME] of [COMPANY]. The Tribunal finds it convenient to detail its own consideration of each input following that of the Applicant’s.

Capitalisation rate

10. The Applicant. Ms [APPELLANT] had applied the principles from Nicholson v Goff (2007) where the rate used to capitalise the rental income should be differentiated from

Page 4 of 11

the capitalisation rate. In addition, the following should be considered; the lease term, the security, the amount of the ground rent and rent review provisions, if any. Balancing these factors, Ms [NAME] considered that the relatively modest ground rent, even allowing for the uplift to £150 pa, is not particularly attractive to a potential investor hence had adopted a capitalisation rate of 6.5%.

11. The Tribunal. The Tribunal takes no issue with Ms [NAME] analysis and also adopts 6.5%.

Deferment Rate.

12. The Applicant. Ms [APPELLANT] followed the decision in [NAME] v [NAME]/50/2005 and accordingly adopted 5%.

13. Tribunal. The Tribunal considers that the rate adopted by Ms [NAME], 5.00%, is appropriate in this matter.

Relativity.

14. The Applicant. Following the guidance in in [NAME] v [NAME] (2016) UKUT 223 ([NAME]) and [NAME] v [COMPANY] (2018) UKUT 311 ([NAME]), Ms [NAME] initially considered local market evidence but finding this inconclusive adopted the Savills unenfranchiseable graph following the latter decision which gave a relativity of 82.54%.

15. The Tribunal. In the absence of any useful comparable evidence, or derivatives therefrom, graphs may be used to calculate relativity and therefore endorses the Applicant’s approach.

Development Value

16. The Applicant. In the opinion of Ms [APPELLANT], [NAME] is fully developed and therefore makes no allowance in this regard.

17. The Tribunal. The Tribunal concurs, there does not seem to be any apparent way in which [NAME] could be developed further.

Long leasehold value.

18. The Applicant. The comparables considered by Ms [APPELLANT] were as follows:

Page 5 of 11

Address Details Tenure (at date of sale) Date of [ADDRESS] [POSTCODE] Two bedrooms flat with car parking. Comparable location 978 years with share of the freehold Aug-19 £ 180,000.00 [ADDRESS] [POSTCODE] Ground floor flat with two bedrooms. Comparable location Long unexpired term Aug-19 £ 180,000.00 [ADDRESS] [POSTCODE] Lower ground floor flat. Comparable location. 970 years with share of the freehold Sep-19 £ 180,000.00

19. Sifting the evidence above, Ms [NAME] determined that there had been no significant movement in value between August 2019 and the valuation date and accordingly no adjustments were made in that regard. An allowance of £2,000 was made by Ms [NAME] to reflect the high quality of kitchen and bathroom fittings within [NAME]. Ultimately the long leasehold value adopted by Ms [NAME] was £178,000.

20. The Tribunal. There is a significant range of sale prices for leasehold properties in the vicinity of the subject from £130,000 to over £200,000 at or about the valuation date. Interpolating the evidence available, the Tribunal adopts the figure of £180,000.

Adjustment for freehold vacant possession value.

21. The Applicant. Following established case law, Ms [APPELLANT] followed the principle of making an adjustment of 1% to reflect the difference between long leasehold and freehold values.

22. The Tribunal. The Tribunal concurs.

Schedule 10 Rights

23. The Applicant. Following the guidance in [APPELLANT] and [COMPANY] 2017, Ms [APPELLANT] made no deduction for the ability of a tenant to

Page 6 of 11

remain in occupation after the expiry of the term under Schedule 10 to the Local Government & Housing Act 1989 as the lease term remaining in this matter is in excess of 66 years.

24. The Tribunal. The Tribunal agrees, it is unlikely that a prospective purchaser would make any allowance for this possibility.

25. The premium determined by Ms [APPELLANT] on behalf of the Applicant was, after rounding, £19,011.00

The Tribunal's Decision

26. The relevant date for valuing the lease extension is the date of the Court application pursuant to section 51(8)(a) of the 1993 Act. The date of the County Court application is given as 21 January 2020, which is the date adopted for this valuation. At that date the lease had 66.68 years unexpired.

27. Having carefully considered the Applicant’s valuation, including comparables and applying the inputs above, the Tribunal’s valuation is as shown within Appendix 1 to this decision.

28. The Tribunal determines that the premium to be paid for a 90-year lease extension in respect of [NAME] known as [ADDRESS] [POSTCODE] under the Leasehold Reform and Urban Development Act 1993 is £19,215.00. (Nineteen thousand, two hundred and fifteen pounds) and this is the appropriate sum to be paid into court under section 51(5).

Appeal

29. A party seeking permission to appeal this decision must make a written application to the Tribunal for permission to appeal. This application must be received by the Tribunal no later than 28 days after this decision is sent to the parties. Further information is contained within Part 6 of The Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 (S.I. 2013 No. 1169).

[NAME] 7 of 11

APPENDIX 1– The Tribunal’s Valuation

Term 1 Rent Receivable £ 50.00 £ 32.25 YP 6.5% 0.68 years 0.6449 Term 2 Rent Receivable £ 100.00 £ 1,289.49 YP 6.5% 33 years 12.8949 def'd .68 years Term 3 Rent Receivable £ 150.00 £ 242.09 YP 6.5% 33 years 1.6139 def'd 33.68 years £ 1,563.82 Reversion (to Freehold) Extended Lease Value £ 180,000.00 Add Freehold Uplift 1.00% £ 1,800.00 £ 181,800.00 PV 66.68 years @ 5% 0.03865 £ 7,025.73 £ 8,589.55 Less Reversion (after extension) Freehold Market Value £ 181,800.00 £ 87.03 PV 156.68 years @ 5% 0.0004787 Diminution in Freehold Interest £ 8,502.52

Page 8 of 11

Marriage Value Proposed Interests Freehold £ 87.03 Leasehold £ 180,000.00 £ 180,087.03 Present Interests Freehold £ 8,589.55 Leasehold £ 150,072.73 £ 158,662.28 Marriage Value £ 21,424.75 Freeholders Share 50.00% £ 10,712.37 Premium £ 19,214.90 say £ 19,215.00

Page 9 of 11

APPENDIX 2 - Relevant Legislation

Leasehold Reform, Housing and Urban Development Act 1993 (as amended)

Section 50(1) – (3)

50 Applications where landlord cannot be found.

(1) Where—

(a)a [NAME] of a flat desires to make a claim to exercise the right to acquire a new lease of his flat, but (b)the landlord cannot be found or his identity cannot be ascertained, the court may, on the application of the tenant, make a vesting order under this subsection.

(2) Where—

(a)a [NAME] of a flat desires to make such a claim as is mentioned in subsection (1), and (b)paragraph (b) of that subsection does not apply, but (c)a copy of a notice of that claim cannot be given in accordance with Part I of Schedule 11 to any person to whom it would otherwise be required to be so given because that person cannot be found or his identity cannot be ascertained, the court may, on the application of the tenant, make an order dispensing with the need to give a copy of such a notice to that person.

(3) The court shall not make an order on any application under subsection (1) or (2) unless it is satisfied—

(a)that on the date of the making of the application the tenant had the right to acquire a new lease of his flat; and (b)that on that date he would not have been precluded by any provision of this Chapter from giving a valid notice under section 42 with respect to his flat.

Section 51

51 Supplementary provisions relating to vesting orders under section 50(1).

(1)A vesting order under section 50(1) is an order providing for the surrender of the tenant’s lease of his flat and for the granting to him of a new lease of it on such terms as may be determined by a leasehold valuation tribunal to be appropriate with a view to the lease being granted to him in like manner (so far as the circumstances permit) as if

Page 10 of 11

he had, at the date of his application, given notice under section 42 of his claim to exercise the right to acquire a new lease of his flat.

(2) If a leasehold valuation tribunal so determines in the case of a vesting order under section 50(1), the order shall have effect in relation to property which is less extensive than that specified in the application on which the order was made.

(3) Where any lease is to be granted to a tenant by virtue of a vesting order under section 50(1), then on his paying into court the appropriate sum there shall be executed by [NAME] as the court may designate a lease which—

(a)is in a form approved by a leasehold valuation tribunal, and (b)contains such provisions as may be so approved for the purpose of giving effect so far as possible to section 56(1) and section 57 (as that section applies in accordance with subsections (7) and (8) below); and that lease shall be effective to vest in the person to whom it is granted [NAME] expressed to be demised by it, subject to and in accordance with the terms of the lease.

(4) In connection with the determination by a leasehold valuation tribunal of any question as to [NAME] to be demised by any such lease, or as to the rights with or subject to which it is to be demised, it shall be assumed (unless the contrary is shown) that the landlord has no interest in property other than [NAME] to be demised and, for the purpose of excepting them from the lease, any minerals underlying that property.

(5) The appropriate sum to be paid into court in accordance with subsection (3) is the aggregate of—

(a)such amount as may be determined by a leasehold valuation tribunal to be the premium which is payable under Schedule 13 in respect of the grant of the new lease; (b)such other amount or amounts (if any) as may be determined by such a tribunal to be payable by virtue of that Schedule in connection with the grant of that lease; and (c)any amounts or estimated amounts determined by such a tribunal as being, at the time of execution of that lease, due to the landlord from the tenant (whether due under or in respect of the tenant’s lease of his flat or under or in respect of any agreement collateral thereto).

(6) Where any lease is granted to a person in accordance with this section, the payment into court of the appropriate sum shall be taken to have satisfied any claims against the tenant, his personal representatives or assigns in respect of the premium and any other amounts payable as mentioned in subsection (5)(a) and (b).

(7) Subject to subsection (8), the following provisions, namely—

(a)sections 57 to 59, and

Page 11 of 11

(b)section 61 and Schedule 14, shall, so far as capable of applying to a lease granted in accordance with this section, apply to such a lease as they apply to a lease granted under section 56; and subsections (6) and (7) of that section shall apply in relation to a lease granted in accordance with this section as they apply in relation to a lease granted under that section.

(8) In its application to a lease granted in accordance with this section—

(a)section 57 shall have effect as if— (i)any reference to the relevant date were a reference to the date of the application under section 50(1) in pursuance of which the vesting order under that provision was made, and (ii)in subsection (5) the reference to section 56(3)(a) were a reference to subsection (5)(c) above; and (b)section 58 shall have effect as if— (i)in subsection (3) the second reference to the landlord were a reference to the person designated under subsection (3) above, and (ii)subsections (6)(a) and (7) were omitted.