Tenant Granted Lease Extension Based on Relativity Calculations

OUTCOME: Allowed

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Case Reference : KA/LON/00BF/OLR/2019/0250 Property : 5 Mansard Manor & Garage 10, [ADDRESS], Sutton, Surrey [POSTCODE] Applicant: [redacted] : Ms [COUNSEL] of counsel & Mr. [COUNSEL]

Respondent: [redacted]

[NAME] (Birkdale) [RESPONDENT] : Mr. [COUNSEL] of counsel & Mr. [COUNSEL] of [NAME] : Lease extension Tribunal Members : Judge [NAME] and venue of Hearing

: 2 [ADDRESS] [POSTCODE]

Date of Decision

: 1 September 2019

DECISION

2 Summary decisions of the tribunal

I. [NAME] is 82.22%.

II. The existing lease value is £210,395.

III. The premium payable is £30,264.

_________________________________________________

The [NAME]

1. This is an [NAME] made under the provisions of section 48 of the Leasehold Reform, Housing Development Act 1993 (“the 1993 Act”) seeking the tribunal’s determination of the premium payable for a lease extension of premises situate at 5 Mansard Manor & Garage 10 (“the premises”).

Background

2. In a Notice of Claim dated 10th July 2018 the applicant sought to exercise her right to extend her lease for a premium payable of £27,500. In a Counter Notice dated 13th September 2018 the respondent accepted the applicant’s right to extend her lease but proposed a premium of £57,990. The freehold title of the premises is owned by [COMPANY] ([COMPANY]) [RESPONDENT] which is subject to a head lease of which the respondent is the lessee. The applicant holds an interest in the premises pursuant to a lease of the premises dated 8th February 1977 for a term of 99 years from 24th June 1975 to 23rd June 2074 at a ground rent of £30 per annum increasing to £120 per annum.

The premises

4. The premises comprise a one bedroom flat on the second floor of a three storey a block of twelve units with a gross internal floor area of 469 sqft. The premises also includes a single garage within the block of garages. There are communal gardens and communal car parking spaces within the development. Mr. [NAME] described the premises as being located on the second floor of a 1970’s block in contrast to Mr. [NAME] description of a top floor flat in a 1950’s purpose built block of twelve flats. However, that he tribunal is satisfied the lease plans provide make it clear that the premises are located on the second floor of the block.

The issues

5. The following issues were not in dispute:

(i) Terms of the extended lease

(ii) Lease date 8th February 1977

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(ii) Valuation date of 10th July 2018

(iii) Capitalisation rate 6.5%

(iv) Deferment rate 5%

(v) Unexpired term at date of valuation 55.95 years

(v) Ground rent of £30 per annum rising to £120 per annum

(vi) Freehold vacant possession (FHVP) £255,893

6. The parties therefore sought only the tribunal’s determination of the remaining issue of [NAME] and the existing leasehold value and therefore the premium payable.

The Applicant’s evidence

7. The Applicant relied upon the oral evidence of Mr. [APPELLANT] who spoke to his valuation report dated 18th June 2018. In his oral evidence Mr. [NAME] told the tribunal that his report was based upon his inspection of the premises on 10th April 2019 and that he had calculated the premium payable in accordance with the provisions of Schedule 13 of the 1993 Act. In his oral evidence in respect of the existing lease value Mr. [NAME] told the tribunal that the 1993 Act required the valuation to assume that the existing lease of the relevant flat does not have the rights under the 1993 Act to acquire any new lease. Mr. [NAME] referred the tribunal to the case of [NAME] v Mundy [2016] UKUT 223 (LC) (“Munday”) and the three main methods used by valuers to determine the statutory existing lease value comprising (i) reliance on transactional evidence of the subject premises or comparables of similar short lease properties which do not have 1993 Act rights; (ii) transactional evidence of the subject premises or comparables of similar short lease properties which have 1993 Act rights and (iii) reliance on [NAME] graphs which give the percentage between the freehold value and the statutory existing lease value.

8. In valuing the existing lease value and the absence of an recent. Transactional evidence of the subject property or suitable short lease comparable sales, Mr. [NAME] relied upon the use of the [NAME] graphs to support his approach to the calculation of the existing lease value/[NAME]. Mr. [NAME] determined the [NAME] by taking the average of the Greater London and England graphs included in the RICS Research Report on Graphs of [NAME]. Mr. [NAME] accepted that although not perfect, as all the graphs had their shortcoming, they provided the best basket of evidence of evidence available for the determination of the [NAME] in the Greater London area in the absence of transactional evidence.

9. Therefore, taking the average of the five graphs (Beckett and Kay 2009; South East leasehold; [NAME]; [COMPANY].) resulted for a 55.9 year lease in a [NAME] of 82.22%. Applying this [NAME] to the FHVP value of £255,893 resulted in an Existing Lease Value (without 193 Act rights) of £205,233. Applying the figures either agreed or calculated above and including marriage value,

4 resulted in a premium payable of £30,264 (as set out in his revised valuation).

10. During cross-examination, Mr [NAME] questioned Mr [NAME] about evidence that he gave to the tribunal in [ADDRESS], SW6 (LON/ooBJ/OLR/2018/0776) a similar and recent (2018) lease extension [NAME]. Counsel asserted that the evidence was “diametrically different” when Mr [NAME] acted for the [NAME]. The report of that case was not available to the tribunal at the hearing but having subsequently read that decision (paragraphs 18 and 19) the Tribunal agree that there is a marked inconsistency in the approaches adopted by Mr [NAME] in the two cases. [ADDRESS], Mr [NAME] asserted that PCL graphs should be used and rejected the five Greater London graphs in the RICS document, a document upon which, he now relied.

The respondent’s evidence

11. Mr. [RESPONDENT] for the respondent submitted that the approach adopted by Mr. [RESPONDENT] was flawed as the graphs are unreliable because they measure historic [NAME] whereas recent Upper Tribunal decisions have recognised that [NAME] has diminished over time, [NAME]. Therefore, since [NAME], the Upper Tribunal has endorsed a preference for transactional evidence over the use of [NAME] graphs where that evidence is reliably, [NAME] v [COMPANY]. 2016 WL [PHONE] where an unexpired term of 57.68 years gave rise to a [NAME] of 76.25%, a figure below the [NAME] 1996 graph. Mr. [NAME] submitted that the average [NAME] derived from the graphs relied upon by Mr. [NAME] would be 83.80%.

12. In oral evidence Mr. [NAME] spoke to his valuation report dated June 2019. On his evidence as to the issue of the Existing Leasehold Value, Mr. [NAME] told the tribunal that adopting the approach in Munday the starting point is to look for reliable market evidence However, the most recent transaction evidence is that provided by auction details where the premises were marketed in April 2019 for £200,000 inclusive of 1993 Act rights. Mr. [NAME] told the tribunal that he had therefore looked at the graphs deemed to be reliable by the Upper Tribunal in Munday which are the Savills 2015 Enfranchiseable Graph of [NAME] and the updating of Gerald Eve 1997 graph by the [NAME] 2016 table and graphs of [NAME] following comment in [NAME] that Gerald Eve graph may now overstate [NAME]. Further, Mr. [NAME] criticised the RICS research document graphs as failing to take into account the financial situation post financial crash and the more stringent criteria imposed since for both new and existing borrowers.

13. Mr. [NAME] the tribunal that these two graphs relate to prime areas and therefore the [NAME] in Sutton where the subject premises are located is likely to be lower and transactions more mortgage dependent. Mr. [NAME] told the tribunal that these two graphs produced lower [NAME]

5 than shown in RICS research graphs relied upon by Mr. [NAME] 75.4% [NAME] – [NAME] and 75.5% [NAME] – [NAME].

14. Mr. [NAME] state that he regarded the [NAME] and [NAME] graph which indicated a [NAME] of 67% is the most reliable and most appropriate for a property located in the suburbs, as this had been kept up to date until recently and covers a mortgage dependent area. Consequently, by taking an average of the relativities indicated by this and the most reliable graphs (67% and 75.4%) this produced a [NAME] for the subject premises of 71.2%.

15. Therefore, in a revised valuation Mr. [NAME] proposed a premium payable of £44,381.

The tribunal’s decisions and reasons

16. In the absence of market transactions, the tribunal were required to determine whether the approach of Mr. [NAME] and his reliance on the average of five graphs from the RICS Graphs of [NAME] 2009, or Mr. [NAME] reliance on the average of the [NAME] and [NAME] and [NAME] graphs was the most appropriate approach in determining the issue of [NAME].

17. The tribunal found the evidence of both expert witnesses to be unsatisfactory. The tribunal finds it necessary to treat Mr. [NAME] evidence in this [NAME] with considerable caution, due in part to the inconsistency in his evidence when compared with his evidence in the previous tribunal decision in [ADDRESS]. As to Mr [NAME] evidence, the Tribunal does not accept that it is appropriate to use PCL graphs in relation to a small one-bedroom flat in Sutton. Nor does the Tribunal consider it appropriate to identify and rely upon one only of the RICS Greater London graphs. In the circumstances the tribunal is constrained to rely on its own knowledge and judgment. The tribunal considers that the least unsatisfactory approach is to adopt an average of the five Greater London graphs, which gives a [NAME] of 82.22% and gives rise to an existing lease value of £210,395.

18 Therefore, applying the figures found by the tribunal to be applicable the tribunal determines that the premium payable is £30,257 adjusted to £30,264 as being the lowest of the figures provided by either Mr. [NAME] and [NAME], see valuation attached.

Signed: Judge Tagliavini

Dated: 1 September 2019

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Rights of Appeal

By rule 36(2) of The Tribunal Procedure (First-tier Tribunal( ( Property Chamber) Rules 2013, the tribunal is required to notify he parties about any right of appeal they might 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 [NAME] which has been dealing with the case.

The [NAME] for permission to appeal must arrive at [NAME] 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 , such [NAME] must include a request for an extension of time and the reasons 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 these time limits.

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).

Date of Valuation agreed 10-Jul-2018 Lease expiry date agreed 23-Jun-2074 Unexpired Term / years agreed 55.95 Virtual Freehold Value agreed 255,893 £ Extended lease value agreed 253,334 £ [NAME] determined 82.22% Existing lease value determined 210,395 £ Ground rent capitalisation rate agreed 6.50% Reversionary deferment Rate agreed 5.00% Premium Payable determined 30,264 £ Diminution of [NAME]'s Interest Term 1 Ground rent 60.00 £ per annum Years' Purchase 21.71 years @ 6.50% 11.46 688 £ Term 2 Ground rent 120.00 £ per annum Years' Purchase 34.24 years @ 6.50% 13.60 Present Value £1 in 21.71 years @ 6.50% 0.25 3.40 408 £ Reversion Value of virtual freehold of flat 255,893 £ Present Value of £1 in 55.95 years' time @ 5% 0.0652 16,684 £ Less Value of Reversion in 145.95 years' time value of virtual freehold of flat 255,893 £ Present Value of £1 in 145.95 years' time @ 5% 0.0008 205 -£ Diminution in Value of Freeholders Interest 17,575 £ Calculation of Marriage Value Aggregate value of [NAME] 253,334 £ [NAME] 205 £ Total Value of Proposed Interests 253,539 £ Less Aggregate value of [NAME] 210,395 £ [NAME] 17,780 £ 228,175 £ Marriage Value 25,364 £ Divide equally 12,682 £ Premium 30,257 £ Premium 30,264 £ APPENDIX IN THE MATTER OF 5 MANSARD MANOR AND GARAGE 10 CHRISTCHURCH PARK SUTTON SURREY [POSTCODE] VALUATION BY THE FIRST TIER TRIBUNAL (PROPERTY CHAMBER) However, as this premium falls below £30,264, being the lowest contended for at the hearing, the Tribunal determines the premium in that sum.