Tenant Granted Lease Extension Under Leasehold Reform Act

OUTCOME: Allowed

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FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY) Case Reference : LON/00AQ/OLR/2019/0107 Property : 1 [ADDRESS], [POSTCODE] Applicant : [redacted] : [COMPANY] Respondent : [redacted] : Determination of terms of lease extension (missing landlord) Tribunal Members :

Mr [RESPONDENT] of Decision : 15 April 2019

DECISION

Decision 1. The premium to be paid by the applicant for the lease extension at the ground floor flat, 1 [ADDRESS], [POSTCODE], registered at HM Land registry under title number NGL480211 (the “Property”) is £25,244 (Twenty five thousand, two hundred and forty four pounds).

2. The draft lease at ‘Documents of Title’ part C pages 69 to 74 in the applicants bundle is approved and returned to the Court for directions as to its execution.

2 Introduction 3. This is an application made under Section 50 and 51 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) for a determination of the premium to be paid and the terms of an acquisition of an extension to the leasehold interest in [NAME]. The relevant legal provisions are set out in the Appendix to this decision. 4. [NAME] is a ground floor flat, being the lower level of a two storey building, itself formerly one part of a linked detached house. The upper floor constitutes a separate flat. The whole Property dates from the 1930’s, the flat conversion from the 1980’s. The flat was later extended by the tenant at their cost.

5. The applicant is the long leaseholder of [NAME], holding his interest under the terms of a lease dated 16 December 1983 and registered under title number NGL480211. That lease was granted by [APPELLANT] to the original tenant [APPELLANT], for a term of 99 years from 25 March 1983. The lease reserves a fixed ground rent of £50 pa for the first 25 years, at £100 pa for the next 25 years, £150 pa for the next 25 years and £200 pa for the remainder. The residual term of the lease is now vested in the applicant who was registered as the leasehold proprietor on 15 April 2002.

6. The registered freehold proprietor of [NAME] is the respondent, [RESPONDENT] formerly of [ADDRESS] Middx. He was registered as such under title number NGL152388 on 9 August 1982.

7. By order made by Deputy District Judge Tomlinson on 18 January 2019 in the County Court at Willesdon, on the court being satisfied that the respondent could not be found, the proceedings for grant of a new lease were transferred to this Tribunal for a determination of the terms.

8. The Tribunal considered the issue on the papers submitted by the applicants, without a hearing, in accordance with directions issued on 25 January 2019. The case was to be determined in the week commencing 6 March 2019, but owing to shortcomings in the valuation report it was re-scheduled for determination in the week commencing 15 April 2019.

9. The Tribunal’s jurisdiction is derived from the court order dated 18 January 2019.

3 Statutory basis of Valuation 10. Part 2, Schedule 13 to the Act provides that the price to be paid by the leaseholder, for the new leasehold interest, where there is no intermediary head leaseholder, as applies here.

11. The premium payable in respect of the grant of a new lease is the total of: (a) the diminution in value of the landlord’s interest in the tenant’s flat as determined in accordance with paragraph 3, (b) the landlord’s share of the marriage value as determined in accordance with paragraph 4, and (c) any amount of compensation payable to the landlord under paragraph 5.

12. The diminution is in accordance with paragraph 3(1) The diminution in value of the landlord’s interest is the difference between (a) the value of the landlord’s interest in the tenant’s flat prior to the grant of the new lease; and (b) the value of his interest in the flat once the new lease is granted.

13. Paragraph 4 of the Schedule, as amended, provides that the freeholder's share of the marriage value is to be 50%, and that any marriage value is to be ignored where the unexpired term of the lease exceeds eighty years at the valuation date. Here it is included as the unexpired term is less than eighty years.

14. Paragraph 5 of the Schedule provides for the payment of compensation for other loss resulting from the enfranchisement. Evidence 15. The applicants have provided a valuation report dated 19 March 20197 by [NAME] (Hons) MRICS of [NAME] (“the Valuation Report”). Having considered the contents of the Valuation Report and of the opinions expressed by [NAME], the Tribunal is broadly satisfied that the method adopted is appropriate to determine the premium for the new lease for [NAME]. The Tribunal accepts the description of [NAME] and its location as stated in the Valuation Report.

16. A photograph of the exterior of [NAME] was included in the Valuation Report. The Tribunal did not consider it necessary or proportionate to carry out an inspection of [NAME].

4 Valuation 17. It was stated in the Valuation Report that [NAME] consists is a ground floor flat, entrance hall, reception room, double bedroom, kitchen bathroom/WC. Subsequent tenant’s improvements had incorporated an extension into the garden, a cloakroom and study and a reconfiguration of the remaining accommodation. The GIA of the original demise was 49m2 or 527ft2. There is double glazing and full gas central heating. The value of the tenant’s improvements is ignored in the valuation.

18. The valuation date prescribed by section 27(1) of the Act is the date of the issue from the court by the court of the application, namely 16 July 2018. The unexpired residue of the lease for the flat is approximately 63.66 years at that time. 19. [NAME]’s assessment of the market value of a long lease of [NAME] is based on evidence of three recently completed sales of converted flats, one of a modern 1980’s purpose built flat and two further very close properties under offer but not sold at the valuation date. The sold, converted flats were all 1930’s built houses since arranged into similar flats albeit ranging in size: A converted semi- detached house to 1 bedroom flat of 33m2 sold at £210,000 March 2018; a converted mid-terraced house to a 1 bedroom flat of 38m2 sold at £230,000 May 2018; and a converted mid terraced house to a flat of 54m2 sold at £250,000 May 2018.

20. All three flats have gardens and are in similar nearby locations to [NAME]. The Tribunal did not take account of the fourth comparable as it related to a relatively modern purpose built flat. Similarly, little weight was attributed to the two sales STC in the form of comparables 5 and 6 in [NAME]’s report. 21. [NAME] makes adjustments for changes over time there was no evidence of the application of the HMLR index for flats in Harrow to do so or details of the calculations if they were undertaken.

22. From this material [NAME] draws the conclusion that as at the valuation date, the long lease value of [NAME] was £225,000. The Tribunal is satisfied with the relevance and detail of the three completed comparable property sales provided in the Valuation Report. The Tribunal accepts [NAME]’s analysis and assessment of each in the assessment of the value of new long lease of [NAME].

23. The Tribunal notes and accepts [NAME]’s proposal for a 1% adjustment in uplifting the long lease value to its notional freehold value.

5 24. In order to assess the relativity of short to long leases the best evidence is that of actual sales of short leases. However having searched for same, locally, none were to be found of otherwise similar properties in this location. 25. [NAME] turned to the RICS approved graphs and those more recently produced in 2018 by [NAME]. Although this is designed for the PCL properties he determines that it is the most relevant. He goes on to make a deduction of 4.17% on this relativity to reflect the Act rights to tenants, which, but for the Act, would have made the lease extension price higher to the applicant. The Tribunal accepts this approach.

26. The diminution in the value of the landlord's interest in the tenant’s flat is represented first by the capitalised value of the ground rent receivable under the lease. That small income stream is capitalised by [NAME] at 7%, which the Tribunal accepts is appropriate in this case owing to the stepped, but otherwise low ground rents.

27. The effect of the lease extension will deprive the landlord of [NAME] for a further 90 years in addition to the current unexpired term. The present value of that delayed reversion is determined by applying a deferment rate to the freehold value of the flat. The deferment rate appropriate for leasehold flats in London was authoritatively determined to be 5% in the case of [NAME] v Sportelli [2007] 1EGLR 153. [NAME] accepts this and adopts 5% which The Tribunal agrees with.

28. As there are less than 80 years unexpired on the existing lease, the resultant increase in value owing to the marriage of interests is to be shared equally between the parties, as required by the Act.

29. The Tribunal determines that there is no compensation payable to the landlord under Schedule 13, paragraph 5. There is no development potential, the loss of which by the landlord would require compensation from the tenant.

30. The Tribunal accepts the valuation for [NAME], as produced by [NAME] and in [NAME] his final opinion of value of £25,244 as expressed in the report. The Tribunal has therefore not produced its own valuation.

31. The premium to be paid by the applicants for the new lease of [NAME] is therefore £25,244.

Name: [NAME]: 15 April 2019

6 Appendix

Leasehold Reform, Housing and Urban Development Act 1993

S.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 [NAME] 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 [NAME]. (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. (4) Before making any such order the court may require the tenant to take such further steps by way of advertisement or otherwise as the court thinks proper for the purpose of tracing the person in question; and if, after an application is made for a vesting order under subsection (1) and before any lease is executed in pursuance of the application, the landlord is traced, then no further proceedings shall be taken with a view to a lease being so executed, but (subject to subsection (5))— (a) the rights and obligations of all parties shall be determined as if the tenant had, at the date of the application, duly given notice under section 42 of his claim to exercise the right to acquire a new lease of his flat; and (b) the court may give such directions as the court thinks fit as to the steps to be taken for giving effect to those rights and obligations, including directions modifying or dispensing with any of the requirements of this Chapter or of regulations made under this Part.

7 (5) An application for a vesting order under subsection (1) may be withdrawn at any time before execution of a lease under section 51(3) and, after it is withdrawn, subsection (4)(a) above shall not apply; but where any step is taken (whether by the landlord or the tenant) for the purpose of giving effect to subsection (4)(a) in the case of any application, the application shall not afterwards be withdrawn except— (a) with the consent of the landlord, or (b) by leave of the court, and the court shall not give leave unless it appears to the court just to do so by reason of matters coming to the knowledge of the tenant in consequence of the tracing of the landlord. (6) Where an order has been made under subsection (2) dispensing with the need to give a copy of a notice under section 42 to a [NAME] with respect to any flat, then if— (a) a notice is subsequently given under that section with respect to that flat, and (b) in reliance on the order, a copy of the notice is not to be given to [NAME], the notice must contain a statement of the effect of the order. (7) Where a notice under section 42 contains such a statement in accordance with subsection (6) above, then in determining for the purposes of any provision of this Chapter whether the requirements of Part I of Schedule 11 have been complied with in relation to the notice, those requirements shall be deemed to have been complied with so far as relating to the giving of a copy of the notice to the person referred to in subsection (6) above.

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 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 such person as the court may designate a lease which— (a) is in a form approved by a leasehold valuation Tribunal, and

8 (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 (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

9 (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.