Tenant Granted Right to Acquire Freehold Interest Under Leasehold Reform Act

OUTCOME: Allowed

1

Case Reference : MAN/00CA/OAF/2020/0020

Property : 9 [ADDRESS] [POSTCODE]

Applicants : [redacted] : [NAME] Solicitors

Respondent: [redacted] Sections 21(1)(a), 21(1)(ba) and 21(2) of the Leasehold Reform Act 1967

Tribunal Members : Mr [NAME]. [NAME]

Mr [NAME].[NAME]. [NAME] of Paper Determination : 8 March 2021

Date of Determination : 18 March 2021

______________________________________________

DECISION ____________________________________

© CROWN COPYRIGHT 2021 FIRST - TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

2 DECISION

(i) The price payable for the Property determined under Section 9 of the Leasehold Reform Act 1967 is £150.

(ii) The terms of the Deed of Transfer determined under Section 10 of the Act are set out in the draft attached in the Appendix.

(iii) Professional costs are determined to be payable by the Applicant to the Respondent under Section 9(4) of the Act in the sum of £400 (together with any applicable VAT).

REASONS

The Application 1. The Applicant is the registered leasehold proprietor of 9 [ADDRESS] [POSTCODE] (‘the Property’). The lease was granted on 12 September 1923 for a term of 999 years from 29 September 1922. The Respondent is the landlord, and registered freehold proprietor.

2. The Applicants seeks to acquire the freehold interest in the Property pursuant to the Leasehold Reform Act 1967 (‘the Act’). The submission made on his behalf to the tribunal indicates that the Respondent has not engaged with him in the process.

3. The Applicant seeks determinations from the tribunal pursuant to section 21(1)(a) of the Act (price payable), section 21(2) (terms of the conveyance) and section 21(1)(ba) (reasonable professional costs payable under section 9(4)).

4. The application to the tribunal was made on 24 September 2020 and, pursuant to Directions, a written submission with supporting papers was made on 14 December 2020. The Respondent failed to comply with the tribunal’s direction that a statement of case, valuation evidence and supporting documents be submitted, and has offered no response whatsoever to the Application. The Law 5. The following are brief extracts of the provisions of the Act referred to above:

Subsection 21(1)

'The following matters shall, in default of agreement, be determined by a

tribunal namely, - ....... (a) the price payable for the house and premises under section 9 above; .........

(ba) the amount of any costs payable under section 9(4) or 14(2);' Subsection 21(2)

3 ‘……….the appropriate tribunal shall have jurisdiction, either by agreement or in a case where an application is made to a tribunal under subsection (1) above with reference to the same transaction, - (a) To determine what provisions ought to be contained in a conveyance in accordance with section 10…..of the Act….’

Subsection 9(4) states as follows:

'Where a person gives notice of his desire to have the freehold of a house and

premises under this Part of the Act, then unless the notice lapses under any

provision of this Act excluding his liability, there shall be borne by him (so far as

they are incurred in pursuance of the notice) the reasonable costs of or

incidental to any of the following matters:-

(a) any investigation by the landlord of that person's right to acquire the

freehold;

(b) any conveyance or assurance of the house and premises or any part thereof

or of any outstanding [NAME] or interest therein;

(c) deducing, evidencing and verifying the title to the house and premises or any

[NAME] or interest therein

(d) making out and furnishing such abstracts and copies as the person giving the

notice may require;

(e) any valuation of the house and premises

but so that this subsection shall not apply to any costs if on a sale made

voluntarily a stipulation that they were to be borne by the purchaser would be

void.'

Subsection 10(4) makes the following provision for the inclusion of restrictive covenants in the conveyance: ‘As regards restrictive covenants (that is to say, any covenant or agreement restrictive of the user of any land or premises), a conveyance executed to give effect to section 8 above shall include: (a) Such provisions (if any) as the landlord may require to secure that the tenant is bound by, or to indemnify the landlord against breaches of, restrictive covenants which affect the house and premises otherwise than by virtue of the tenancy or any agreement collateral thereto and are enforceable for the benefit of other property; and (b) Such provisions (if any) as the landlord or the tenant may require to secure the continuance (with suitable adaptations) of restrictions arising by virtue of the tenancy or any agreement collateral thereto, being either –

4 (i) Restrictions affecting the house and premises which are capable of benefiting other property and (if enforceable only by the landlord) are such as materially to enhance the value of the other property; or (ii) Restrictions affecting other property which are such as materially to enhance the value of the house and premises; (c) Such further provisions (if any) as the landlord may require to restrict the use of the house and premises in any way which will not interfere with the reasonable enjoyment of the house and premises as they have been enjoyed during the tenancy but will materially enhance the value of other property in which the landlord has an interest.’ Price payable Applicant’s Submission 6. The Applicant submitted a valuation report prepared by [APPELLANT]. A valuation under section 9(1) of the Act proposes a purchase price for the freehold interest in the Property of £150. Capitalisation of the ground rent of £9.60 per annum to reach this figure assumes a yield rate of circa 6.4%. The value of the reversionary interest, with the benefit of a 50 year extension, is viewed as de minimis. Determination 7. The tribunal applied its own knowledge and experience to consider the value of the freehold interest, together with the evidence submitted on the Applicant’s behalf.

8. The tribunal accepts that the appropriate methodology for the valuation in this case is that set out at section 9(1) of the Act, on the basis that the rateable value of the Property on the relevant day was £152.

9. The lease was granted for a term of 999 years from 29 September 1922 and therefore has an unexpired term of 901 years. The tribunal agrees with the Applicant’s valuer that the value of the reversionary interest on the expiration of the unexpired term, with a 50 year extension, is de minimis.

10. In relation to the right to receive the ground rent of £9.60 per annum, the tribunal considered that the fixed ground rent of £9.60 per annum could not be economically collected and therefore the investment if sold via the appropriate method would not be of particular interest to a prospective purchaser. Its attractiveness would diminish further over time. The ground rent would only be collected upon an event such as an assignment (subject to statutory recovery provisions). The tribunal considered that these factors were adequately reflected in the yield rate of 6.4% assumed by the Applicant’s valuer.

11. The tribunal’s valuation is therefore as follows: Ground rent per annum £9.60 YP 901 years at 6.4% is 15.625 Value

£150

5 Terms of Transfer Deed Applicant’s Submission 12. The Applicant has proposed a form of transfer deed, a copy of which is reproduced in the Appendix to this decision document. The Applicant refers to the provisions concerning restrictive covenants at section 10(4) of the Act, cites the case of Trustees of the [NAME] v [NAME] [NAME] and anor 2011 UKUT 415 (LC) and includes a quote from the text book Hague: Leasehold Enfranchisement 6th Edition.

13. The Applicant further refers to and supplies a copy notice served on the Respondent on 21 July 2020 requesting particulars of rights of way and restrictive covenants, pursuant to Condition 5 of Part 1 to the Schedule to the Leasehold Reform (Enfranchisement and Extension) Regulations 1967 (‘the 1967 Regulations’). It is submitted that no reply was received to the request and that as a consequence the Respondent is barred from requiring such covenants to be imposed on the freehold title acquired. Determination 14. The Charges Register to the registered freehold title to the Property includes an entry identifying that by a conveyance dated 6 June 1951 (details of which are given) the land in the title was conveyed subject to ‘all privileges in the nature of light air water drainage way and passage and any other easements or quasi-easements and restrictions (if any) affecting any part of the same’. The draft transfer supplied includes a proposed covenant on the part of the Applicant to observe and perform any restrictive covenants contained or referred to in the 1951 conveyance and to indemnify the Respondent against all costs, claims, demands and liabilities arising from the non-observance and non-performance thereof, so far as any such covenants relate to the Property and remain capable of being enforced.

15. The Respondent has not required the inclusion of the above covenant within the draft transfer pursuant to section 10(4)(a) of the Act, however it is proposed by the Applicant and is otherwise consistent with section 10(4)(a).

16. Turning to section 10(4)(b) of the Act, the tribunal noted that the lease of the Property contained restrictive covenants concerning use as a private dwellinghouse, advertisements, and the use of areas that remain unbuilt upon as yards, gardens or pleasure grounds. The Respondent has not required the continuation of these restrictions within the draft transfer, and has made no submission to the tribunal to argue that they are capable of benefiting other property and (if enforceable only by the landlord) are such as to materially enhance the value of the other property. In these circumstances the tribunal is not satisfied that any restriction arising by virtue of the tenancy is required to be included in the draft transfer.

17. Condition 5(2) of Part 1 to the Schedule to the 1967 Regulations provides that at any time when under condition 3 the tenant would be entitled to require the landlord to deduce his title, he may by notice in writing given to the landlord require him within 4 weeks to state what rights over the property and provisions concerning restrictive covenants he requires to be included in the conveyance in accordance with the provisions of the Act.

6 18. Condition 3 allows the tenant to require the landlord to deduce his title where he has received no notice in reply to his tenant’s notice of his desire to acquire the freehold within 2 months of giving such notice (or if a reply has been received other provisions apply). In this case it is stated in the application form that no response to the tenant’s notice of claim has been received. The notice of claim is dated 10 July 2020 and the request for a statement of rights and restrictive covenants is dated 21 July 2020. The request was therefore served before the two month period for responding to the notice of claim referred to in Condition 3 had expired. Had the request been validly served then Condition 5(5) would have applied deeming the Respondent to have required no rights of way or provisions concerning restrictive covenants in the deed of transfer.

19. Whilst Condition 5(5) is not applicable in this case, the Respondent has nevertheless failed to respond to the Applicant’s notice of his desire to acquire the freehold and has failed to engage with the tribunal as required by the tribunal’s Directions. There is no submission before the tribunal seeking to justify on the Respondent’s behalf the reservation of any rights or the imposition of any new covenants or restrictions. The ‘conveyance’ in this case is a transfer of the whole of a registered title and therefore it is unnecessary to introduce the sorts of rights and reservations and mutual covenants that might apply if it were a transfer of part. In the absence of any argument from the Respondent to the contrary, the tribunal determines that there is no need to go beyond the covenant and indemnity (concerning any restrictive covenants contained or referred to in the 1951 Conveyance) already included within the proposed form of draft transfer.

20. The tribunal accordingly determines that the provisions that ought to be contained in the transfer deed are as set out in the draft proposed by the Applicant and attached in the Appendix. Professional Costs Applicant’s Submission 21. The Applicant proposes that the Respondent’s reasonable professional costs under section 9(4) of the Act should be fixed at £400, being the sum Ordered by the County Court in October 2017 in a similar case, also concerning a property in Formby, with the same landlord. Determination 22. The tribunal finds that there is no evidence of any costs being incurred to date by the Respondent in relation to, or incidental to, any of the matters listed at section 9(4) of the Act. In order to complete the transfer of the freehold title it is reasonable to assume costs would be incurred in relation to at least some of these matters. Since the price is being fixed by the tribunal, and the Respondent has not responded to notices served by the Applicant, it is reasonable to assume that the professional costs incurred would not be as great as they might otherwise be.

7 23. In the absence of any submission from the Respondent on the issue of professional costs, the tribunal finds in the Applicant’s favour and determines the total amount of costs payable under section 9(4) to be £400 together with any applicable VAT.

S [NAME] Tribunal Judge 8 March 2021

8 Appendix

Draft Transfer

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10

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