Mr N Martindale FRICSSayers Solicitors LLP for the ApplicantDate 15 April 2019Property: Harrow, HA3 5HQType of application: extension (missing landlord)
DECISION
[1]The premium to be paid by the applicant for the lease extension at the ground floor flat, 1 Farmstead Road, Harrow, HA3 5HQ, 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. 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 the Property. The relevant legal provisions are set out in the Appendix to this decision.[4]The Property 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 the Property, holding his interest under the terms of a lease dated 16 December 1983 and registered under title number NGL480211. That lease was granted by Michael Deeley to the original tenant Andrews Beckett, 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 the Property is the respondent, Michael Deeley formerly of 33 Georgian Court Wembley 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. 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 James Bush BSc (Hons) MRICS of Woodward Chartered Surveyors (“the Valuation Report”). Having considered the contents of the Valuation Report and of the opinions expressed by the valuer, the Tribunal is broadly satisfied that the method adopted is appropriate to determine the premium for the new lease for the Property. The Tribunal accepts the description of the Property and its location as stated in the Valuation Report.[16]A photograph of the exterior of the Property was included in the Valuation Report. The Tribunal did not consider it necessary or proportionate to carry out an inspection of the Property. Valuation[17]It was stated in the Valuation Report that the Property 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]The valuer’s assessment of the market value of a long lease of the Property 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 the Property. 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 the valuer’s report.[21]While the valuer 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 the valuer draws the conclusion that as at the valuation date, the long lease value of the property 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 the valuer’s analysis and assessment of each in the assessment of the value of new long lease of the Property.[23]The Tribunal notes and accepts the valuer’s proposal for a 1% adjustment in uplifting the long lease value to its notional freehold value.[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]The valuer turned to the RICS approved graphs and those more recently produced in 2018 by Savills. 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 the valuer 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 the property 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 Earl Cadogan v Sportelli [2007] 1EGLR 153. The valuer 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 the Property, as produced by the valuer and in particular 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 the Property is therefore £25,244. Name: N Martindale Date: 15 April 2019