15 Central Parade, St Mark’s Hill, Surbiton KT6 4PJ: LON/00AX/OLR/2018/0554 LON/00AX/OLR/2018/0554
[1]This is an application made by the applicant leaseholder pursuant to section 48 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the Act”) for a determination of the premium to be paid for the grant of a new lease of 15 Central Parade, St Mark’s Hill, Surbiton KT6 4PJ (the “Property”).[2]By a notice of a claim dated 18th August 2017 served pursuant to section 42 of the Act, the applicant exercised the right for the grant of a new lease in respect of the Property. At the time, the applicant held the existing lease granted on 24th September 1986 for a term of 99 years from 25th March 1978 at an existing annual ground rent of £100. The applicant proposed to pay a premium of £32,680 for the new lease.[3]On 23rd October 2017, the respondent freeholder served a counter-notice admitting the validity of the claim and counter-proposed a premium of £74,195 for the grant of a new lease.[4]On 16th April 2018, the applicant applied to the tribunal for a determination of the premium. The issues Matters agreed[5]The following matters were agreed:(a) The subject property is a self-contained flat on the 1st floor within a three storey building comprising commercial premises at ground floor level (a Chinese Restaurant) and two flats above. The flats above can be accessed via a side entrance to the front or by steps to the rear;(b) The gross internal floor area appears to be approximately 628 sq.ft.(c) The valuation date is agreed as 22nd August 2017;(d) Unexpired term: 59.58 years;(e) Ground rent: £100 presently rising to £150 after March 2044;(f) Capitalisation of ground rent: 7% per annum; and(g) Deferment rate: 5%. Matters not agreed[6]The following matters were not agreed:(a) The “no-Act world” short leasehold (unimproved) value: the applicant contending at the hearing for £285,000 and the respondent contending for £264,618;(b) The freehold (unimproved) value: the applicant contending for £332,691 and the respondent contending for £363,636; and(c) The premium payable. The hearing[7]The hearing in this matter took place on 21st August 2018. The applicant was represented by Mr Row, and the respondent by Mr Sharp. Both valuers acted as expert and advocate[8]Neither party asked the tribunal to inspect the property and the tribunal did not consider it necessary to carry out a physical inspection to make its determination.[9]The applicant relied upon the expert report and valuation of Mr Row dated 15th August 2018 and the respondent relied upon the expert report and valuation of Mr Sharp dated 8th August 2018. Freehold Vacant Possession Value[10]Mr Row, in his report relied on two comparable properties at 24 and 16 Central Parade. 24 Central Parade had completed in June 2018, achieving a price of £335,000. The flat was on the second floor and apparently in reasonable decorative order. Mr Row applied the agreed price indexation for the Royal Borough of Kingston Upon Thames to reflect the passage of time which gave a long lease value of £329,365, uplifted by the agreed 1% for freehold value to £332,691.[11]In respect of 16 Central Parade, a comparable also utilised by Mr Sharp, we were told that this had sold in March 2017 at a price of £360,000. It was suggested that this flat was in a superior condition, with high quality fixtures and fittings. Although he had included this property, he preferred the comparable at 24 Central Parade and relied on that one comparable to achieve the freehold vacant possession value of £332,691.[12]Mr Sharp had also utilised the comparable at 16 Central Parade, and placed weight to this. It was next door with an identical layout. It was said that the flat had been modernised, it seems in part by February 2013, with the inclusion of a new bathroom by March 2017. Applying the agreed indexation this gave a long lease value at the valuation date of £364,394.[13]He compared this property to a flat at 5 St James Court, in close proximity and above commercial premises. However this flat was considerably smaller and on a shorter lease of only 88 years. It had sold in May 2016 and subject to uplift for the passage of time had a value at the valuation date of £329,473. He reflected on the advantage of size, the peppercorn rent and the lease term of the extended lease for the subject property, which made the figure achieved, relying on 16 Central Parade of £364,394, reasonable but he reduced this for the lack of heating to a figure of £360,000. This he uplifted for the freehold value to £363,636. The tribunal’s determination[14]The tribunal determines the freehold vacant possession value of the Property is 339,088, with a long lease value of £335,697. Reasons for the tribunal’s determination[15]We have carefully noted all that was said in the valuers reports and the evidence given to us at the hearing. We reject the evidence in respect of 5 St James Court. The flat is something of a different animal, being smaller and with a shorter lease term. In truth Mr Sharp did not press this comparable, using it only to support the reasonableness of the value he achieved using 16 Central Parade. We therefore have one value of £363,636. However, we do not consider that a reduction of just over £4,000, in respect of heating is a sufficient reduction to reflect the condition of an improved Property as against the comparable at 16 Central Parade. We have seen the photographs of the interior of 16.[16]The subject property will require a new kitchen, bathroom and the inclusion for central heating and floor covering to bring it up to a similar standard to 16. We consider that an allowance of £20,000 needs to be made to reflect this. This gives a revised value of £344,394.[17]Mr Row relied upon the comparable at 24. We accept that the transaction represents a sale. We are aware that the lease for this property contains a potentially onerous rent review clause, albeit not effective until June 2031. We find that this would have an impact on an offer to purchase. Doing the best we can we find that a small reduction is appropriate to reduce the long lease value to £327,000.[18]We have therefore taken the mean of the two values of £327,000 and £344,394 to achieve the long lease value of £335,697. The uplift for the freehold value gives a figure of £339,088 which we have included in the attached valuation. Existing lease value[19]In this case we have a sale of the existing lease in September 2017. It is said that the flat was, in effect ‘a slum’. We were told, although with no evidence to support, that the Applicant had spent around £50,000 on improvements, including a new kitchen, bathroom, central heating, flooring, electrical and, it seems maybe some furniture.[20]The photographs of the flat in its existing condition do not support the contention that it was a ‘slum’. It shows a somewhat dated property, perhaps in need of some remedial work to comply with the tenants repairing obligations. Mr Sharp had applied an uplift of 6.5% to reflect the condition giving a value of £284,851. He reduced this to £280,460 to reflect the lack of central heating and to that figure a further reduction of 10% to adjust for the ‘no Act world’. This gave an existing lease value, with those elements, of £252,414. His report set out the basis upon which he applied a 10% reduction for no Act rights. He calculated that this gave a relativity of 69.41%.[21]He did not stop at that point but went on to assess whether this relativity, obtained by reference to market evidence, should to reviewed in relation to the graphs relied upon by valuers. To do this he included his relativity of 69.41% but took into account the relativities in the Savills graph, said to be 77.9%, the Gerald Eve graph 77.92 and the 2017 Beckett & Kay graph, showing a relativity of 71%. He considered the Beckett & Kay graph to be the most reliable but ‘tempered’ that by including theSavills/Gerald Eve data and his own assessment. This gave a relativity of 72.77% which he adopted to give a value of £264,618 for the existing lease.[22]Mr Row also relied on the open market sale of the property in September 2017 at £270,000. He added £30,000 to reflect the lack of repair, excluding any profit and made an adjustment of 5% for the ‘No Act World’ giving an existing lease value of £285,000 The tribunal’s determination[23]The tribunal determines that the existing lease value is £259,000. The reasons for the Tribunal’s determination[24]We do not consider that an uplift of £30,000 as advanced by Mr Row, is realistic. The evidence before us does not suggest the flat was in such a poor condition. The estate agents particulars at point of sale do not so suggest. We accept that it is reasonable to make some adjustment but consider that £10,000 is more than sufficient to bring the flat up to a standard as would have existed if the tenant had complied with the terms of the lease. There is, after all, a functional kitchen and bathroom, albeit dated and double glazing. This therefore, gives an existing lease value of £280,000. It does not require any time adjustment as the date of sale is within days of the valuation date.[25]We need to adjust this value for the ‘No Act World’. Mr Row had suggested 5%, but with no evidence support other than a suggestion that this is what he agreed in other cases. Mr Sharp had gone into more detail and cited some case law, one of which included the case before the Upper Tribunal of Mallory and others v Orchidbase Limited. We have noted the comments at paragraph 44. We propose to exercise the judgement of Solomon and conclude that an allowance of 7.5% for an unexpired term of just under 60 years seems reasonable.[26]Applying this percentage to the existing lease value of £280,000 gives a value of £259,000, which we have applied.[27]We see no need to become bogged down in the relativity argument. We have a market rent sale of the subject property within days of the valuation date. The relativity argued for by the parties relied on graphs from 2009, which would seem to be behind the time (Mr Row) and in part on Prime Central London graphs (Mr Sharp). In the latter case the inclusion of these graphs seems to be somewhat self serving as they merely increase the relativity percentage above that which Mr Sharp assessed using the market evidence available in this case. Mr Row did not seek to rely on the relativity he had assessed, using it merely to support his existing lease value. The premium[28]The tribunal determines the appropriate premium to be £48,361. A copy of its valuation calculation is annexed to this decision. Andrew Dutton Name: Tribunal Judge Dutton Date: 22nd August 2018 Appendix: Valuation setting out the tribunal’s calculations