ANN PHILOMENA FORSHAW LRA/44/2001

UPPER TRIBUNAL
LANDS CHAMBER
LRA/44/2001Case No LRA/44/2001
Between
ANN PHILOMENA FORSHAWApplicant
Before
P R Francis FRICSVenue 48/49 Chancery Lane, London, WC2A 1JRDate 5 July 2002Hearing 5 July 2002Property: 163 St Albans Avenue, Chiswick, London, W4 5JTCatchwords: LEASEHOLD ENFRANCHISEMENT – Price payable for freehold of house converted to two self-contained flats – value subject to existing leases – reversionary value – marriage value – Leasehold Reform, Housing and Urban Development Act 1993 – appeal allowed – price determined at £11,290
[1]This is an appeal by the nominee purchaser, Ann Philomena Forshaw (“the appellant”), from a decision of the Leasehold Valuation Tribunal for the London Rent Assessment Committee (“the LVT”), determining the price payable for the freehold interest in 163 St Albans Avenue, Chiswick, London, W4 5JT (“the subject property”) at £25,700. There was no respondent to the appeal, the freeholder, Winnie Ismail, being of whereabouts unknown.[2]Mr. Edward Peters of counsel, for the appellant, called Mr. Roger Doncom BSc MRICS MEWI who gave valuation evidence and contended for a figure of £11,290. From his evidence, and my inspection of the subject property on the day of the hearing, I find that it comprises a mid-terraced Edwardian two-storey dwelling house converted to two self- contained flats. It is located at the northern end of a mature residential street consisting predominantly of similar properties, the majority of which have also been converted to flats. However, this end of St Albans Avenue also contains a number of low-rise blocks of local- authority flats and there are nearby office buildings. Turnham Green and Chiswick Park underground stations are within about ½ mile, as are local shops and other facilities.[3]The ground-floor flat is occupied under the terms of a lease for 99 years from 24 June 1975 at a ground rent of £50 pa, and comprises hall, living room, main bedroom, second bedroom/study, kitchen and bathroom. There is a rear lobby with external door to a small, private rear garden being half of the original rear garden of the building. Gas fired central heating is installed. The first floor flat is occupied by the appellant under the terms of a 99 year lease from 25 December 1976 at a ground rent of £50 pa. The centrally heated accommodation is similar to the ground-floor flat, but there is a third bedroom/box room and a steep internal staircase to the rear giving access to its own private rear garden.[4]The freehold owner being untraceable, the appellant made application to the Brentford County Court under sections 26 and 27 of the Leasehold Reform, Housing and Urban Development Act (“the 1993 Act”) and accordingly an order was made on 11 August 2000 providing for the Court to transfer the freehold interest to the appellant for such premium as might be determined by the LVT. Application was made to the LVT on 18 September 2000 which, following a hearing on 22 May 2001 at which the applicant was represented by another valuer, Mr. A J Willetts FRICS who contended for a figure of £10,460, determined on 24 September 2000 that the price payable under Schedule 6 of the 1993 Act should be £25,700.[5]Notice of appeal to this Tribunal was made on 30 October 2001. It was contended that the LVT erred in calculating the value each of the two flats at the valuation date (agreed to be 11 August 2000) at £255,000 assuming them to be long-leasehold/virtual freehold. In arriving at that figure it had failed to disregard tenants improvements. It had also erred in placing reliance upon relativity graphs jointly produced by John D Wood and Gerald Eve to arrive at a figure of £230,000 for them, subject to the existing leases that had 74 and 75 years remaining respectively. This also resulted in an incorrect calculation of marriage value. The conclusion that the LVT came to that there had been no movement in property values between August 2000 and May 2001 (the date of the former valuer’s report) was also wrong. 3[6]It was agreed that the appropriate yield, as applied by the LVT was 10 per cent, and that the freeholder’s share of the marriage value should be 50 per cent. The only issues for my determination, therefore, relate to the value of each flat subject to the existing leases and the value assuming long leases/virtual freehold. The LVT’s valuation is set out at Appendix 1 to this decision.[7]Mr. Doncom is a chartered surveyor and a member of the Expert Witness Institute. He has been head of the Professional and Valuation Department of Marsh and Parsons, a seven office firm of estate agents and property managers with branches in west and south- west London, since 1984 and is regularly involved with 1993 Act valuations and negotiations. He said that his assessment of the price to be paid for the freehold [see Appendix 2] was £11,290 and, in his professional view, there were a number of elements of the LVT’s valuation that were incorrect.[8]Firstly, in calculating the open market value of the flats, Mr. Doncom said the LVT had ignored the improvements that had been carried out by the tenants, and had simply valued them ‘as seen’ as at the date of the hearing, which was some 8 months after the agreed valuation date. Statutory Declarations had been produced by each of the tenants setting out the extent of the improvements they had effected. As to the first floor flat the appellant had stripped out and refitted the kitchen with modern units and a built in oven and hob, the area having been un-modernised and old fashioned when she took occupation. She had also replaced the gas fired central heating boiler, extended the heating to two rooms that had previously been devoid of radiators and carried out general redecorations. The rear garden had been professionally landscaped. The ground floor flat had also had a complete new range of kitchen units and laminate flooring installed, and the central heating boiler had been upgraded. The most significant improvement, however, was to provide a direct access from the kitchen, via a new lobby, to the rear garden. Previously, the only means of access to the garden had been through the bathroom, which was obviously, Mr. Doncom said, an unsatisfactory arrangement. The new arrangement had also increased the amount of natural light into the kitchen. As part of these works, the bathroom fittings were also renewed. The lessee had also completely re-modelled and landscaped the garden.[9]Mr. Doncom said that, in his view, the fact that the first floor flat had the benefit of an extra room that could be used either as a small third bedroom or a study, made it marginally more valuable than the ground floor unit. On the assumption that the flats were marketed at the valuation date with long leases of in excess of 99 years, he calculated the ground floor unit at £200,000 and the first floor unit at £205,000 ignoring, as required under the 1993 Act, the value of the tenants’ improvements.[10]It was Mr. Doncom’s contention that a lease with 74-75 years unexpired would command ‘no less than’ 95 per cent of the virtual freehold value. The LVT, he said, had arbitrarily relied upon relativity graphs prepared jointly by John D Wood and Gerald Eve for the Grosvenor Estate in determining that the uplift to be applied between a 74-75 year lease and the virtual freehold was 10 per cent. These graphs, and others, tended to be self-serving and indeed, he was able to produce a letter from a partner of John D Wood, disassociating that firm from the document, saying that they were no longer able to support the relativity percentages given. Furthermore, those graphs predominantly related to central London 4 properties in Mayfair and Belgravia where the market was very different. Mr. Doncom produced another table, produced by W A Ellis, which showed a relativity of 88 per cent (a 12 per cent uplift) but he said that in negotiations he had had with that firm, differences of up to 6 per cent had been agreed. Little weight should therefore be given to these documents. An independently produced table of relativity indices from the College of Estate Management in Reading was helpful in that it confirmed the contention that the central London market was different from elsewhere, and also supported his own view of what the relativity should be. For 74 and 75 years unexpired it showed the relativity percentages as: Years unexpired All LVT cases Inner London cases 75 94.80% 92.84% 74 94.59% 92.59%[11]Another factor that demonstrated why central London differentials were likely to be greater was the fact that in those cases the figures reflected the ability to remove the threat of punitive ground rents which could, in those areas, be up to 0.5% of the property’s value.[12]In his own experience, Mr. Doncom said that the uplift applicable to flats of this type and in this location was 5 to 6 per cent. Therefore, in calculating the value of the existing leasehold interest he had taken the ground floor flat, with 74 years unexpired, at 94.5% of its full value of £200,000 (£189,000) and the first floor flat with 75 years unexpired at 95% of £205,000 (£194,750).[13]These figures were supported by a number of comparables including very similar flats in St Albans Avenue. No 123 was a ground floor flat with one bedroom, the second having been converted to a bathroom, allowing the kitchen to be extended to make a good sized breakfast/dining area. This had been sold in April 2001 for £197,000 with 86 years remaining.[14]161 St Albans Avenue was a first floor flat in the end-of-terrace house right next door to the subject property. It was virtually identical, although in better condition than the pre- improvement state of either of the flats at the subject property. It was sold in September 2000 for 210,000 with 77.5 years remaining on the lease. Assuming that price to represent 96.5% of the virtual freehold, allowing a £700 reduction for the difference in dates and £10,000 for better kitchen and bathroom gave an equated virtual value, Mr. Doncom said, of £206,000.[15]68a St Albans Avenue was a first floor flat in need of some upgrading and modernisation, sold in April 2001, with the benefit of a right to convert the loft into additional accommodation. The price was £207,000 for the leasehold interest ‘with a share of the freehold’, so assumed to be in excess of 99 years unexpired.[16]The ground floor flat at 24 St Albans Avenue, which was at the better, southern, end of the street, away from the local authority flats, was sold with a share of the freehold for 5 £215,000 in January 2000. This was larger than the flats at the subject property, but only had one bedroom and was in need of modernisation.[17]A ground floor flat in a similar Edwardian house at 7 Aylmer Road, (a comparable location about ½ mile away) was sold in April 2000 with the benefit of an extended lease (to 95 years from 68) at £209,000. It was modernised and in good condition. The lease extension was negotiated during the course of the sale to a non-qualifying tenant at an agreed sum of £11,000.[18]These, and other comparables relating to negotiations that had taken place outside the 1993 Act (with non-qualifying tenants), demonstrated, Mr. Doncom said, just how much the LVT had overstated the value of the virtual freehold. The 10% uplift they had applied was, for the reasons he had given, overstated, and this had a severe effect on the calculation of the marriage value.[19]In further support his contention that the uplift was only between 4 and 5%, Mr. Doncom relied upon evidence of lease extensions that had been negotiated, including 32a Westcroft Square where a lease was extended from 72 to 99 years for £5,000 plus the freeholder’s legal costs at the same time as a sale of the maisonette was negotiated at £330,000 for 99 years. He assumed that the extension premium represented 85% of the uplift which suggested the shorter lease represented 98% of the value of the longer lease. He explained that, in negotiations outside the 1993 Act, the figure of 85% was a reflection of ‘the crude manner in which the marketplace works’ – the lessee is in a weaker bargaining position than he would be if negotiating within the auspices of the Act, so will pay a higher proportion. Even if the enhancement were taken at 50% (per the Act), then the premium would show the shorter lease to have a value of 96.9% of the longer.[20]An extension of a lease from 64.25 years at a ground rent of £20 pa to 160 years at a ground rent of £100 pa was recently negotiated by Sworn & Co on a flat at 18 Oxbridge Court, London, W4. Based upon a value of the extended lease at £160,000 - £180,000 the premium of £9,000, again assuming the lessee paid 85% of the uplift, and allowing for the increase in ground rent, showed the differential to be 7 – 8%. These figures were agreed by that agent.[21]Mr. Doncom said he acted for the lessees on a collective enfranchisement of 1 Challenor Crescent, London, W14 where it was agreed, on a yield of 10% and leases being extended from 78.5 to 999 years, the percentage uplift was 4%.[22]Owen Grainger Associates, local surveyors, confirmed that they had agreed a collective enfranchisement under the 1993 Act where 59.1 year leases were held to represent 94.1% of the virtual freehold, and a settlement at 8 Thornton Road where the purchase under the 1993 Act of a terrace house comprising two flats on 84 year which showed those leases to be valued at 97.4% of the virtual freehold. 6[23]With figures indicating uplifts of between 2 and 8% of the virtual freehold, Mr. Doncom said his assessment of 95% was well founded and the LVT’s figure of 10% could not be supported.[24]Finally, regarding the claim that the LVT had erred in finding that the market value of the subject property was not lower at the valuation date than at the date of the appellant’s previous expert witness report (May 2001), Mr. Doncom produced a copy of the Savills Index showing quarterly indices for flats: Prime Central London – West. The index at September 2000 was 403 and at June 2001 was 473.7 – an increase of approximately 17%. DECISION[25]Dealing first with this final point, I do not think anything really turns on it in respect of this decision. Mr. Doncom has produced an entirely new expert witness report and his valuations are as at 11 August 2000. In addition to the comparables that had been produced by Mr. Willetts before the LVT (two of which are now sold, but were only under offer at the time of his report), Mr. Doncom has produced new evidence from his own experience, and it is this evidence that I am bound to take into account. Bearing in mind his comments regarding the difference between Central London flats and those in the vicinity of the subject property, I would not, in any event, find the Savills Prime Central London Index helpful.[26]Turning now to the valuations, I have the benefit of the lessees’ Statutory Declarations relating to the improvements they have carried out, this information not being before the LVT. In my view, the refitting of the kitchens to both flats, including the provision of new floor coverings, would have an effect on value. The central heating had been extended in the first floor flat and that, again, would have a marginal effect on value. Replacement or upgrading of the central heating boiler together with general redecorations would only have a marginal impact.[27]The improvements to the ground floor flat included the provision of a separate entrance lobby between the kitchen and the rear garden, this serving to reduce the size of the bathroom, but I agree with Mr. Doncom that the previous arrangement would have had a marked detrimental effect on the value. The improvements to the gardens of both flats that have been professionally and tastefully undertaken would also, in my opinion, add to the value.[28]I note that Mr. Doncom did not specifically quantify the value of the tenants improvements in his report but, in answer to a question from me, he said he thought the overall increase in value to the ground floor flat, to include the improvements to the rear access, would be about £20,000. Improvements to the Kitchens alone would improve values by about £10,000. This was supported by the details of the sale of 161 St Albans Avenue at £210,000 in September 2000, only one month after the valuation date, which, after making the necessary adjustments gave an equated virtual freehold value of £206,000 against his assessment of £205,000 for the first floor flat at the subject property. 7[29]Taking this and the other comparables into account, I am satisfied that Mr. Doncom’s assessment of the virtual freehold value of the first floor flat at 163 St Albans Avenue is more in line with the market than the figure applied by the LVT, and I accept it. I also accept his view that the ground floor unit would have been £5,000 less. Although the first floor flat had an extra room, its steep internal access to the rear garden was a disadvantage. Nevertheless, I think that extra room (over the entrance hall of the ground floor flat) would command a premium. If 7 Aylmer Road sold in April 2000 in a fully modernised state, allowing for any price inflation that there may have been over the 4 month period, it seems to me that a figure of £200,000 for the ground floor flat at the subject property appears correct.[30]The subject of what is an appropriate uplift to reflect the difference between ‘short’ leases and those assumed to have been extended to a minimum of 99 years (virtual freehold) has been well rehearsed in this Tribunal over a number of years. Mr. Doncom produced evidence to support his view that an appropriate uplift for leases with 74 – 75 years unexpired was 5 to 6%. However, much of that evidence was an interpretation of negotiated settlements, some of which had been outside the 1993 Act, and certain assumptions had been made. Nevertheless, the College of Estate Management Table that he produced reinforced that opinion.[31]In Maryland Estates Ltd v Campana Court Ltd (LT) (LRA/21/200, unreported), which related to the collective enfranchisement of a block of flats in Barnet, Herts where the leases had 69 years unexpired, I said, after analysing the evidence, at para 104:
“104. I agree with Mr. Gallagher that the best evidence is a limited number of good local market transactions, individually analysed by a valuer with intimate local knowledge. In the normal course of events, this must be right.”
I went on to say, at para 107:
“ 107. Doing the best that I can on the basis of the evidence and particularly the possible Delaforce effect in Mr. Nesbitt’s comparables, I consider the appropriate uplift to be 8 per cent.”
[32]However, in IBIS (404) Ltd v Lindeman and others (LT) (LRA/50/2001, unreported) where the question of an appropriate uplift for a lease with 72 years to run was in dispute, I determined that there was no uplift applicable in that case. This was because the opinion evidence of the expert acting for the respondent, a local practitioner with many years experience of the market in Braintree where the subject property was located, was that all properties with leases of that length were selling for ‘full price’. No evidence had been produced by the expert acting for the claimants in support of his contention for a 7 per cent uplift.[33]In my judgment, the evidence that Mr. Doncom produced both in respect of local sales and negotiated settlements supported his opinion and had been properly analysed. He had used his local knowledge and experience in making the assumptions that he did, and I am satisfied that the figures he has produced fairly reflect the situation in that local marketplace. 8 I note that the LVT gave no reason for concluding that an appropriate uplift was 10% and, in my view, such an uplift would be out of line with those applicable in the vicinity.[34]Whether or not it is appropriate to make a 0.5% adjustment for one years difference in lease length is questionable but on the basis of the findings in the College of Estate Management Table, such would not seem inappropriate.[35]It follows that I accept Mr. Doncom’s evidence in its entirety and, with the question of yield (at 10%) and the freeholder’s share of marriage value (50%) not being in dispute, his valuation shall replace that of the LVT, and shall form the basis of this Tribunal’s finding. I therefore allow the appeal and determine that the price payable by the nominee purchaser for the freehold interest in 163 St Albans Avenue, Chiswick, London W4 5JT is £11,290.[36]There being no respondent in this appeal, the question of costs does not arise. DATED: 11 July 2002 (Signed): P R Francis FRICS 9 APPENDIX 1 Determination by the Leasehold Valuation Tribunal of the Purchase Price payable by the Nominee Purchaser in accordance with Schedule 6 of the Leasehold Reform, Housing and Urban Development Act 1993 163 St Albans Avenue, Chiswick W4 5JT - Valuation Date: 11th August 2000 £ £ £ 1) Paragraph 2(1)(a) - The value of the freehold interest in the premises determined in accordance with Paragraph 3. 50 Ground Rent (Grnd. Flr. Flat): £50 Y.P. for 74 yrs @ 10% 9.991 500 Ground Rent (First Flr. Flat) : £50 Y.P. for 75.33 yrs @10% 50 9.992 500 1,000 Reversion to capital value Freehold interest excluding lessee’s improvements Ground Flr. Flat - capital value PV 74 years @ 10% 255,000 0.00086485 221 First Flr. Flat - capital value PV 75.33 years @ 10% 255,000 0.00076188 194 415 1,415 2) Paragraph 2(1)(b) - The freeholder’s share of the marriage value as determined in accordance with Paragraph 4 Value after marriage: 2 flats held on 999 year leases @ peppercorn Toal value as per capital value above: (2 flats @ £255,000) 510,000 Less: Value before marriage: Freehold, as above Value of leaseholds 90% of £510,000 (2 flats @ £230,000) 1,415 460,000 461,415 48,585 Landlord’s hare @ 50% 24,293 3) Paragraph 2(1)(c) - Compensation to Landlord under Para 5. nil £ 25,708 Enfranchisement Price say £ 25,700 10 APPENDIX 2 (1 of 2) VALUATION of 163 St Albans Avenue, Chiswick, London W4 5JT by R Doncom BSc MRICS for the appellant GROUND FLOOR Valuation Data Unexpired term 74 Ground Rent £50 Full Open Market Value £200,000 5 of short lease to 999 years 94.5% Freeholders share of Marriage Value 50% Current yield 10% Reversionary yield 10% £ £ £ Present interest Current term Ground rent 50 Years purchase 10 500 Reversion Full Open Market Value 200,000 P V of £1 in 74 years 0.00086485 173 673 Market Value Full OMV (virtual freehold) 200,000 Short to long lease 94.5% 189,000 Add current interest 673 189,673 Marriage Value 10,327 Freeholder’s share of marriage value @ 50% 5,164 5,837 Premium say £5,835 (2 of 2) 11 FIRST FLOOR Valuation Data Unexpired term 75 Ground Rent £50 Full Open Market Value £205,000 % of short lease to 999 years 95% Freeholder’s share of Marriage Value 50% Current yield 10% Reversionary yield 10% £ £ £ Present interest Current term Ground rent 50 Yield 10 500 Reversion Full Open Market Value 205,000 P V of£1 in 75 years 0.00078623 161 661 Market Value Full OMV (Virtual freehold) 205,000 Short to long lease 95% 194,750 Add current interest 661 195,411 Marriage Value 9,589 Freeholder’s share @ 50% 4,795 5,455 Premium £5,455 Summary Premium – Ground Floor Flat £5,835 Premium – First Floor Flat £5,455 TOTAL PREMIUM £11,290