IBIS (404) LIMITED v A J LINDEMAN, M A WOODCOCK J E FRASER and D LINSELL LRA/50/2001
[1]This is an appeal by the freehold landlord, IBIS (404) Limited (“the appellant”), heard under the Simplified Procedure (Rule 28, Lands Tribunal Rules 1996), against a decision of the Leasehold Valuation Tribunal for the Eastern Rent Assessment Panel (“the LVT”) issued on 16 November 2001, relating to a collective enfranchisement claim under s24 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”) concerning four self-contained flats at 13, 15, 17, and 19 York Gardens, Braintree, Essex (“the subject flats”). The LVT determined the amount payable for the freehold interest in four flats at the total sum of £10,200.[2]The appellant was represented by Mr Edward Emeny BSc (Est Man) FRICS, a chartered surveyor and consultant to Maunder-Taylor, Chartered Surveyors, of London N.20. The respondents were represented by Mr Christopher Woodhouse FRICS, chartered surveyor and partner in Joscelyne Chase, Chartered Surveyors of Braintree, Essex. Each gave valuation evidence. FACTS[3]The parties produced a statement of agreed facts and outstanding issues from which, together with the evidence presented at the hearing, I find the following facts:3.1 The appellant is the freehold owner of the subject property, which comprises a block of four self-contained flats (described as maisonettes due to each having its own separate access and there being no internal communal parts), located in an area of mixed residential properties, and constructed in about 1955. Braintree town centre is within about ¼ mile where there exist good local shopping and other facilities.3.2 Each flat (two on the ground floor, and two on the first) comprises hall, reception room, two bedrooms, kitchen and bathroom with wc, and have gross internal areas of about 65 sq.m. All the flats have a small private garden.3.3 The properties, built in the style of a pair of semi-detached houses, are constructed of brick with part rendered bays to the front elevations, under traditional timber framed, tile covered roofs. The first floor units are approached over external concrete staircases to the side.3.4 No 13 is held on the remainder of a lease which, under the terms of a Deed of Variation made in 1987, was for a term expiring in 2084 at an initial ground rent of £25 per annum, rising to £50 pa in 2010, £75 pa in 2035 and £100 in 2060. At the date of valuation (see below) there were approximately 83 years remaining unexpired.3.5 No15, subject also to a Deed of Variation made in 1997, had a term of 75 years from 1 December 1997 at an initial ground rent of £50 pa, rising after 33 years to £100 pa and thence to £150 pa after 66 years. At the valuation date, there were approximately 72 years unexpired. 23.6 No17 had a lease, which had not been varied, for 74 years from March 1963 at a fixed ground rent of £10 pa, approximately 37 years therefore remaining unexpired at the valuation date.3.7 No 19 had a lease which had been varied on similar terms to No 13, with about 83 years unexpired at the valuation date.3.8 Notice was served by the respondents in accordance with the provisions of section 13 of the 1993 Act, proposing a collective enfranchisement of the freehold at £1,500 together with an additional £200 for the necessary easements, on 6 October 2000. The counter-notice was served by the appellant on 6 November 2000 proposing a price of £20,000.3.9 The parties agreed, for the purposes of this determination, a valuation date of 6 October 2000. It was also agreed that there was no reversionary value in the leases of Nos 13 and 19. In the case of No 17, where it was not in dispute that due to the short term remaining on the lease there was a reversionary value, the marriage value was agreed prior to this hearing on a ‘negotiated basis’ at £19,868, to be divided 50/50 between the freeholder and the lessees (£9,934 each).3.10 Notice of Appeal to this Tribunal was submitted on 6 December 2001. ISSUES[4]In the original appeal to the LVT, the respondent lessees had sought a determination of £12,000 and the appellant landlord had argued for £15,700. The LVT’s determination was at £10,200 on the basis of a value in the ground rents of £1,944, and 50 per cent of the marriage value relating to No 17 at £8,278 – giving £10,222 rounded to £10,200. The LVT concluded that the appropriate yield on the ground rents was 9 per cent (as argued for by the landlord) and that there was no reversionary value in the remaining 72 years on the lease on No 15, or any uplift from leasehold to virtual freehold value, (as argued for by the lessees).[5]In this appeal, there are four issues for determination: a) The yield rate to be applied in the calculation of the value of the ground rents. b) Value of the reversion in respect of No 15 (if any) (72 years unexpired) and No 17 (37 years unexpired). c) Marriage values. d) Value of long leasehold/virtual freehold Nos 15 (if appropriate) and 17. APPELLANT’S CASE[6]Mr Emeny is a consultant to the firm of Maunder-Taylor, based in London N.20. The senior partner, Mr Bruce Maunder-Taylor FRICS MAE, appeared before the LVT on behalf of the freehold landlords and had produced a Statement of Case and expert report for this 3 Tribunal, to which Mr Emeny added a supplementary report following further negotiation in respect of individual issues between the parties, together with his valuation (see Appendix 1 to this decision). Mr. Emeny is also in practice on his own account in London W.1 and, up until 1995, had for 14 years been a member of the London Rent Assessment Panel.[7]It was the appellant’s case that the LVT appeared to have decided, before hearing the evidence, that there was no marriage value in a 72 year reversion (No 15), that assumption being inconsistent with other tribunal decisions. In the LVT’s decision, it was stated that “the members inspected No 17, as this is the only unit offering the prospect of a substantial marriage value, the unexpired term of the lease being less than 36 years”. The inspection had taken place before the evidence was heard.[8]Furthermore, the LVT was itself inconsistent in accepting Mr. Woodhouse’s opinion that there was no marriage value in a 72 year reversion, on the strength of his local knowledge, whilst rejecting his methodology for calculating marriage value in the case of No[17]In its valuation, the LVT had failed to calculate reversionary values and it was submitted that they should have been included in the valuation determination of both Nos 15 and 17. The marriage value for No 17 was in any event wrongly calculated, in that the value the LVT had adopted after enfranchisement was too low, as at the valuation date. Too much discount had been applied to reflect the need for modernisation and re-glazing.[9]The LVT had also stated that the landlord’s counter notice had proposed a price of £12,000, whereas it had proposed £20,000. If that error had in any way influenced the LVT’s decision, then it could not be relied upon.[10]Mr. Emeny said the yield rate of 9 per cent adopted by the LVT in the calculation of the value of the ground rents was correct. He had studied a schedule of both LVT and Lands Tribunal decisions (although this was not produced at the hearing) and had concluded that, taking into account the factors normally considered by tribunals such as the number of years unexpired on the lease(s), location, whether or not there were rising ground rents, whether the flats were purpose built or conversions and other relevant factors, 9 per cent was the right figure. Mr. Woodhouse’s figure of 10 per cent was based upon a single ‘bulk’ sale of ground rents relating to a block of 31 flats and a shop with 115 years unexpired, and this was not comparable with the subject property.[11]The same rate should be used for deferring the reversions, this being borne out in the recent Lands Tribunal decision in Maryland Estates Ltd v Campana Court Ltd [2001] (LT) LRA/21/2000 (Unreported) and the LVT determination regarding 11 and 11a St Marks Close, Barnet (LDN/ENF/443/00).[12]Mr. Emeny said he could not agree with both the LVT and Mr. Woodhouse that there was a nil reversionary value on No 15, and again referred to Campana Court where it had been held that an 8 per cent uplift was appropriate on a property where there were 69 years unexpired, and in Maryland Estates Ltd v Abbathure Flat Management Company Ltd (1998) (LT) LRA/5/1997 (Unreported) an uplift of 5 per cent was applied where 79 years remained 4 unexpired. An uplift of 7 per cent would therefore be appropriate in this case. Based upon an estimated value of the virtual freehold of £57,000 at the valuation date, this gave a value of £53,250 for the remaining 72 year interest.[13]In carrying out further research for this hearing, Mr. Emeny said he had received details of 21 York Gardens, Braintree (in the adjacent block to the subject flats) which had sold for £69,000 in November 2001. This was additional to the comparables that Mr. Maunder- Taylor had considered and, in Mr. Emeny’s view, provided incontovertible support for his figures. It had 74 years unexpired on the lease, and Mr. Emeny’s calculation was: Long Lease Value at November 2001 £69,000 Deduct for modernisation, say £ 6,000 £63,000 Multiply by 100/110 to back-date to Oct 2000 = £57,250 @ 93% for shorter lease = £53,240 Say £53,250[14]He said the market for flats in the area had increased by about 10 per cent between October 2000 and the sale date of No 21 and the £6,000 he had deducted was to allow for the fact that it was in better condition than the subject flat. The £57,250 long-leasehold (virtual freehold) value also supported his submission that £57,000 was the appropriate figure for flats 15 and 17, rather than the £42,000 that was contended for by Mr. Woodhouse, or the LVT’s determination of £47,000.[15]In cross-examination, Mr. Woodhouse said that whilst he accepted the figure of £6,000 to reflect the difference in condition between No 15 and No 21, the 10 per cent to allow for the rise in values was insufficient, and wondered if Mr. Emeny, not being local to the area, had any evidence to substantiate that opinion. He said he did not, but had drawn that conclusion from speaking to local agents – this being unequivocally supported by his latest comparable.[16]As to what evidence he had to support his conclusion that a 9 per cent yield rate was appropriate for the ground rent income, Mr. Emeny said he had referred to his firm’s comprehensive schedule of transactions (which did not include auction results because he thought they were inappropriate). That schedule, he said, was a reasonable guide to settlements, and covered properties in Hemel Hempstead, Epping, Little Chalfont (Bucks), London SW3 and Brighton.[17]Finally, he accepted that he had no local evidence to support a 7 per cent uplift from leasehold to virtual freehold values, but in his view the cases he referred to were an appropriate guide. 5 RESPONDENTS’ CASE[18]Mr. Woodhouse is a chartered surveyor and, as a partner in Joscelyne Chase of Braintree, has been practising in the town for over 25 years. He had inspected all the subject flats externally and No 17, which was the only one which in his opinion had any reversionary value, internally also. That property, he said, although having gas-fired central heating, required extensive internal modernisation. It also had the original Crittal metal framed single glazed windows that were badly corroded, and required replacement.[19]Having dealt with a number of leasehold properties with unexpired terms ranging from 30 to 125 years, he said that in no case had he found an unexpired term of around 70 years to have any degree of diminution in value for that reason. Whilst the number of flats coming on the market in the Braintree area with leases of that sort of length was limited, he cited 8 examples which, he said, had all sold at full price. All had either been sold by his firm, or had been inspected by him in connection with a mortgage application or survey. They were: Date sold Address Unexpired Term (years) Price Feb 2002 45 Nelson Gardens, Braintree 70 £68,000 Feb 2002 138 Lupin Drive, Chelmsford 69 £71,000 Oct 2001 43 Falkland Court, Braintree 73 £55,000 Dec 2001 14 Larkspur Court, Chelmsford 74 £70,000 Jan 2000 41 Falkland Court, Braintree 75 £43,000 Aug 1999 45 Courtlands, Chelmsford 62 £67,995 Mar 1999 113 Crocus Way, Chelmsford 75 £42,750 Jul 1998 131 Crocus Way, Chelmsford 76 £44,500[20]Mr. Woodhouse said that mortgagees normally require a lease to have 30 years unexpired at the end of the proposed mortgage term, and Abbey National’s policy was that leases had to have a minimum of 55 years unexpired for them to consider granting a mortgage. In his view, anything over 65 years unexpired would not suffer from any diminution in value. It was, he said, accepted that there was a reversionary value in respect of flat 15 as that had only about 37 years unexpired.[21]In valuing the ground rents at a yield of 10 per cent, Mr. Woodhouse said whilst ground rents change hands relatively infrequently in Braintree, he was aware of a sale by auction of a portfolio of ground rents on 31 flats and a shop, where there was no development potential, at a straight 10 per cent return. The leases had some 115 years unexpired. 6[22]Mr. Woodhouse’s opinion that the virtual freehold of flat 17 at the valuation date was £42,500 was based upon a number of comparables in the vicinity, although he accepted that there were no sales, to his knowledge, in York Gardens at around that time. He referred to the following 2 bedroom flats: Date Address Sale price Term Comments Jan 2000 41 Falkland Court, Braintree £43,000 75 Better condition, worse location Oct 1999 24 Kenworthy Ct, Braintree £48,500 80 Considerably superior Mar 2000 7a Medley Road, Rayne £42,500 N/K Village location Apr 2000 91 Deanery Hill, Bocking £45,500 N/K Ex-Council Jan 1999 12 Jaymar Ct, Braintree £43,000 82 Superior[23]Falkland Court flats which were unexciting but of good size, were selling now at £63,000, this indicating an increase in values over 2 years of some 46 per cent. Although, from his experience, much of that rise had been over the past 12 months, Mr. Emeny’s suggestion of a 10 percent change in values was unrealistically understated.[24]Mr. Woodhouse had considered that only a cash investor would purchase a flat with 37 years unexpired, and it would have then been let on an Assured Shorthold Tenancy at about £300 per month. The marriage value (set out in his valuation at Appendix 2 to this decision) became £10,690, but this figure had subsequently been agreed by negotiation at £9,934. In summary, he said that his valuation amounting to £11,574 had been rounded up to £12,000 for convenience.[25]In cross-examination, Mr. Woodhouse said that his conclusion that the comparables he had used reflected sales at full (virtual freehold) value was a personal opinion arrived at from his local market knowledge. He accepted that he had not produced evidence of the original asking prices, and could not therefore confirm whether any discounts had been negotiated.[26]As to the figure of £9,934 agreed as to the marriage value of No 17, Mr. Woodhouse said that this was purely a negotiated split between Mr. Maunder-Taylor’s calculation and his own. He accepted that his methodology for calculating the value of the reversion was not in accordance with the standard practice adopted by valuers. This resulted in a reversionary value of £39 on No 17 against Mr. Emeny’s figure of £2,456. DECISION[27]In determining the issues in this appeal, it is for me to decide whether or not the LVT was correct in arriving at the conclusions it did in respect of the four disputed components of 7 the valuation, on the evidence that was before it. In doing so I consider whether any new evidence that was produced to this Tribunal should affect that decision.[28]It is interesting to note that whilst the appellant contends the value of the freeholder’s interest was, at £16,000, marginally above the figure argued before the LVT, the respondent lessees’ expert remains of the view that the value was £12,000 rather than the reduced figure of £10,200 determined by the LVT.[29]Firstly, yield rate. The LVT accepted the freeholder’s contention that the appropriate return was 9 per cent. In this appeal, Mr. Woodhouse continued to argue for a 10 per cent return, justified by evidence from a single bulk auction sale of ground rents with 115 years unexpired. Whilst I accept Mr. Emeny’s submission that that was not an appropriate comparable, I note that he purported to rely upon a raft of evidence from his office files, but failed to produce any documentation in support.[30]Nevertheless, I conclude that no new evidence has been produced which could persuade me that the LVT, which also applied its own local knowledge and experience, was wrong in determining a return of 9 per cent.[31]The second issue relates to the valuation of the reversion on flat 17 (and flat 15 if appropriate) and the deferral rate that should be used in calculating it. Both valuers used the same yield rate per cent to defer the reversionary value as they had used to capitalise the ground rents. I agree with that approach. Mr. Emeny applied 9 per cent to the estimated long leasehold/virtual freehold value. Mr. Woodhouse, on the other hand, had adopted 10 per cent and based the reversionary value of flat 17 on “a full ground rent of £150 pa deferred 38 years”. This was, Mr. Emeny said, not an appropriate method and not in accordance with the traditional way of valuing reversions. I accept his evidence on this point and accordingly adopt 9 per cent.[32]As to flat 15, with 72 years unexpired, Mr. Woodhouse said that as there was no reversionary value in flat 15, the question of the multiplier did not arise. Mr. Emeny considered, on his basis of valuation, that there was a small reversionary value in the sum of £115. I do not dispute this principle and agree that the LVT was wrong not to include reversionary values on flats 15 and 17. In the case of flat 15 however, I consider that the reversionary value of £115 is de minimis in terms of marriage value and should be disregarded for that particular purpose. This will be reflected in my valuation (see Appendix 3 to this decision).[33]This brings me to marriage values. The marriage value in respect of flat 17 was agreed shortly before the hearing in the sum of £9,934, but the basis, which was a case of ‘splitting the difference’ between the two experts’ opinions was not, therefore, one that could be adopted if I were to conclude that there is also marriage value in respect of flat 15. In that regard, Mr Emeny referred to my decision in Campana Court where an uplift of 8 per cent was determined where the lease had 69 years to run, and Perry Green where a 5 per cent uplift was applied to a lease that had 79 years unexpired. That was sufficient reasoning, he 8 said, for his figure of 7 per cent although I note that he admitted he had no local evidence to support that figure. In his view, the LVT had pre-determined that no uplift should apply when carrying out its inspection prior to the hearing, and had not considered the evidence.[34]Mr. Woodhouse said that, in his experience, there was no local evidence, in achieved sale prices, of any discount being applicable from virtual freehold value, all the comparables that he had provided indicating that properties had sold at ‘full value’. However, despite Mr. Woodhouse having produced a number of comparables in his evidence, Mr. Emeny did make the point that it was not possible to tell from those whether or not full value had actually been achieved. There were certainly no ‘like for like’ comparisons in terms of type of property, location, and date sold, between those with, say, in excess of 80 years remaining, and those with 70 to 75 years.[35]The point was made by Mr. Woodhouse that mortgagees normally require a minimum of 55 years unexpired and that, in his view, anything with over 65 years remaining would be unaffected. The LVT said it was satisfied that Mr. Woodhouse has good knowledge of the local market and accepted his evidence of opinion on this point. I agree. Whilst there are, and have been, circumstances where an uplift has been found to exist for leases with between 69 and 79 years unexpired, each case will be treated on its own merits, and local market evidence will carry the most weight in any decision making process.[36]Mr. Emeny produced no local evidence to support his contention for a 7 per cent uplift, but relied solely upon two Lands Tribunal decisions. Even if those decisions were admissible as evidence, they relate, in my view, to properties in a vastly different area. On balance, therefore, I prefer Mr Woodhouse's evidence (albeit opinion evidence) on the grounds that he is a local practitioner who had been involved either with the sale or valuation of all the comparables that he had produced. I determine that no uplift should apply in respect of the unexpired 72 year leasehold interest in flat 15.[37]This leaves the question of the long leasehold/virtual freehold value of flats 15 and 17, for the purposes of determining the value of the reversions. Mr. Emeny concluded that, at the valuation date, a figure of £57,000 was appropriate, this being further supported by the recently found evidence of the November 2001 sale of 21 York Gardens, a virtually identical flat, at £69,000. The figure of £6,000 he had allowed for the fact that the subject flat needed modernisation had been agreed between the parties but there was a dispute as to his contention that the rise in market values in the 13 month period between the valuation date and November 2001 was 10 per cent. Mr. Woodhouse said that he had evidence that showed there had been a 46 per cent increase in flat values in the past 2 years, and although it was accepted that the greatest rise had been in the last twelve months, Mr. Emeny’s 10 per cent was an under-estimate.[38]Mr. Woodhouse said that his comparables indicated a value of £42,500 at the relevant date. There appeared to me to be a considerable disparity in the comparables produced and the fact that nothing had sold in York Gardens at the appropriate time did not assist me in forming an opinion. Mr. Emeny’s evidence of the sale of 21 York Gardens was helpful, but again that sale was over 1 year later and there was a question over the amount by which the 9 market had risen. I do think it likely that in a steadily rising market, if there was an overall increase in values over a 2 year period of approaching 50 per cent, the rise over the period October 2000 to November 2001 was likely to be more than 10 per cent. However, that rise would be insufficient to bring the October 2000 value down to Mr. Woodhouse’s figure.[39]Nevertheless, it would support a figure much closer to that determined by the LVT, and on balance therefore, due to the lack of compelling evidence to the contrary, I see no reason to upset the LVT’s figure of £47,000.[40]I therefore conclude that the LVT was wrong not include reversionary values in respect of flats 15 and 17 in its valuation but not otherwise. The appeal succeeds to that extent. A revised valuation is attached at Appendix 3, from which I determine that the price the respondent lessees shall pay the appellant landlord for the freehold interest in the subject flats is £14,000[41]This determines the substantive issues in this appeal. The case having been heard under the simplified procedure, and there being, in my judgement, no exceptional circumstances that would merit an award of costs, I make no such award. DATED 30 May 2002 (Signed) P R Francis FRICS 10 APPENDIX 1 Valuation of the freehold interest in 13,15,17 and 19 York Gardens, Braintree by Edward Emeny BSc (Est Man) FRICS for the appellant Paragraph 2(1)(a): The diminution of the freeholder’s value Ground rents as calculated by the LVT £ 1,944 Reversion to (Flat 17) £57,000 Present value of £1 deferred 36.5 years @ 9% 0.04308595 £2,455.90 £ 2,456 Reversion to (Flat 15) £57,000 Present value of £1 deferred 72 years @ 9% 0.0020197 £115.12 £ 115 Paragraph 2(b): The freeholder’s share at 50% of the marriage value Flat 17 50% of marriage value agreed at £ 9,934 Flat 15 Long lease value £57,000 Less Existing lease value (£53,250) Reversioner’s current value: £598 + £115 (£ 713) Marriage value £ 3,037 50% Marriage value to freeholder £ 1,519 TOTAL £15,968 Say £16,000 11 APPENDIX 2 Valuation of the freehold interest in 13,15,17 and 19 York Gardens, Braintree by Christopher Woodhouse FRICS for the respondents Value of ground rents 13 York Gardens Ground rent £25 YP 11 years @ 10% = 6.49 £162 Increase to £50 YP 25 years def’d 11 years @ 10% = 3.15 £157 Increase to £75 YP 25 years def’d 36 years @ 10% = 0.27 £ 20 No reversionary value £ 339 15 York Gardens Ground rent £50 YP 31 years @ 10% = 9.47 £473 Rising to £100 pa YP 33 years def’d 31 years @ 10% = 0.47 £ 47 No reversionary value £ 520 17 York Gardens Ground rent £10 YP 38 years @ 10% = 9.73 £ 97 Revert full ground rent YP in perp. def’d 38 years @ 10% £ 39 £ 136 19 York Gardens Ground rent £50 YP 13 years @ 10% = 7.1 £355 Rising to £100 YP 25 years def’d 13 years @ 10% = 2.5 £250 Rising to £150 YP 25 years def’d 36 years @ 10% = 0.266 £ 40 No reversionary value £ 645 TOTAL VALUE OF GROUND RENTS £1,640 Marriage Value – 17 York Gardens Value of virtual freehold £42,500 Value of 37 year lease: Rental Value (pa) £3,600 Less outgoings 10 % £ 360 £3,240 YP 37 years @ 15% 6.62 £21,448 Total marriage value £21,052 50% to freeholder £10,526 Less value of ground rent 136 £10,390 But, subsequently agreed at £9,934 Summary Value of ground rents £ 1,640 Marriage Value £ 9,934 £11,574 say £12,000 12 APPENDIX 3 Lands Tribunal valuation of the freehold interest in 13,15,17 and 19 York Gardens, Braintree as at 20 October 2000 Value of ground rents As determined by LVT £ 1,944 Reversions Flat 15 £47,000 Present value of £1 deferred 72 years at 9% 0.0020197 £ 94.92 £ 95 Flat 17 £47,000 Present value of £1 deferred 36.5 years at 9% 0.04308595 £ 2,025.03 £ 2,025 Marriage Value Flat 17. 50% marriage value to freeholder agreed at £ 9,934 TOTAL £13,998 Say £14,000 13