DUNCAN PAUL COLLINS; SUSAN CHARLOTTE COLLINS v KATHLEEN ANN DOYLE; MICHAEL JOHN RAYMOND; MARTIN JOSEPH CONWAY; CRESSIDA JANE BLACK LRA/65/2002

UPPER TRIBUNAL

LANDS CHAMBER

LRA/65/2002

Case No LRA/65/2002

Between

DUNCAN PAUL COLLINS; SUSAN CHARLOTTE COLLINSApplicant

KATHLEEN ANN DOYLE; MICHAEL JOHN RAYMOND; MARTIN JOSEPH CONWAY; CRESSIDA JANE BLACKRespondent

Before

N J Rose FRICS

Venue 48/49 Chancery Lane, London WC2A 1JR

Date 18 November 2003

Property: 1, 8, 29 and 31 Lincoln Court, London Road, Enfield, London EN2

Catchwords: LEASEHOLD ENFRANCHISEMENT – premiums payable for grant of new leases of flats – marriage value – value of long lease agreed – whether assignments of unextended leases of other flats in same block provide satisfactory evidence of value of existing leases of subject flats – appeal dismissed -Leasehold Reform, Housing and Urban Development Act 1993 s48.

[1]This is an appeal by Mr Duncan Paul Collins and Mrs Susan Charlotte Collins (“the appellants”), the freeholders of a block of flats known as Lincoln Court, London Road, Enfield, against a decision by the Leasehold Valuation Tribunal for the London Rent Assessment Panel (“the LVT”), determining the premiums payable for the grant of new extended leases of four of the flats under the provisions of s 48 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”). Details of the flats concerned, the respondent lessees and the prices determined by the LVT are as follows: Flat Lessee Premium 1 Kathleen Ann Doyle £4,900 8 Michael John Raymond £4,900 29 Martin Joseph Conway £5,200 31 Cressida Jane Black £4,900

[2]The appellants’ case was that the premium payable should be £11,791 in the case of flat 29 and £11,627 for each of the other three flats. The respondents contended that the LVT’s decision should be upheld. That decision indicated that the LVT had come to its conclusion with considerable reluctance in view of the quality of the supporting evidence offered by the parties.

[3]Mr Paul Staddon of counsel appeared for the appellants and called Mr E F Shapiro, BSc(Est Man), FRICS, IRRV, FCIArb. Counsel for the respondents, Mr Stephen Jourdan, called Mr B R Maunder Taylor, FRICS, MAE.

[4]Mr Maunder Taylor’s valuations, which were accepted by the LVT, are reproduced in Appendix 1. The only issue in this appeal is the value of each of the appellants’ existing leasehold interests. The respective figures put forward by the experts were £102,300 (Mr Shapiro) and £115,750 (Mr Maunder Taylor). The value of each new extended lease has been agreed at £125,000.

[5]The two surveyors produced a statement of agreed facts. In the light of that statement and the evidence I find the following facts. Lincoln Court comprises a purpose-built development of flats, constructed during the inter-war period above shops, which currently include a restaurant and a car showroom, on the ground floor. The flats are partly on two storeys and partly on three storeys, with access at the northern end of the block. The front entrance door, which is controlled by an entry phone, leads to a passage giving access to a staircase and then to covered rear balconies serving the individual flats. There is a second staircase leading from the first to the second and third floors at the southern end of the first floor balcony. There are no front or rear gardens and no lift. Nor are there any garages or parking spaces on the site, although parking is available in a service road in front of the block. 3

[6]Each flat is self-contained and has its own services. All of the flats provide similar accommodation, as follows: Front living room 14ft 9ins x 12ft 2ins (4.5m x 3.7m) Front bedroom 12ft 2ins x 6ft 10ins (3.7m x 2.1m) Kitchen 15ft 0ins x 8ft 2ins (4.6m x 2.5m) Separate wc Bathroom Rear bedroom 13ft 2ins x 13ft 2ins (4.0m x 4.0m)

[7]The only significant difference between the layouts of the various flats in Lincoln Court is that in some cases the living room has been made open plan with the kitchen and hallway. This difference has no material effect on value. All flats have been double glazed to the front two rooms, and some have been double glazed to the rear rooms. Most, if not all flats have had central heating installed.

[8]All the subject flats, with the exception of No.29, are let for terms of 99 years from 25 March 1972 at a fixed ground rent of £20 per annum. Flat 29 has the same lease term but with a ground rent of £50 per annum. The valuation date in each case is 31 January 2002. At that date the unexpired term of each lease was 69.14 years.

[9]Mr Shapiro said that, in the “no Act world” which preceded the passing of the 1993 Act, such a lease length would have encountered some market resistance, as a number of the main lending institutions were then reluctant to lend on leases of less than 70 years. More importantly, purchasers appreciated that when they came to sell, which might be some 10 years later, the unexpired term would be in the region of 60 years, which would be even more difficult to dispose of.

[10]Mr Shapiro considered that the most reliable evidence was provided by prices paid or agreed for other flats in the same block. He referred in his report to the sales of flats 34 and 38 and also to flat 37, which was the subject of three sets of abortive negotiations. Since in each case it was the prospective purchaser of No.37 who had withdrawn and not the vendor, he felt it was reasonable to conclude that the vendor was satisfied with the price agreed on each occasion. In answer to a question from me, he said that the fact that the offer accepted for flat 37 in May 2001 was identical to the offer which had been accepted four months earlier was not consistent with the increase in values of some 10 per cent in that period.

[11]Mr Shapiro adjusted the agreed and actual sale prices to reflect the movement in values between the transaction date and the valuation date by using the Nationwide Building Society Index for Greater London. He also made an adjustment for tenants’ improvements. He had not been able to inspect any of the three flats upon which he relied for comparable evidence. Having regard, however, to the age and nature of the flats, he considered that the original kitchens and bathrooms were likely to have been replaced to a higher standard, including the provision of wall tiling and more numerous fittings; that in some cases double glazing would have been provided to the second bedroom, kitchen and bathroom and that central heating 4 would have been included. He considered that £7,500 would constitute a realistic average allowance for the value of these items.

[12]The resultant adjusted prices were as follows: Flat Term Price Date Revised value to first quarter 2002 Revised value less £7,500 for improvements 37 70.22 £93,000 2/1/01 £107,900 £100,400 34 70.19 £89,000 12/1/01 £103,260 £95,760 37 70.14 £93,000 1/2/01 £107,900 £100,400 37 69.89 £93,000 4/5/01 £99,402 £91,902 38 69.51 £85,000 7/9/01 £88,226

£80,726

[13]Mr Shapiro noted that the difference between the prices paid for 34 and 38, when adjusted to values at the valuation date, was £15,000. He concluded that half of that sum related to the improvements and the balance to the condition of 38 “on the assumption that it needed complete redecoration, and the fact that it probably presented badly.”

[14]In his evidence to the LVT Mr Shapiro had relied on the same five prices as he referred to before me, but he had analysed them in a different way. He had added 10% to the average price achieved to reflect price movements over time, tenants’ improvements and the effect of the 1993 Act on the prices achieved. He thus arrived at an unimproved value at the valuation date of £102,300. In his report to this Tribunal, he said:

“In my evidence to the Leasehold Valuation Tribunal I, rather crudely, added 10% to the average prices achieved to reflect all of the above three matters and I arrived at a value unimproved as at the valuation date of £102,300. This figure now looks to be on the high side because it makes no allowance for the value of the Act. Since flat 34 was a purchase for letting, and the last sale of flat 37 was possibly on the same basis, neither of these two transactions would necessarily have reflected the value of the Act to the purchasers because they would not have the benefit of the Act. However, the investment value was made safer because on a further sale to an owner-occupier the lease could then be extended. Therefore my conclusion of an average value of £102,300, or 81.84% of the extended lease value, as the unimproved value was I think a generous conclusion and it might have indicated a lower allowance for improvements than I have made. I have however retained this ratio... I have made no specific deduction for the Act rights in my analysis of the short lease transactions.”

[15]Mr Shapiro produced a copy of a diagram prepared by Mr Peter Beckett FRICS. This reproduced a number of graphs which had been prepared by various central London firms of 5 surveyors, showing the existing leasehold value as a percentage of the freehold value. Mr Beckett’s diagram suggested that a lease of just under 70 years of a property in central London had a value between 85% and 90% of the freehold value. Mr Shapiro considered that the ratio would be smaller in suburban locations such as Enfield, because of the higher value properties and traditionally larger market for leasehold interests in central London. If Mr Beckett’s figures were adjusted to reflect the location of Lincoln Court, Mr Shapiro’s ratio of 81.84% for that property was supported by the graphs. Mr Shapiro did not suggest that the graphs supplanted the evidence provided by the comparables, but he felt that they justified the figure he had adopted.

[16]By way of further support for his valuation, Mr Shapiro referred to agreements which had been reached with the tenants of flats 32, 35 and 57 Lincoln Court, whereby premiums of £10,000, £11,500 and £11,500 respectively were paid for the grant of extended leases, together in two cases with provision for increased grounds rents. These agreements were made between September 2002 and August 2003 and, in the case of 35, the flat in question had been the subject of the LVT decision which led to the current appeal.

[17]In Mr Maunder Taylor’s opinion, the differential between the existing lease value and the long lease value should be based on an 8% uplift from the value of the existing lease. Thus he assessed the value of the existing lease at £115,750, or 92.6% of the value of the extended lease.

[18]In forming this opinion, Mr Maunder Taylor had had regard to the decision of this Tribunal (P R Francis, FRICS) in Maryland Estates Limited v Campana Court Limited (LRA/21/2000, unreported). That case concerned the collective enfranchisement of a block of flats in Barnet, Herts, where the leases all had approximately 69 years unexpired. The Tribunal had determined an uplift of 8% for marriage value calculation purposes for a property in a similar location to Enfield.

[19]Mr Maunder Taylor also drew attention to the following LVT decisions on collective enfranchisement:(i) 33-35 Netherwood Road, London, W14. The LVT determined a relativity of 94% for the existing leases which had 71.5 years unexpired in December 2001.

(ii) 171 and 173 Maryland Road, Wood Green, London N22. 68 years unexpired in August 1998; relativity determined 96.6%.

(iii) 90/92 Leslie Road, London N2. 69 years unexpired in February 1998; relativity determined 94.2%

(iv) 5 Crouch Hall Road, London N8. 69 years unexpired in November 2000; relativity determined 12% uplift plus £3,000 for the value of control after enfranchisement of one flat where the lease had already been extended.

[20]The decision on 171 and 173 Maryland Road produced a higher relativity than Mr Maunder Taylor would have expected in the case of the appeal properties. It 6 demonstrated that there was a variation between LVT decisions. He acknowledged that there were one or two decisions in suburban areas with about 69 years unexpired which fell “towards the other end of the range of decisions forming an average trend for suburban cases with 69 years unexpired”.

[21]Mr Maunder Taylor also mentioned a decision by this Tribunal relating to 13-19 York Gardens, Braintree, Essex (IBIS (404) Limited v Lindeman and Others, LRA/50/2001, unreported), where the opinion evidence of a local valuer, to the effect that flats in that area with 72 years unexpired sold for as much as those with a much longer unexpired term, was accepted.

[22]Mr Maunder Taylor referred to three settlements which he had negotiated in north London suburbs. These indicated agreement on an 8% uplift with 68 years unexpired at Grove House, Waverley Grove, London N3; 91.5% relativity with 71.5 years unexpired at 24 Dean Road, NW2 and 10% uplift with 62 years unexpired at Willowdene Court, 1498 High Road, London N20.

[23]Finally, he produced an extract from a report prepared by Reading University, which included a graph of LVT decisions, and which supported his suggested relativity.

[24]Mr Maunder Taylor did not consider that Mr Shapiro’s valuation, based on comparable properties which the valuer had been unable to inspect or properly research, was reliable. Nor did he consider it appropriate to rely on the marketing history of flat 37, since none of the negotiations in question had proceeded to a sale. In any event, he did not think it was right to average the three offers made for that flat and then adjust them in order to arrive at its value. He suggested that the valuer should either take the first offer, since it represented best value, or the latest offer which was the most up-to-date.

[25]In any event, if reliance were to be placed on sale transactions in Lincoln Court, regard should also be had to flat 5, which was sold on 10 September 1999 for £90,000 and flat 35, sold for £94,000 on 13 March 1999. If the price paid for flat 5 were adjusted for time in accordance with the Nationwide index, it produced a valuation date figure of £118,324 before allowance for improvements. Similarly, the price paid for 35 was equivalent to £144,550.

[26]In Mr Maunder Taylor’s opinion, the cost of providing rear double glazing, central heating, and a modernised kitchen and bathroom to each flat was a minimum of £10,000. The long leasehold value of £125,000, however, had been agreed by adjusting the sale price of one comparable, flat 32, to allow only for the passage of time. No adjustment had been made for the items of improvement listed by Mr Shapiro. There was no reason to suppose that the improvements in the comparable flats added any more to their value than they had done in the case of flat 32. It would therefore be inconsistent to make an improvement adjustment to the sale prices of the comparables. In reply, Mr Shapiro accepted that no other comparables had been referred to in his correspondence with Mr Maunder Taylor prior to agreeing the long leasehold value, but he did not accept that that agreement had been based 7 solely on flat 32. Mr Shapiro had also had regard to a verbal opinion of value expressed by an unqualified local estate agent, although there was no written record of that conversation.

[27]Both experts agree that, if satisfactory open market evidence exists, it provides more reliable evidence of value than settlements, graphs or tribunal decisions. I therefore start by considering the open market sales of flats 5, 34, 35 and 38 Lincoln Court, which may be summarised as follows: Flat Transaction Date Price achieved, adjusted to valuation date 5 10/9/99 £118,324 34 12/1/01 £103,260 35 13/3/99 £144,550 38 7/9/01 £88,226

[28]The disparity between the equivalent prices paid for the four flats is striking, the highest being 63.8% more than the lowest. It is I suppose possible that, if the flats were all inspected internally and the circumstances of each sale fully investigated, a rational explanation could be provided for such wide fluctuations. In the absence of such explanation, it is in my view impossible to draw any meaningful conclusion from this evidence.

[29]Mr Shapiro said that consideration should be restricted to flats 34 and 38, because of the unreliability of the Nationwide index when applied to transactions which took place a considerable time before the valuation date. The price paid for 34 was 17% more than the equivalent figure for 38. Mr Shapiro’s explanation of this differential was that it represented £7,500 for the value of tenant’s improvements in 34 but not in 38 and £7,500 as an allowance for re-decorating 38, which “probably presented badly”. In reply, Mr Maunder Taylor submitted that “Mr Shapiro has relied far too much on assumptions which are unreliable.” I agree. In my judgment, in the circumstances of this case a valuation which depends upon such assumptions is not sufficiently soundly based to establish that the LVT’s determination was wrong.

[30]The remaining evidence derived from the open market consists of the three offers that were made for flat 37 between January and May 2001. As a general rule, prices which are agreed but which do not result in a transaction are of limited, if any, evidential value. In this case, as indicated in paragraph 10 above, the offers themselves were mutually inconsistent. I am unable to attach any weight to the evidence relating to No.37.

[31]Mr Shapiro also relied upon Mr Beckett’s graph of graphs as a check on his valuation. This graph suggests that the value of a lease with approximately 70 years unexpired in Central London, as shown on a variety of graphs prepared by several firms of surveyors, ranges from 85% to 90% of the freehold value. Mr Shapiro adopted the lower figure and then adjusted it downwards because, he said, there was a smaller market for leasehold interests in suburban London than in Central London. I do not consider that Mr Shapiro’s approach 8 represents an appropriate use of Mr Beckett’s diagram. If any ratio is to be deduced from the various figures produced by different firms of surveyors, in the absence of detailed information about the composition of each, it should in my judgment be 87.5%, being the mid-point between the two extremes. Moreover, there was no convincing evidence that suburban leases were worth a smaller proportion of freehold value than those in central London.

[32]A ratio of 87.5% applied to the agreed value of the extended lease would produce an existing lease value of £109,375. In the course of his expert report, Mr Shapiro made the following observation:

“Regard must … be had to the fact that the residential market is not a perfect market and therefore some differential in prices can be anticipated generally, and the agreement between valuers that there is a range of values rather than a precise value for any property.”

[33]Mr Maunder Taylor did not disagree with those remarks and I accept them. They presumably explain why Mr Shapiro decided to adhere to his original valuation of £102,300, even though that figure was higher than his adjusted prices for each of the comparables upon which he placed reliance before me. The LVT decided that the value of each of the existing leases was £115,750, or 5.8% more than the figure of £109,375 which I have derived from the graph of graphs. In the course of his evidence, Mr Shapiro accepted that values calculated from graphs are of less evidential weight than those based on open market evidence, settlements or decisions of independent experts. Nevertheless, assuming in Mr Shapiro’s favour that the correct value is £109,375, bearing in mind his observations relating to the differential in prices that can be expected I am unable to find, on the basis of the graphs, that the LVT’s decision was wrong.

[34]The third plank used by Mr Shapiro to support his valuation consisted of the settlements that the appellants have reached to extend the leases of flats 32, 35 and 57 on terms that are consistent with his valuation. I am not able to conclude that those settlements provide reliable evidence of value on the basis that I am required to determine, for the following reason When, in February 2000, the lessee of flat 35 enquired about the possibility of extending his lease, his solicitors were informed that the landlords had not extended any of the leases within the building and were not minded to do so. The settlement of the application on flat 32 was dated 26 September 2002, less than four weeks before the LVT hearing. Those on 35 and 57 were made after the current appeal to this Tribunal had been lodged. In my view, it is not possible to conclude that those settlements were not influenced by the operation of the Delaforce effect (Delaforce v Evans and Evans)

(1970) 22 P & CR 770

). They are therefore of no assistance in determining this appeal.

[35]The appeal is therefore dismissed. I determine that the premiums payable by the respondents shall be £4,900 each for flats 1, 8 and 31 Lincoln Court and £5,200 for flat 29.

[36]A letter on costs accompanies this decision, which will take effect when, but not until, the question of costs is decided. 9 Dated 7 October 2003 (signed) N J Rose ADDENDUM

[37]I have received a written request from the respondents’ solicitors for the award in full of their clients’ costs, to be the subject of a detailed assessment if not agreed.

[38]The appellants’ solicitors have not commented on this request, other than to point out that no figure has been put forward in respect of the respondents’ costs.

[39]The respondents succeeded in resisting this appeal and I know of no good reason why they should be deprived of the costs they incurred in doing so. I therefore order that the respondents shall recover their costs of the appeal from the appellants. Such costs are to be agreed or, in default of agreement, assessed on the standard basis by the Registrar of the Lands Tribunal. Dated: 18 November 2003 (signed) N J Rose 10 Appendix 1 Lincoln Court, London Road, Enfield Mr Maunder Taylor’s Valuations (Accepted by LVT) Flats 1, 8 & 31 Paragraph 2(1)(a): the value of the landlord’s interest in the premises as determined in accordance with Paragraph 3 £554 Agreed Paragraph 2(1)(b): the freeholder’s share @ 50% of the marriage value as determined in accordance with Paragraph 4 Long lease value – agreed £ 125,000 Less Existing lease value (£115,750) Value of landlord’s current interest (£ 554) Marriage value £ 8,696 50% of marriage value £4,348 TOTAL PAYABLE £4,902 BUT SAY £4,900 FLAT 29 Paragraph 2(1)(a): the value of the landlord’s interest in the premises as determined in accordance with Paragraph 3 £881 Agreed Paragraph 2(1)(b): the freeholder’s share @ 50% of the marriage value as determined in accordance with Paragraph 4 Long lease value – agreed £ 125,000 Less Existing lease value (£115,750) Value of landlord’s current interest (£ 881) Marriage value £ 8,669 50% of marriage value £4,335 TOTAL PAYABLE £5,216 BUT SAY £5,200 11