Leasehold enfranchisement — Leasehold Reform, Housing and Urban Development Act 1993 — Collective enfranchisement — Assessment of marriage value — Factors relevant to assessment of marriage value
The appellant landlord was the owner of a block of
20 flats let under leases with 79 years unexpired. Sixteen of the 20
leaseholders were participating tenants; the respondent company was entitled to
acquire the freehold on behalf of the participating tenants. The leasehold
valuation tribunal determined the price payable for the freehold at £21,000.
The landlord sought £31,750 and the tenants’ nominee purchaser £9,600. In the
appeal and cross-appeal by the parties, the main issue raised was the proper
assessment of marriage value as defined by para 4 of Schedule 6 to the 1993
Act.
was allowed. In considering para 4 of Schedule 6, all the incidents associated
with the control by the participating tenants of the freehold interest should
be taken into account provided they arise from the potential ability to obtain
new leases without restriction as to term or any premium being payable.
Accordingly, the following factors, relied on by the landlord’s valuer, can be
taken into account in valuing the freehold interest for the purposes of
determining marriage value, namely the tenants’ ability to: (1) extend their
leases at no premium; (2) vary the terms of the leases; (3) effectively
extinguish the ground rent; (4) manage the property themselves and to control
management
eliminate possible disputes with the landlord; and (7) grant themselves new
rights over the property. The correct approach is to ask whether any of these
factors flow from the ability to have new leases unrestricted as to length of
term. What has to be determined is the increase in value, if any, of the
freehold interest when it passes to the tenants’ control. Having regard to the
valuation evidence, an uplift of 5% above the value of the existing leases was
appropriate, plus a sum of £4,480 for the elimination of the ground rents.
The following cases are
referred to in this report.
Cadogan Estates Ltd v Hows [1989] 2 EGLR 216; [1989] 48 EG 167; [1991] RVR 132,
LT
Calthorpe Estate Trustees v Pabari [1991] 2 EGLR 219; [1991] 47 EG 110
Castlebeg Investments (Jersey) Ltd’s Appeal,
Re [1985] 2 EGLR 209; (1985) 275 EG 469, LT
Curtis v London
Rent Assessment Committee [1997] 4 All ER 842; [1998] 1 EGLR 79; [1998] 15
EG 120
Delaforce v Evans
(1970) 22 P&CR 770; 215 EG 315, LT
Lloyd-Jones v Church
Commissioners for England [1982] 1 EGLR 209; (1981) 261 EG 471, LT
Lowther (Trustees of Holland House &
Strangeways Estates) v Strandberg [1985] 1
EGLR 203; (1985) 274 EG 53; [1987] 27 RVR 271, LT
Maryland Estates Ltd v 63 Perham Road Ltd [1997] 2 EGLR 198; [1997] 35 EG 94
Northumberland & Durham Property Trust
Ltd v London Rent Assessment Committee (No 2)
[1998] 2 EGLR 99; [1998] 24 EG 128; (1998) 30 HLR 1091
Pepper (HMIT) v Hart
[1993] AC 593; [1992] 3 WLR 1032; [1993] 1 All ER 42, HL
Sinclair Gardens Investments (Kensington) Ltd v Franks unreported 19 May 1997
Verkan & Co Ltd v Byland Close (Winchmore Hill) Ltd [1998] 2 EGLR 139;
[1998] 28 EG 118
Windsor Life Assurance Co Ltd v Austin [1996] 2 EGLR 169; [1996] 34 EG 93
Timothy Fancourt
(instructed by Malthouse Chevalier) appeared for Maryland Estates Ltd; Simon
Gallagher (instructed by Graham White & Co) represented Abbathure Flat
Management Co Ltd.
Giving their decision,
the tribunal said: This is an appeal and a cross-appeal from a decision of a
leasehold valuation tribunal dated 27 January 1997 under sections 24 and 48 of
the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act) concerning
premises at 16-35 Perry Green, Hemel Hempstead, Hertfordshire. The tribunal
determined the amount payable for the freehold interest in the sum of £21,000.
The landlord, Maryland Estates Ltd (Maryland) was
represented by Mr Timothy Fancourt, of counsel, who called Mr Laurence Nesbitt bsc frics
aciarb and Mr Harold John
Bebbington, Maryland’s managing director. The nominee purchaser, Abbathure Flat
Management Co Ltd (Abbathure) was represented by Mr Stan Gallagher, of counsel,
who called Mr Richard Rule arics
and Miss Irene Wrigglesworth, formerly a leaseholder of 69 Whateley Road,
London SE22.
Facts
The parties have agreed a statement of facts and
other facts were not in dispute. We find as follows:
1. Maryland is the freehold owner of 16-35 Perry Green,
Hemel Hempstead, Hertfordshire (the subject property), subject to 20 leases
held for terms of 99 years of which 79 years were unexpired at the valuation
date.
2. The total current ground rent is £800 pa.
3. In each lease the lessee is liable to reimburse
the lessor for the costs of insurance effected by the lessor.
4. Each lessee is liable to pay a percentage of
the service charge as specified in the lease, which includes the cost of
insurance and management.
5. Under the terms of each lease the lessees’ own
management company covenanted to maintain the building. The lessees allowed the
management company to be struck off the register of companies in 1990, since
which date Maryland has carried out the management company’s covenants. There
is no covenant in the leases that binds the freeholder to continue to manage
and maintain the building.
6. Abbathure is entitled to require the transfer
of the property to it on behalf of the participating tenants.
7. The subject property is a block of flats built
in the mid-1970s on the site of the former Woodhall Farm. It contains 20
virtually identical self-contained flats in two storeys. Each flat is
approached from a communal hall and staircase and comprises a living room, two
bedrooms, kitchen and bathroom. The block is surrounded by an open garden area,
but there is no provision for off-street parking.
8. The property is approximately three miles north
of Hemel Hempstead town centre and station.
9. Sixteen of the 20 leaseholders are
participating tenants.
10. The following matters of valuation are agreed:
(i) The date of valuation is 13 July 1996.
(ii) The open market value of the existing
leasehold interest in each flat at the valuation date was £41,000.
(iii) The landlord’s share of the marriage value
(MV) is 50%.
(iv) The value of the freehold interest in
reversion at the valuation date was £9,600.
Inspection
We carried out a site inspection, accompanied by
representatives of the parties, to view the subject property and Roydon Court.
We did not consider it would assist us to visit the comparable properties
relied upon by Maryland for reasons that will become clear.
Issues
The main issue raised by these appeals concerns
the assessment of MV as defined by para 4 of Schedule 6 to the 1993 Act. This
issue involved the interpretation of the Schedule as well as valuation matters.
It is convenient to deal with the legal issue first as this will determine the
correct basis of valuation.
Legal issue
Mr Fancourt, for Maryland, identified eight
advantages or benefits that would be enjoyed by the participating tenants
following enfranchisement. These are the ability to:
1. extend their leases at no premium;
2. vary the terms of the leases;
3. effectively extinguish the ground rent;
4. manage the property themselves and control
management charges;
5. carry out repairs at their own choosing and
control costs;
6. eliminate possible disputes with the landlord;
7. grant themselves new rights over the property;
and
8. grant leases to non-participating tenants.
He contended that all of these advantages and
benefits could be taken into account by the valuer in assessing MV except for
number 8. He pointed to the reference to ‘aggregate value’ in para 4(2)(a) of
Schedule 6, which requires an objective assessment of market value. He accepted
that the Schedule was not clearly worded, but the ‘wide’ construction was borne
out by the broad terms of para 4(2) and is limited only so as to exclude number
8. Mr Fancourt suggested that it would be surprising if parliament had intended
landlords to receive only part of the MV. Taken in its full context and having
particular regard to para 4(3), which required an open market assumption as
under paras 2 and 3, para 4 did not set any limitations on the factors that
could be taken into account except number 8.
Mr Fancourt also submitted that if there was any
ambiguity, absurdity or obscurity, we should have regard in construing the Act
to statements made in parliament during the passage of the Bill in accordance
with Pepper (HMIT) v Hart [1993] AC 593. We agreed to receive a
number of extracts from Hansard, subject to our decision as to whether such
material was admissible or relevant.
For Abbathure, Mr Gallagher contended that MV (if
any) is necessarily limited to the uplift (if any) attributable only to the
matters expressly referred to in para 4(2)(a). This is an exhaustive not an
inclusive provision. The statutory formulation is concerned with ‘aggregate
values’, not ‘the worth to the nominee purchaser’. The value (if any) attributable
to any benefits that tenants may perceive in ousting their landlord and gaining
control of the management of the property is not to be included on a proper
reading of the Schedule. Any advantages of control do not flow from the ability
to have new leases, but from the fact of the purchase of the freehold by the
nominee purchaser.
Mr Gallagher contended that, on a proper
construction, Schedule 6 does not permit the inclusion of any amount for the
elimination of ground rent. To do so would amount to double counting of the
capitalised ground rent, and any increase in the value of the leases due to
this factor is offset by a corresponding decrease in the value of the
freeholder’s interest consequent on the loss of the right to receive the ground
rents.
As to the ability to vary the terms of the leases,
he accepted that this factor could be taken into account because it is implicit
that tenants have the right to correct any defects in title on the grant of the
new leases as was recognised in Sinclair Gardens Investments (Kensington)
Ltd v Franks, unreported 19 May 1997. This does not, however,
support the wide construction contended for by Maryland.
He submitted that the words of the Schedule were
clear and there was no basis for the application of Pepper v Hart.
Decision
Under para 2(1) of Schedule 6 the price payable by
the nominee purchaser for the freehold is the aggregate of the value of the
freeholder’s existing interest and the freeholder’s share of the MV. The
freeholder’s interest is to be determined in accordance with para 3. This is
agreed to be £9,600 and we are therefore not directly concerned with the
detailed application of para 3 in this context. However, para 3 is made
applicable to the determination of MV by virtue of paras 4(3) and 4(4).
Para 3(1) requires the freehold value to be the
amount that that interest ‘might be expected to realise if sold on the open
market by a willing seller’. The nominee purchaser and tenants are to be
excluded from the market: para 3(1). Certain assumptions are required to be
made, but it is important to note that by para 3(2) those assumptions are not
exhaustive. Para 3(2) provides that the fact that certain assumptions must be
made ‘does not preclude the making of assumptions as to other matters where
those assumptions are appropriate for determining the amount which at the
valuation date the freeholder’s interest … might be expected to realise’ on
the open market.
Para 4(2) defines MV. It is ‘any’ increase in
value of the freehold interest that is ‘attributable’ to the circumstances set
out in para 4(2)(a), and would have to be shared between the nominee purchaser
and the freeholder as required by para 4(2)(b). Para 4(2) requires a comparison
of:
(i) the value of the freehold interest under the
control of the participating tenants (ie as it would be when acquired by the
nominee purchaser), with
(ii) the value of the freehold interest when held
by the freeholder.
In our opinion, it is important to note that it is
the control by the participating tenants that underlies the valuation under (i)
above rather than the mere fact of acquisition by the nominee purchaser. This
is taken further by para 4(2)(a), which provides that any increase of (i) over
(ii) must be attributable to the potential ability of the participating
tenants, after acquisition of the freehold by the nominee purchaser, to have
new leases granted to them.
This seems to us to indicate that all the
incidents reasonably associated with that control should be taken into account
by the valuer, provided they arise from the potential ability to obtain new
leases without restriction as to term or any premium being payable.
Paras 4(3) and 4(4) provide that the freehold
values (i) and (ii) above shall be determined on the same basis as under paras
2(1)(a) and 3. Para 4(4) is expressed to be consequential on para 4(3) and
requires the same assumptions to be made in valuing (ii) above as are required
to be made when valuing the freeholder’s interest under para 3(1).
We conclude that Maryland’s contentions are correct
and that, in principle, all the factors 1 to 7 above can be taken into account
in valuing the freehold interest for the purpose of determining MV. The correct
approach, in our judgment, is to ask whether any of these factors flow from the
ability to have new leases unrestricted as to length of term. The essential
feature is that the participating tenants will be in effective control of the
freehold interest through the nominee purchaser and can secure the grant to
themselves of new leases. What has to be determined is the increase in value,
if any, of the freehold interest when it passes into the tenants’ control in
that way. As we have pointed out, although certain assumptions are expressly to
be made by virtue of paras 4(3) and 4(4), this does not prevent any other
appropriate assumptions being made in order to determine market value of the
freehold in accordance with para 3(2).
We reach this conclusion without having regard to
the material placed before us by Mr Fancourt pursuant to Pepper v Hart.
We do not consider that the relevant provisions of Schedule 6 are such as to
justify us in resorting to it as an aid to construction.
Valuation issues
The only valuation issue between the parties
relates to the assessment of MV. Having regard to the agreed matters and to the
fact that both valuers adopted the same general approach, the dispute is
confined to:
1. The extent of any uplift in determining the
value of the freehold interest in the hands of the nominee purchaser, subject
to control by the participating tenants (the virtual freehold).
2. Whether any addition should be made to (1) on
account of the potential ability of the participating tenants to eliminate the
payment of ground rent and, if so, how much.
Annex 1 to this decision sets out the assessments
of the enfranchisement price payable as finally presented to us by the close of
the hearing. Maryland contended for a price of £31,750 and Abbathure contended
for £9,600.
Case for Maryland
Mr Nesbitt practices as Laurence Nesbitt,
chartered surveyors, in Edgware, Middlesex. He told us that he specialises in
residential and commercial valuations, including valuations under the 1993 Act.
He had advised in approximately 50 cases under the Act. He accepted, in
cross-examination, that he had had no previous experience of residential
valuations in Hemel Hempstead, and had not even visited the subject property or
the area before carrying out his valuation. He had done so only shortly before
the hearing.
As to his valuation of the virtual freehold, he
had assessed that the value of the existing leaseholds with 78 years to run
(which had been agreed at £656,000) was 93% of the virtual freehold value,
excluding any allowance in respect of the possible elimination of the ground
rent. This gave a value of the virtual freehold of £705,376. In arriving at
this figure he had had regard to the tribunal’s decision in Maryland Estates
Ltd v 63 Perham Road Ltd [1997] 2 EGLR 198, which found that a lease
having 88.75 years unexpired was to be valued at 95% of the virtual freehold
value. He also obtained some support from LAN3 referred to below.
As to the additional capital value to reflect the
prospect of eliminating the ground rent, Mr Nesbitt had used a multiplier of
seven years’ purchase. In support of this he had produced a schedule (LAN2) of
comparable private treaty sales of ground rents. It was agreed by Abbathure
that the factual information in LAN2 was correct. These transactions were
spread over various dates in 1996 and over various locations, none of which was
in Hemel Hempstead. He had also had regard to the Perham Road decision.
Mr Nesbitt contended that the leaseholders would be prepared to pay £4,480
because they can, in effect, relieve themselves of the obligation to pay any
ground rent.
These figures resulted in a MV of £44,256, of
which the freeholder’s share was £22,128 (ie 50%), resulting in an
enfranchisement price of £31,728, say £31,750.
In support of his opinion of the price payable, Mr
Nesbitt had produced a schedule (LAN3) of settlements negotiated under the 1993
column showing the ‘total value of the freeholder’s interest’, although the
arithmetic was not disputed. He suggested that LAN3 shows that nominee
purchasers have been willing to pay substantial sums in excess of the value of
the freeholder’s interest, which can only be attributable to MV.
Mr Nesbitt had analysed further (LAN4) the first
five transactions on LAN3, which concerned leases with similar length of
unexpired term as the subject property. He relied primarily on LAN4 in support
of his valuation, all of which had been analysed in accordance with the
approach adopted in the Perham Road decision. For the purpose of establishing
the leasehold value of the flats he had used the mid-point of the relevant
council tax bands. This was the only assumption he had made in compiling LAN4.
Abbathure had agreed the council tax bands and the mathematics of LAN4. It
showed MVs ranging from £7,368 to £44,824 and enfranchisement prices ranging
from £4,600 to £27,500 respectively, all assuming a 50% freeholder’s share.
He accepted, in cross-examination, that the
properties in LAN3/LAN4 were very different in every respect from the subject
property. However, he maintained that it was safe to apply these London
transactions and he could not accept Mr Rule’s view that there was a
significant difference between London and Hemel Hempstead so far as leasehold
enfranchisement was concerned. In his opinion, the same factors applied inside
and outside Greater London, although he did accept that properties in the most
expensive parts of London (eg Mayfair, Belgravia and Kensington) would not be
comparable. LAN4 did not include any properties in such prime areas. In his
opinion, the attractions to leaseholders of buying the freehold were the same
whether the flats were in a purpose-built block or a conversion and regardless
of the number of flats involved.
On the basis of Abbathure’s narrow interpretation
of the ‘benefits’ that could legally be taken into account, he would have used
an uplift of 4-5% compared with his 7%.
Mr Nesbitt had not referred at all in his
valuation report to the Roydon Court transactions relied upon by Mr Rule. He
had not been aware of them until he saw Mr Rule’s valuation report. In his
evidence before us, he commented that Roydon Court was close to the subject
property but was a three-storey block of generally poorer appearance, more
congested and less open in feel. It was therefore less attractive, although the
prices were similar. He did not see on-site car parking at Roydon Court as a
particularly important advantage. On-street parking was readily available.
Mr Nesbitt did not accept that the ‘control and
management’ advantages were diluted as the number of participating tenants
increased. For this reason he considered that it was not a fair criticism of
LAN4 that all the properties involved only a relatively small number of flats.
He confirmed that he had not been involved in any
of the LAN4 transactions and was relying entirely on information supplied to
him by Maryland. He had assumed that they were all ‘willing seller’ agreed
settlements, arrived at in accordance with the 1993 Act. He was not aware of
any special circumstances relating to any of them.
As to Mr Rule’s Luton information, he could not
draw any useful conclusions from it. Asked to comment on Mr Rule’s opinion that
there was no difference in the value of a lease due to the length of the
unexpired term until about only 50 years remained, his view was that this was a
‘building society’ approach. For example, Abbey National and Nationwide
required 35 years beyond the mortgage term and Bristol & West 70 years from
the outset. He did not wish to change his valuation in the light of this
factor.
In his evidence Mr Bebbington said that Maryland
had been investing in long leasehold reversions for over 15 years. Following
the Perham Road decision, all sales of the freehold had been negotiated
taking into account depreciation in the value of the leases due to the length
of unexpired term and elimination of ground rent. In his experience the
‘control and management’ advantages were usually the key reasons why
leaseholders wished to buy.
Maryland’s solicitors had prepared LAN3, used by
Mr Nesbitt to prepare LAN4; they were, in his view, all ‘willing seller/willing
purchaser’ situations with no special factors present that could have affected
the prices paid. In so far as it had been suggested that sales were influenced
by adverse publicity relating to Maryland or other companies, this was simply
not correct. There had been 205 sales in 1996, 313 in 1997 and 33 so far in
1998. He did not accept that sales were influenced by concerns over excessive
schemes of repair or improvement. Two estimates were always obtained based on a
surveyor’s specification. Lessees were always consulted and could exercise
their rights under the Landlord and Tenant Act 1985 to apply to the courts if
necessary. In forfeiture cases lessees again enjoyed the protection of that Act
in relation to excessive service charges.
Costs of applying to a leasehold valuation
tribunal in enfranchisement cases were not, in his experience, a significant
deterrent for leaseholders who could not reach agreement. The nominee purchaser
was, in any event, liable for the freeholder’s valuation costs regardless of
any application to a tribunal.
So far as the first transaction on LAN4 was
concerned (69 Whateley Road), the negotiations with Miss Wrigglesworth lasted
only a few days, no writs or applications to the courts had been made or even
suggested, there were no disputes or friction of any kind, no major repairs had
been carried out since Maryland purchased the reversion in 1987, the only
expenditure recoverable was in respect of insurance premiums and no issue had
arisen in that regard. The leaseholders had supplied estate agents’ particulars
and valuations of the value of the two flats and he had simply used those
figures in arriving at the price asked. This had been agreed without any
further negotiation.
With regard to the management of the subject
property, the leaseholders had allowed their own management company,
responsible under the covenants for maintenance and repair, to be struck off
the register of companies in 1990, since when Maryland had, at the
leaseholders’ request, carried out these obligations. It was not legally
obliged to continue with this arrangement and in some cases it had entered into
deeds of variation to accept such an obligation for a consideration of usually
not less than £750.
In cross-examination, Mr Bebbington accepted that
frequently leaseholders purchased to gain control and save management fees.
Maryland charges a fee of £100 per flat. He considered that, the larger the
block, the more likely it was to be professionally managed. In the LAN4 cases
all the leaseholders participated, although Maryland was not concerned with one
of them.
When asked about Miss Wrigglesworth he said that
the correspondence that he had produced did not disclose someone extremely
anxious to settle and it was not a particularly quick settlement, in his
experience.
Case for Abbathure
Mr Rule told us that from 1981 to 1984 he was
employed as a senior estates surveyor at Dacorum Borough Council, in whose area
the subject property falls. Since 1984 he has been in local private practice
carrying out valuations and surveys of residential property in Hemel Hempstead
and elsewhere. The area is well known to him and overall he has had about 16
years’ experience in valuing similar property in the locality. He is also
familiar with the areas in which the properties on LAN4 are situated.
Perry Green is a residential area that consists of
a large number of one- and two-bedroom flats and some houses. The area has been
partly developed by the local authority and partly by private developers in the
1970s. Dacorum Council are by far the main landlords of blocks of flats in the
area and residents tend to regard the area as substantially local authority
housing.
Hemel Hempstead is its own residential market. It
is effectively a new town. Perry Green is not one of the best areas and is
mainly attractive to first-time buyers because it is relatively cheap. Many
flats are repossessed and residents tend to move away as soon as they can.
These characteristics put a ‘cap’ on values, but he accepted that the subject
property is one of the best blocks in the area.
Mr Rule considered that any lease with more than
70 years to run is very mortgageable. Neither developers nor the market
distinguished in valuation terms between leases of, say, 70 years and 999
years.
Mr Rule drew particular attention to nearby Roydon
Court, in which the layout and dimensions of the flats were very similar,
albeit arranged on three storeys. He relied on evidence of several transactions
of two-bedroom flats in 1996 and 1997. Selling prices ranged from £39,000 in
April 1996, £36,000 in March 1997, £39,750 in June 1997 to £43,000 in August
1997. (The last transaction included new carpets, a refitted kitchen and fully
tiled bathroom.)
Roydon Court had been enfranchised in 1991 at a
price of £20,000. The length of leases and the ground rents were similar to the
subject property. Based on a total of 36 flats (24 with two bedrooms and 12
with one bedroom), he analysed this price to give an average of £556 per flat
and a total enfranchisement price for 16 flats of £8,896. Mr Rule relied on
this as a helpful check on his own assessment of £9,800 for the subject
property.
Mr Rule contended that the sales in Roydon Court
at prices less than at the subject property indicated that in this part of
Hemel Hempstead purchasers are not prepared to pay a premium for a freehold
flat for two reasons. First, purchasers prefer to purchase comparable flats in
local authority blocks where no excessive management charges are made and which
are reasonably well maintained. Second, this is one of the less favoured areas
and there is a value above which purchasers would prefer to buy flats in better
areas rather than pay a premium value for a freehold.
Mr Rule sought to rely on information relating to
transactions in Luton as showing that it is by no means unusual for there to be
no significant difference between the sale price of flats with less than 99
years to run and those with much longer terms or even freeholds.
As to the assessment of MV, in his report lodged
under r 42 he did not accept that there was any justification for adding in the
capital value of the ground rent, which was a normal incident of the freehold
interest. Mr Rule considered that even if it was acceptable to include the
advantages of ‘control and management’, it was of minimal value in this area,
where all the flats are purpose-built and relatively new. Modern flats require
less management and consequently there is less scope for disputes with the
landlord. It is different for older Victorian or Edwardian property
conversions, such as were the subject of LAN4.
With regard to any uplift to reflect length of
lease, in his opinion, there was no evidence that in this area purchasers are
prepared to pay substantially more for a freehold interest. Leases in Roydon
Court that had been enfranchised sell for less than those in the subject
property. It was therefore inconceivable, in his opinion, that the value of
flats in the subject property would rise substantially as a result of
enfranchisement. He considered that the uplift would be no more than 1.5%. He
considered that none of the comparables in LAN3/LAN4 was of any relevance as
they were in London, where flats can sell for anything between £200,000 and
£400,000.
In cross-examination, Mr Rule indicated that he
accepted the matters that should be taken into account as put forward by
Maryland (ie factors 1-7 above), but maintained that his uplift of 1.5% allowed
for this. In fact, he told us that he did not consider that they would have any
significant effect on values. He accepted that it was correct in carrying out a
normal open market valuation for all the attributes of the virtual freehold to
be taken into account. Even with a virtual freehold, his opinion was that there
would still be maintenance obligations.
Notwithstanding what he had said in his report, Mr
Rule told us that intuitively he accepted that if lessees are able to reduce
the ground rent to a peppercorn, there is a benefit or advantage to be taken
into account, but it was reflected in his valuation as his uplift of 1.5%
reflected all the factors. Although he did not attempt to break it down, the
majority would be in respect of the ability to eliminate the ground rent and a
very small element for a longer lease. He did not think anything would be
attributable for ‘control and management’; tenants in this area would not be
prepared to pay more than the market value of the leases.
He did not produce any comparable evidence to
justify the 1.5% figure, which was based on his knowledge of the area and the
Roydon Court sales, where average prices were £39,250 compared with £41,000
agreed for the subject flats. The difference was due to the fact that a
two-storey block was more attractive than a three-storey block. He also relied
upon his experience that there was no difference in value between a 70-year
term and a virtual freehold.
In further questions from the tribunal, Mr Rule
attempted to clarify the apparent contradiction between Abbathure’s legal
submissions and the basis of his valuation. He explained that he was not saying
that legally the seven factors can be taken into account, but that he had
attempted to carry out his valuation on the same basis as Mr Nesbitt, ie taking
all of them into account. His opinion was that they have no significant effect
on value save in respect of the potential to eliminate the ground rent.
In his closing submissions Mr Gallagher asked us
to disregard Mr Rule’s valuation of £9,800 and to determine a price of £9,600
on the basis that Mr Rule’s uplift was attributable to the elimination of the
ground rent, which should not be included. In effect, therefore, he was contending
for a nil MV.
Miss Wrigglesworth had been one of two
leaseholders of 69 Whateley Road, SE22 (number 1 on LAN4). The thrust of her
evidence was that, after becoming aware of adverse reports in the media about
Mr Bebbington and his companies, she felt in a very vulnerable position and
wanted to sell her flat. She had already decided to move to be nearer her
parents because she was suffering from ME, and had, in fact, moved in 1990 and
had let the flat since that time. She did not want to become involved in any
disputes about repairs and was worried that her previously happy relationship
with Mr Bebbington could become a nightmare. She and the other tenant, Miss
Foulds, had therefore agreed to pay Mr Bebbington’s price without argument.
They did not seek professional valuation advice regarding the calculation of
MV. Mr Gallagher made it clear that it was no part of his case that there was
any truth in the media reports; his concern was the effect that the publicity
had had on the tenants’ position as willing sellers.
A number of other affidavits and witness
statements had been included in Abbathure’s tribunal documentation relating to
various transactions in LAN3, some of which were to have been the subject of
further oral evidence. However, in the light of Mr Nesbitt’s evidence that he
relied primarily on the LAN4 transactions in support of his valuation, Mr
Gallagher did not consider it necessary to call further witnesses. None of this
evidence related to properties on LAN4. In the circumstances, we did not
consider that we would be assisted by that evidence and have not had regard to
it.
Decision
Value of the virtual freehold
We were impressed by Mr Rule’s knowledge of the
property market in Hemel Hempstead in general and in the Perry Green area in
particular. Mr Nesbitt had no detailed knowledge of the area, as his experience
was in the London area. Indeed, he had not even taken the trouble to inspect
the property before preparing his valuation and evidence. We therefore accept
Mr Rule’s evidence on these matters.
We find that we cannot accept Mr Nesbitt’s
contention that, in enfranchisement cases, the nature of the local market makes
no real difference to the assessment of MV. In our judgment, as MV is
essentially dependent on open market values, it is necessary to have regard to
the characteristics of the market place in which the subject property is
situated. None of the transactions relied upon by Mr Nesbitt related to Hemel
Hempstead or areas that could be regarded as similar in market terms, and none
of them was comparable in terms of size, character or number of leases. They
were all in London, albeit not in what may be regarded as prime residential
areas. Furthermore, the transactions in LAN4, on which Mr Nesbitt relied, were
chosen for analysis simply because they involved unexpired terms similar to the
subject property.
We conclude, therefore, that we can give no weight
to these settlements in determining the appropriate uplift, if any, to arrive
at the value of the virtual freehold. We accept that, in very general terms,
LAN3 (and therefore LAN4) appears to indicate that MV can occur in
widely differing types of property and locations and length of unexpired term,
but we do not find it of assistance in determining MV in the present case. We
note that the range of uplifts shown in LAN4 varies considerably, from 2.6% to
8 %. We had no satisfactory explanation for these differences or how they could
be related to the subject property.
Mr Nesbitt placed some reliance on the Perham
Road decision, but we accept Mr Gallagher’s submission that it should not
be used as establishing a benchmark or rule of thumb necessarily applicable to
other circumstances. It is recognised that the uplift may vary according to the
length of term unexpired, but this must depend ultimately on the evidence in
each case.
Mr Rule suggested that there really was no
difference arising from the length of lease in valuation terms when there was
over 70 years to run. He considered that it was not until around 50 years or
less remained that there would be an impact on values. For this reason, very
little, if any, of his 1.5% was attributable to the length of new leases
compared with the existing term. Mr Nesbitt maintained that it was significant.
We accept Mr Fancourt’s submission that the Roydon
Court sales cannot be used as evidence of enfranchisement prices as they were
all sales of virtual freeholds. We heard no evidence from either side relating
to enfranchisement prices in this area in 1996. We also agree with Mr Fancourt
that we should not place any weight on Mr Rule’s Luton information,
particularly in view of his own evidence that Hemel Hempstead is a
self-contained market.
We consider that Mr Rule has placed undue reliance
on the flat sales in Roydon Court as an indication that leaseholders are not
prepared to pay very much, if anything, to enfranchise the subject property. We
prefer Mr Nesbitt’s opinion that lessees recognise the various benefits and
advantages that enfranchisement can bring, particularly the ability to extend the
terms of their leases and to eliminate ground rent. However, in our judgment,
Mr Nesbitt has exaggerated the significance in valuation terms of the ability
to control or manage their own affairs. It is likely that there would still be
costs associated with the management of a block of 20 flats, including possibly
the need to employ managing agents, and there would still be scope for disputes
to arise relating to the management of the block, even if the management
remains entirely with the nominee purchaser. Similarly, we are not persuaded
that very much should be attributed to the ability to correct or change the
covenants in the leases; they are relatively modern and in standard form and
there was no evidence that any problems had arisen or were likely to do so.
Submissions were made to us by both parties
concerning the relevance and weight that should be given to the settlement
evidence contained in LAN3/LAN4 and as to the ‘Delaforce effect’. We
were referred to Curtis v London Rent Assessment Committee [1998]
1 EGLR 79; Northumberland & Durham Property Trust Ltd v London
Rent Assessment Committee (No 2) [1998] 2 EGLR 99; Delaforce v Evans
(1970) 22 P&CR 770; Cadogan Estates Ltd v Hows [1989] 2 EGLR
216; Lloyd-Jones v Church Commissioners for England [1982] 1 EGLR
209; Lowther v Strandberg [1985] 1 EGLR 203; Windsor Life
Assurance Co Ltd v Austin [1996] 2 EGLR 169; Re Castlebeg
Investments (Jersey) Ltd’s Appeal [1985] 2 EGLR 209; Calthorpe Estate
Trustees v Pabari [1991] 2 EGLR 219. We note that LAN3/LAN4 were
agreed factually and Mr Bebbington’s evidence that, so far as he was concerned
in them, there were no special factors applying to them or any pressure applied
to leaseholders to agree a higher price than the market would have justified.
However, we have given our reasons why, in our judgment, in this case no
reliance should be placed on this settlement evidence in any event.
Having regard to our conclusions relating to the
evidence placed before us, we find that an uplift of 5% above the value of the
existing leases would be appropriate to reflect all the advantages and benefits
to leaseholders arising from enfranchisement, apart from the ground rent issue.
Elimination of ground rent
We conclude that in the market place leaseholders
would be prepared to pay an additional amount to reflect the ability to
eliminate the ground rent and that, as in the Perham Road decision, it
is entirely logical to allow for it in the assessment of MV.
Mr Rule’s final position was that his uplift of
1.5% (ie £9,990) almost entirely reflected this factor. However, he did not
support this figure with any evidence other than to rely on his intuition and
to point again to the Roydon Court information. We find that this element is
capable of straightforward valuation and we accept Mr Nesbitt’s figure of
£4,480.
Purchase price
Accordingly, we find that the price payable should
be determined as follows :
|
Value |
£656,000 |
|
|
Value |
£688,800 |
|
|
Add for elimination of ground rent |
£ 4,480 |
|
|
|
|
£693,280 |
|
Less |
|
|
|
1. |
£656,000 |
|
|
2. |
£ 9,600 |
|
|
|
|
|
|
|
|
£665,600 |
|
Marriage |
|
£ |
|
|
|
|
|
Freeholder’s |
|
£ |
|
|
|
|
|
Enfranchisement |
|
|
|
1. |
£ 9,600 |
|
|
2. |
£13,840 |
|
|
|
|
£ 23,440 say £23,450 |
We have reached a decision that is only slightly
at variance with that found by the valuation tribunal. In such situations this
tribunal may well be slow to interfere with that decision in accordance with
the approach to appeals set out by the president in Verkan & Co Ltd
v Byland Close (Winchmore Hill) Ltd [1998] 2 EGLR 139. Submissions were
made to us on this aspect but we do not understand counsel to disagree with the
president’s conclusions. However, the valuation tribunal’s decision in the
present case was given before the Perham Road case was decided, and
points of law have been argued before us that were not taken before the
valuation tribunal. Furthermore, certain discrepancies have been drawn to our
attention relating to some of the figures used by the valuation tribunal and it
is not entirely clear how their final decision as to the actual price to be
paid was arrived at. In these circumstances, we have decided, as is apparent
from our decision, to determine these appeals on the submissions and evidence
put before us.
The price payable by Abbathure under Schedule 6 to
the 1993 Act for the freehold interest in 16-35 Perry Green, Hemel Hempstead,
is determined in the sum of £23,450. The appeal by Maryland is allowed and the
cross-appeal by Abbathure is dismissed.
The price we have determined is dependent upon our
decision on the legal issue between the parties. We are required under r 50(4)
of the Lands Tribunal Rules 1996 to make an alternative award if we had decided
otherwise on the question of law, ie if we had accepted Mr Gallagher’s
submissions as to the factors that may be taken into account in assessing MV
for the purposes of Schedule 6 to the 1993 Act.
We are in some difficulty, however, in making an
alternative award on this basis because Mr Rule’s valuation was found not to
have been made in accordance with Mr Gallagher’s submissions. Indeed, in his
closing address, Mr Gallagher asked us to disregard even Mr Rule’s modest
assessment of MV of £390. Furthermore, we have found difficulty with Mr Rule’s
acceptance of an uplift well above the value of the ground rent when assessing
the value of the virtual freehold.
Doing the best we can with this unsatisfactory
position, we have reached the conclusion that our alternative calculation of
the price payable would have differed significantly in only one respect, namely
that no addition would have been made for the elimination of ground rent.
Making this adjustment to our calculation produces a slightly reduced price of
£21,200. This is almost identical to the price of
disturbed the decision. Both appeals would have been dismissed.
This decision determines the substantive issues
raised in the appeals and is final except as to costs. The parties are invited
to make such submissions as they are advised as to the costs of the appeals and
a letter accompanies this decision as to the procedure to be adopted. An order
for costs will be added as an addendum to this decision at which time
the decision will be completed and any right to appeal under section 3 of the
Lands Tribunal Act 1949 and RSC Ord 61 will accrue.
Addendum as to costs
We received submissions from both parties as to
costs. Maryland submits that the normal rule should apply, ie that as we have
allowed the appeal and dismissed the cross-appeal, costs should follow the
event and it should therefore be awarded its costs. Abbathure accept that
unless there are exceptional factors, Maryland is entitled to its costs.
However, it submits that there are such exceptional circumstances and that it
should be awarded its costs, or, alternatively, that no order should be made as
to costs.
Both parties made submissions based on the observations
as to costs made by Judge Rich QC in Sinclair Gardens Investments Ltd v Franks.
However, we do not regard the present proceedings as being on all fours with
the circumstances that arose in that case, where, inter alia, no
valuation evidence had been adduced by the tenants before the leasehold
valuation tribunal. Furthermore, as we point out in our decision in the present
case, important points of law arose that were not taken before the lower
tribunal, particularly as to the assessment of the virtual freehold and the
elimination of the ground rent. The latter issue was also the subject of
observations by the Lands Tribunal in the Perham Road decision, issued
after the leasehold valuation the subject of these appeals.
Maryland contended for an enfranchisement price
well above that found by the leasehold valuation tribunal and by us. On the
other hand, Maryland’s appeal was resisted by Abbathure, and its cross-appeal
was maintained to the extent that it contended that Maryland’s approach to the
assessment of the enfranchisement price was wrong in law and that there was a
nil MV. We found against it on both of these issues. Furthermore, it argued for
a price of £9,600, ie less than half of that found by the tribunal and by us.
We cannot accept Abbathure’s contention that its cross-appeal was, in reality,
no more than a formality.
Notwithstanding that we upheld Maryland’s
submissions of law, we rejected the principal evidential basis relied upon by
both valuers in forming their opinions as to the value of the virtual freehold,
although we accepted Mr Nesbitt’s figure for the elimination of the ground
rent.
We consider the circumstances are such that we
should depart from the normal rule and that the appropriate order is that there
should be no order as to the costs of the appeal or the cross-appeal, and we so
order.
Appeal allowed.
Annex 1
|
|
|
Nesbitt |
Rule |
|
|
|
£ |
£ |
|
A. |
|
|
|
|
(16 x |
|
656,000 |
656,000 |
|
|
|
|
|
|
|
|
|
|
|
2. |
|
705,376 |
665,990 |
|
Nesbitt: |
|
|
|
|
Rule: |
|
|
|
|
|
|
|
|
|
3. Add |
|
4,480 |
Nil |
|
Nesbitt: |
|
|
|
|
Rule: |
|
|
|
|
|
|
709,856 |
665,990 |
|
|
|
|
|
|
B. Gain |
|
|
|
|
1. |
665,600 |
|
|
|
2. |
9,600 |
665,600 |
665,600 |
|
3. Gain |
|
44,256 |
390 |
|
|
|
|
|
|
C. |
|
22,128 |
195 |
|
|
|
|
|
|
D. |
|
|
|
|
1. |
|
9, 600 |
9, 600 |
|
2. |
|
22,128 |
195 |
|
|
|
31,728 |
9,795 |
|
|
|
|
|
|
|
say |
31,750 |
9,800* |
*In
his closing submissions Mr Gallagher contended for £9,600, as appears in the
decision.
