Rent on extended lease of Highgate, London, terrace house — Tenant’s notice served after expiry of original term — Whether valuation date was term date of expired lease (December 25 1979), date of tenant’s notice (April 3 1980) or date of tribunal hearing (February 10 1983) — Legal submission for landlords for hearing date, since valuer would need to take into account fact that the new lease would be granted within next 12 months and letting value would be based on date from which rent would commence — Interpretation of s 15(6) in conjunction with s 15(2) — Tribunal reject this argument — Difficulty that no firm date for valuation ascertainable — Not possible for tribunal or any other party to determine whether events which affect valuation would materially alter during next 12 months — Practical effect of s 15(6) is that landlord cannot reclaim new rent earlier than date of tenant’s application or original term date whichever is later — Tenant’s notice date therefore valuation date in present case — Standing-house approach by landlords’ valuer accepted as only method available because of lack of evidence from other sources — But valuation including use of Nationwide Building Society statistics to derive scale of percentage increases ‘too rigid and generalised’ — Tribunal do not accept premise that where property prices rise faster than building costs, differential is attributable more or less entirely to the site — Proportion of value attributable to site taken as 30% instead of valuer’s 42 1/2% — Modern ground rent determined at £840 against landlords’ claim for £1,385
Nicholas
Dowding (instructed by Harold Stern & Co) appeared for the applicant
landlord; the respondent tenant did not appear and was not represented.
Giving their
decision, THE TRIBUNAL said: This decision is made on an application submitted
on behalf of the landlord, Riversea Lodge Ltd, for a determination of a rent
payable in accordance with section 15(2) of the Leasehold Reform Act 1967 for
the house and premises 28 Northwood Road (formerly known as 3 Dudley Villas,
Northwood Road), Highgate, London N6. The tenant, Mrs Doris Howe, is holding
over under the terms of a lease dated August 29 1882 for a term of 99 years
with effect from December 25 1880 at a ground rent of £6.50 per annum payable
by equal quarterly payments.
The tenant’s
notice of her claim for an extended lease of the house and premises, which was
dated April 3 1980, was not admitted as valid by the freeholder’s solicitors in
a notice dated May 29 1980, but by a subsequent letter dated August 13 1982 the
tenant’s notice was accepted as a valid notice on behalf of the freeholders.
Before calling
Mr A G H Taylor FRICS, a partner in the firm of Taylor Stidston & Co, Mr
Dowding drew the tribunal’s attention to Mr Taylor’s report and valuation,
copies of which had been provided before the hearing date both to the members
of the tribunal and to the tenant. In calculating his valuation, Mr Taylor had
taken the date of the tenant’s notice of claim for an extended lease as the
date for valuation. However, Mr Dowding pointed out that in the case of a claim
for an extended lease section 14(1) of the Leasehold Reform Act 1967 provided
that the new tenancy should be for a term expiring 50 years after the term date
of the existing tenancy and in normal circumstances the letting value should be
ascertained in accordance with the principles of section 15(2) of the Act, ie
at the term date.
In the present
case the tenant had served her notice for an extended lease some time after the
lease had expired and in these circumstances the provisions of section 15(6) of
the Act came into effect because the new tenancy would be granted after the
original term date.
From his
interpretation of section 15(6), in conjunction with section 15(2), Mr Dowding
maintained that the valuer would need to take into account the fact that the
new lease would be granted within the next 12 months and the letting value
would be based on the date from which the rent would commence. He suggested
that in these circumstances it would be appropriate for the valuer to assess
the rent for the new lease as at the date of the hearing. In support of his
arguments Mr Dowding referred the tribunal to certain passages on pp 3602 and
3603 in Woodfall’s Landlord and Tenant which dealt with the
circumstances arising after the late service of a notice by a tenant for an
extended lease.
In answer to
questions, Mr Dowding confirmed that the terms of the new lease to be granted
would be the same as those contained in the previous tenancy — vide section
15(1) of the Act. It was not proposed to ask for an adjournment of the hearing
as Mr Taylor had already prepared further valuations based on the term date of
the expired lease (December 25 1979) and the date of the hearing (February 10
1983). This would give the tribunal the opportunity of considering the legal
point raised and to utilise whichever valuation it was thought appropriate.
In his written
report Mr Taylor described 28 Northwood Road, which he had inspected in detail
with the consent of the tenant. It is a terrace house built about 1880 on
basement, ground and first floors. The main walls are of stock brick under a
slated roof with the rear additions having flat roofs. The area at the front of
the property is concreted and there is a rear garden. The site has a width of
about 17 ft 9 in at the front widening out at the rear to about 20 ft and it
has a depth of about 110 ft; the total area being about 2,000 sq ft. The
reduced covered area of the house is 1,850 sq ft. There are three bedrooms on
the first floor, two living-rooms on the ground floor with intercommunicating
doors and a wc and bedroom in the rear addition. The basement has a dining-room
at the front, a bedroom at the rear and a kitchen with fitted bath and hot and
cold water supply in the rear addition. There is a disused wc outside at the
rear.
Mr Taylor
considered the house to be generally in poor condition and he drew attention to
a number of defects, viz considerable rain penetration in the past in the
first-floor rooms, a temporary repair of the back addition roof with bituminous
solution and hessian, rising damp in the basement, while the pointing to the
brickwork on both front and rear elevations is in bad condition. There are
areas of defective guttering on the rear elevation, outside wood and ironwork
is badly in need of redecoration, while leaks over the ground-floor bay window
have brought down an area of ceiling exposing roof timbers which are infected
with fungus (possibly dry rot). There is damp penetration in the ground-floor
rear-addition bedroom and signs of fungal attack in the skirtings. Various
areas of ceiling have
plaster have been damaged by damp and the house as a whole is in poor
decorative order. From inquiries made of the local planning authority it
appeared that there were no current redevelopment proposals likely to affect
the property nor is it ‘listed’ or in a conservation area.
Mr Taylor had
made extensive inquiries to ascertain whether there were any details of
open-market transactions involving the sale of vacant building plots in the
area or, alternatively, the granting of ground leases, but was forced to the
conclusion that no such transactions had actually taken place. He had
accordingly prepared his valuation on the standing-house basis, which he
considered to be a reasonable alternative method of valuation in this case as
the subject property is likely to remain standing for the foreseeable future.
There were no
sales of houses within the terrace at Mr Taylor’s valuation dates, but for the
purposes of his valuations he utilised the sale prices of 34 and 38 Northwood
Road, which are in the same terrace as the subject house and had been sold
during the last two years. From the sale particulars of the two properties
(copies of which were submitted) it appeared that they were identical with the
subject house when originally erected. The only differences now are that the
basement of no 34 is rather larger than that at no 28, while 28 has a rear
addition at first-floor level whereas 34 does not. No 38 has been modernised
and the floor levels have been changed, so that the property is now on two
split levels. Mr Taylor believed that both 34 and 38 had damp-proof courses. No
34 was sold for £28,350 in August 1978 and no 38 sold in May 1982 for £51,500.
Utilising
statistics from the house price quarterly reports of the Nationwide Building
Society and estimating the figures for the last quarter of 1982 Mr Taylor
adjusted the above-mentioned sale prices to accord with his original date for
valuation, namely, April 3 1980. He then made further adjustments to bring the
figures into line with the two further dates for valuation which had been
suggested. He maintained that these comparable transactions as adjusted
suggested a value for the subject premises at the relevant dates and in each
instance he took the average of the two adjusted prices, which assumed the
existing building put into reasonable repair and modernised. He arrived at a
figure of £45,570 as at December 25 1979, £46,500 at April 3 1980 and £53,000
as at February 10 1983.
Before
arriving at the value of the site alone Mr Taylor had studied a number of Lands
Tribunal decisions in this connection, in particular that of Farr v Millersons
Investments Ltd (1971) 218 EG 1177. In that case it was accepted that the
percentage of value attributable to the site would be normally expected to be
25% to 35% outside London and in the order of 40% for central London and the
inner suburbs. Bearing in mind the level of values prevailing in the area
generally and the uplift in housing land prices around December 29 1979, Mr
Taylor thought that 42 1/2% was the appropriate percentage in that instance.
However, the property market had levelled out during the first half of 1982 so
that in his opinion a lower percentage of 35% accurately reflected site values
as at February 10 1983. To arrive at the decapitalisation of the site value Mr
Taylor had adopted 7%, which had been used in a number of Lands Tribunal
decisions.
Mr Taylor’s
valuations are as follows:
|
December 25 1979 |
|
|
|
Capital |
£45,570 @ 42 1/2% = |
£19,367 |
|
Decapitalise |
|
7% |
|
Modern |
|
£1,356 |
|
Say |
£1,350 |
|
|
April 3 1980 |
|
|
|
Capital |
£46,500 @ 42 1/2% = |
£19,762 |
|
Decapitalise |
|
7% |
|
Modern |
|
£1,383 |
|
Say |
£1,385 |
|
|
February 10 1983 |
|
|
|
Capital |
£53,000 @ 35% = |
£18,550 |
|
Decapitalise |
|
7% |
|
Modern |
|
£1,298 |
|
Say |
£1,300 |
In each case Mr Taylor has assumed that the new lease would run from
the valuation date and would be a lease for 50 years with a rent review after
25 years.
We visited 28
Northwood Road during the afternoon of February 10 1983 but, although advance
notice of our call had been given to the tenant, we were unable to gain access
to the property. However, its external appearance accorded with the description
and photographs submitted by Mr Taylor and we also had the benefit of his very
detailed description of the house. We inspected from the pavement 34 and 38
Northwood Road, which appeared to be very similar properties to no 28, albeit
in better external repair. We understood that 30 Northwood Road, immediately
next door to the subject house and in the same terrace, was advertised for sale
at a figure of £58,500.
Decision and
reasons
Our first
consideration must be to establish the date of valuation for the letting value
of the extended lease and we have examined with care the legal argument on this
point put forward by Mr Dowding. This is a new argument so far as our tribunal
is concerned and we have been unable to find any reference to such a point in
other decisions. While we can appreciate Mr Dowding’s line of reasoning which
leads to his interpretation of section 15(6) in conjunction with section 15(2)
of the Act, the acceptance of such an interpretation does present the
difficulty that no firm date for valuation is ascertainable.
We accept Mr
Dowding’s statement that in the present instance a new lease will be granted
during the next 12 months but, in our opinion, it is not possible for us, or
any other party, to determine whether the events which affect the valuation
would or would not materially alter during such a period.
In our view,
Mr Dowding’s suggestion to utilise the date of this hearing as the date of
valuation does not meet this difficulty and we must reject his interpretation
and arguments. We consider that the practical effect of section 15(6) is to
make it clear that the landlord cannot reclaim the new rent from a date earlier
than the date on which the tenant claimed an extended lease, described in the
subsection as ‘the relevant time’, or the original term date whichever is the
later. This clearly points to the commencement date of the new rent (section
15(2)(b)) because in the present case the tenant’s notice was served after the
term date of the expired lease. We have accordingly taken April 3 1980 as our
date for valuation.
Commenting on
Mr Taylor’s valuation as at April 3 1980, we accept that the standing-house
approach, while not always desirable, is the only method available to us in
this instance because of the lack of evidence on values from other sources.
However, we are unable to agree with Mr Taylor’s figure of £46,500 for the
subject house at the relevant time. In our opinion, the method he adopted to
arrive at this figure and the use of the Nationwide Building Society statistics
to derive a scale of percentage increases was far too rigid and generalised and
not supported by the evidence he gave relating to the sale of 34 Northwood Road
in 1978.
We were not convinced
by Mr Taylor’s arguments for taking, at the relevant date, 42 1/2% as
representative of the capital value of the site. The land is of modest
dimension in its frontage and tightly located in a terrace of similar
properties. In particular we could not accept the premise that, where property
prices rise faster than building costs, the differential between these two
elements is attributable more or less entirely to the site; thus influencing
the percentage. In our view, there will be a certain correlation between these
two factors but not to the extent argued by Mr Taylor.
As to the rate
of interest to decapitalise the site value we agree that 7% is appropriate.
For the
reasons given above, we have not accepted Mr Taylor’s valuations based on
December 25 1979 and February 10 1983.
Our valuation
is as follows:
|
Standing-house value |
£40,000 |
|
Proportion attributable to |
£12,000 |
|
Decapitalise @ |
7% |
|
Modern ground rent |
£840 |
The tribunal accordingly determine that the annual rent to be
reserved on the basis of section 15 of the Leasehold Reform Act 1967 for 28
Northwood Road, London N6, shall be £840.
