First s31 application in London (and possibly elsewhere) — Determination of consideration payable for landlord’s interest — Date of valuation — Premises in West Brompton, S W London, terrace house on four floors divided laterally into four self-contained flats — Each flat let for 99 years from 1983 at annual rent of £100 for first 33 years, £150 for next 33 years and £200 for residue of term — Covenant by each lessee to pay one quarter of lessor’s repairing covenant costs — Landlord’s failure to comply with his covenant obligations — County court order that lessees entitled as a result to acquire freehold interest — No response to application or appearance at hearings by landlord
lessees’ surveyor of deterioration in condition of premises to greater degree
than through normal wear and tear — Multiplier of 5 applied by surveyor to
total annual income of £400 to give proposed figure of £2,000 — On tribunal’s
inspection, condition of premises appeared better than expected, but apparent
that little maintenance carried out to exterior for some years and that
landlord or his predecessors had failed properly to fulfil obligations under
his covenants
date of valuation — Tribunal consider it must be either date of court order or
date of hearing — As these dates were only two months apart in present case,
the choice of either one did not affect value — If a choice were necessary,
however, Tribunal would have selected date of hearing
had to reimburse repairing costs, value of freehold reversion, tribunal state,
not directly affected by condition of premises, although prospective purchaser
would not regard this as attractive investment — Tribunal satisfied, after
carrying out their own check calculation, that £2,000 a fair and reasonable
estimate of amount of landlord’s interest in accordance with s31(2) —
Determination accordingly — No further determination of terms required
No cases are
referred to in this report.
Miss S Steer,
articled clerk of Hudson Freeman Berg, solicitors, appeared for the applicant
company; no appearance by the respondent landlord.
Giving their
decision, THE TRIBUNAL said: This is an application under section 31 of the
Landlord and Tenant Act 1987 (‘the Act’) for the determination of the terms on
which the landlord’s interest in 139 Finborough Road, London SW 10, may be
acquired by the nominated person, 139 Finborough Road Management Ltd (‘the
management company’). It is the first application in London (and, as far as we
know, in the country as a whole) under Part III of the Act (compulsory
acquisition by tenants of their landlord’s interest), and it will be convenient
to begin by outlining the law.
The Act
enables qualifying tenants of flats in premises to which Part III applies to
make an application to the court for an acquisition order providing for a
person nominated by them to acquire their landlord’s interest in the premises
without his consent on the grounds, inter alia, that the landlord is in
breach of any obligation owed by him to the tenants under their leases relating
to the repair, maintenance, insurance or management of the premises or any part
of them. Where such an acquisition order is made, the order shall provide for
the nominated person to be entitled to acquire the landlord’s interest in the
premises specified in the order on such terms as may be determined by agreement
between the landlord and qualifying tenant or, in default of agreement, by a
rent assessment committee. When constituted for the purpose of determining such
terms a rent assessment committee are known as a leasehold valuation tribunal
(‘the tribunal’).
Where an
application is made under section 31 the tribunal shall determine the terms, to
the extent that they have not been agreed between the parties, on the basis of
what appears to them to be fair and reasonable (subsection (1)), and where the
application is to determine the consideration payable for the acquisition of the
landlord’s interest the tribunal shall do so by determining an amount equal to
the amount which, in their opinion, that interest might be expected to realise
if sold on the open market by a willing seller on the appropriate terms and on
the assumption that none of the tenants of the landlord of any premises
comprised in those premises was buying or seeking to buy that interest
(subsection (2)). The ‘appropriate terms’ means all of the terms to which the
acquisition of the landlord’s interest in pursuance of the order is to be
subject apart from those relating to the consideration payable (subsection
(3)). On such an application, the interests of the qualifying tenants shall be
represented by the nominated person (subsection (4)).
Number 139
Finborough Road (‘the premises’) is a late-19th-century terrace house on four
floors, divided into four self-contained residential flats. The Proprietorship
Register in HM Land Registry shows the present proprietor as Michael Mansoor
(‘the landlord’) of 108 Clarence Road, London E5, registered with title
absolute on September 11 1985. The two immediately previous registered
proprietors with title absolute were Walbrooks Ltd, registered on March 12
1985, and Frengold Ltd, registered on March 2 1983.
The four flats
in the building are on the lower-ground floor (flat A), the ground floor (flat
B), the first floor (flat C) and the second floor (flat D). All the flats were
let by Frengold Ltd under leases in similar but not identical terms, in
consideration of the payment of premiums, for 99 years from September 29 1983.
In each case the annual rent payable for the first 33 years of the term is
£100, for the next 33 years £150 and for the residue of the term £200. In
addition, each lessee covenants to pay to the lessor one-quarter of the costs
incurred by the lessor under his repairing covenants, together with one-quarter
proportion of the insurance premium expended by the lessor in respect of the
premises (in the lease for flat A the proportion is stated as one-third, but
Miss Steer explained to us that she thought this was an error which had been
regarded as such).
Each lease
contains a covenant by the lessor to maintain, repair, redecorate and renew the
main structure and common parts of the premises and the gas and water pipes,
water tanks, drains and electric cables and wires in the premises enjoyed or
used in common by the owners and lessees of the flats in the premises.
Following an
application by the lessees in the West London County Court for the acquisition
of the premises on the grounds that the landlord had failed to comply with his
obligations under the respective leases, the court ordered on December 22 1989
that ‘pursuant to section 29 of the [Act] [the management company] be entitled
to acquire the freehold interest of [the landlord] in the premises upon such
terms to be determined by agreement between [the landlord] and [the management
company] or in default of such agreement within 14 days from the date of this
Order the matter shall be referred to the Rent Assessment Committee for the
determination pursuant to section 31 of the Act’.
As no such
agreement was forthcoming, Hudson Freeman Berg, solicitors, of 94 Gloucester
Place, London W1, on behalf of the management company applied, on January 25
1990 under section 31 of the Act, to the tribunal for a determination to settle
the price payable under that section and to settle the terms of the conveyance.
The price considered to be payable at the date of the acquisition order was
stated to be £2,000.
No response to
this application has been received from the landlord; indeed, he has taken no
part in these or the previous county court proceedings.
Hearing
Miss Steer put
in evidence an affidavit of Richard Alan Rigby Taylor FRICS, of 1 London Road,
St Albans, Hertfordshire. He deposed he had been practising as a chartered
surveyor for 16 years and during the past nine years had been in private
practice as a building surveyor working primarily in connection with properties
in the London area, regularly advising both private individuals and
professional property developers on structural, development and valuation
aspects of residential property. He described the premises and exhibited to his
affidavit a brief schedule of repair work prepared by him following an
inspection on Tuesday, July 11 1989. The schedule referred to work mainly in
connection with flat D and indicated a number of problems resulting from water
penetration through the roof and the party wall between the premises and the
adjoining property. The schedule detailed the works of repair required, but
these were not priced.
It was Mr
Taylor’s professional opinion that the state and condition of the building had
deteriorated to a greater degree than would normally have been expected through
normal wear and tear and he concluded that this could be as a result of the
failure of the freeholder to regularly repair and redecorate the building in
accordance with the obligations under the terms of the leases of the individual
flats.
Mr Taylor’s
affidavit told us that Finborough Road is a busy primary route on a north/south
access through west London which he understood is in continuous use by heavy
lorries throughout the day and night and is also a bus route. He explained that
the current practice provides that the valuation of the freehold interest in a
building such as these premises is based upon the application of a multiplier
to the total annual income of the property, which in the case of the premises
he was advised is £400. He considered the appropriate multiplier is 5 having
regard to the condition of the premises, its location and type.
Miss Steer
told us that the premises may have deteriorated further since Mr Taylor’s
affidavit. They had not been decorated by the landlord for at least a period of
five years. She was unable to tell us the price the landlord paid on the
assignment of the premises to him. The tenants of flats B and D had carried out
some repairs and had effected insurance on their individual flats, although the
premises as a whole were uninsured.
In arriving at
the multiplier of 5, it was Miss Steer’s view that Mr Taylor had taken into
account the condition of the premises. She pointed out that the tenants would
have to pay for the landlord’s cost of repair by way of service charge, which
should not, therefore, directly affect the price to be paid under the
acquisition order, but the management involved would be a nuisance element to a
purchaser from the landlord.
In response to
a question from the tribunal, Miss Steer submitted that the date of the
valuation was the date of the hearing, and in support of this submission she
referred to the phraseology used in the order of the county court.
Inspection
Although the
premises are now an end-of-terrace property, it is evident that previously
there were adjoining houses which at some time in the past had been demolished.
We concur with Mr Taylor in his comments on the locality. We were able to see
the common parts, the roof and the interior of flats B and D. From what we saw,
the condition of the premises appeared to be better than we had expected,
although it is not possible to say what damage a detailed structural survey
might reveal and how extensive would be the remedial works required.
Nevertheless, it is apparent that little maintenance has been carried out to
the exterior for some years and that the landlord or his predecessors has
failed properly to fulfil the obligations under his covenants in the leases.
Decision
The Act is
silent on the date of valuation. It seems to us it must either be the date of
the order of the court or the date of the hearing. In this case, as the two are
only six months apart, the choice of one date against the other would make no
difference to our valuation, but if we had to select a date we would accept
Miss Steer’s submission that it ought to be the date of the hearing.
In arriving at
our determination we have borne in mind that, although the premises are not in
a satisfactory state of repair as a consequence of the failure of the lessor(s)
to comply with the covenants in the leases, the lessees have to reimburse the
lessor for the cost of repairs. It follows that the value of the freehold
reversion is not directly affected by the condition of the premises, although
any prospective purchaser knowing he had to manage the premises by putting and
keeping them in repair, and by insuring them, would not regard this as an
attractive investment. To that extent there is a nuisance element involved in
any valuation which can be reflected in the multiplier used.
Mr Taylor’s
application of a multiplier of 5 (representing an interest rate of 20% in
perpetuity) to the present ground rents totalling £400 produces a figure of
£2,000. This might be thought too simplistic an approach in that it disregards
the prospective increase in the ground rents to £600 in the year 2016 and £800
in the year 2049. We satisfied ourselves that this is not so by the following
calculation:
|
First 26 1/3 years |
Total ground rents per annum |
|
£400 |
|
|
|
|
(From date of (valuation) |
YP 26 1/3 years @ 20% |
|
|
4.959 |
|
£1,984 |
|
Next 33 years |
Total ground rents per annum |
|
£600 |
|
|
|
|
YP 33 years @ 20% |
4.988 |
|
|
|
|
|
|
Defer 26 1/3 years @ 20% |
0.0082 |
|
0.04 |
|
24 |
|
|
Final 33 years |
Total ground rents per annum |
|
£800 |
|
|
|
|
YP 33 years @ 20% |
4.988 |
|
|
|
|
|
|
Defer 59 1/3 years @ 20% |
0.0001 |
|
0.0005 |
|
– |
|
|
|
|
|
|
2,003 |
||
|
|
|
Say |
|
£2,000 |
Mr Taylor provided no evidence to support his multiplier of 5.
However, the landlord has not disputed it, and our own understanding of the
market in freehold ground rents gave us no reason to dissent from this figure.
We are satisfied that it is a fair and reasonable estimate of the amount the
landlord’s interest in the premises might be expected to realise if sold in the
open market by a willing seller on the assumption we are required to make under
section 31 (2) of the Act that none of the tenants is buying or seeking to buy
that interest. We also have had regard to the onerous management burdens
imposed on the freeholder by his repairing and insuring covenants.
Accordingly,
we determine that the consideration payable for the landlord’s interest in the
premises is £2,000 for the purpose of the required transfer by the landlord of
the freehold reversion in the premises to 139 Finborough Road Management Ltd.
Miss Steer did
not consider that any further determination of the terms of acquisition was
required, but if subsequently this proves necessary application can be made to
the tribunal.
