Rent payable under extended lease of house at Bowes Park, N London — Extended lease for 50 years granted to tenant’s predecessor in title from December 1978 and assigned to tenant in December 1982 — Present landlords acquired freehold in June 1983 — Evidence that rent at old rate (£6.75 pa) continued to be paid for some four years after commencement of extended lease — Preliminary issue whether tribunal’s power to determine modern ground rent is exercisable after commencement of extended term and whether such rent had been agreed at £6.75 by parties — S15(2)(b), contrary to tenant’s submission, has, in tribunal’s view, no relevance as a time-limit within which parties or tribunal must determine rent — Alternatively, s15(2)(c) provides a commencement limit for period during which parties or tribunal may determine rent but gives no termination limit — Held that power to determine rent payable on extended lease is exercisable after commencement of extended term — Tribunal rejects tenant’s submission, relying on Sched 1, para 10(4), that on expiry of original lease no obligation accrued to tenant to pay modern ground rent — If on correct construction of extended lease a modern ground rent is determinable, such determination binds tenant — Further submission by tenant that by demanding and accepting rent at old rate for four years landlords had agreed rent for first 25 years of extended lease not upheld — Clear and unambiguous evidence of an agreement or conduct required to establish landlords prepared to continue rent at level originally fixed in 1879 — Finding that there was no agreement between parties as to modern ground rent and that tribunal had jurisdiction, in default of such agreement, to determine rent payable.
of rent payable — Rents charged for modern properties, in tribunal’s view,
depressed by reason of developer’s wish to obtain high price for leasehold and
no reliance placed on them — Level of fair rents, on which tenant’s valuer
based his valuation, not relevant vide Lands Tribunal’s decision in Carthew’s
case — Standing house approach adopted by landlords’ valuer the correct
approach, but his 38% for site value not accepted — Percentages of this order
applicable only to sites nearer centre of London with immediate access to all
amenities of metropolis — Tenant’s proposed 30% more appropriate for London
suburban sites, but 27 1/2% adopted by tribunal as site unattractive,
overlooked and awkward to develop — Determination of £435 pa against tenant’s
figure of £150 to £225 pa and landlords’ £585 pa
Wayne Clark
(instructed by Green Daniel Conway & Co) appeared for the applicants, the
landlords; D C Gerrey (instructed by Frank E C Forney & Partners) for the
respondent, the tenant, Mr C J Creasey.
This decision
is made on an application by the landlords for a determination of rent payable
in accordance with section 15(2) of the Leasehold Reform Act 1967 for the house
and premises at 13 Whittington Road, London N22. The tenant’s predecessor in
title, Mrs D E Ashby, held the said property under a lease dated July 27 1880
for a term of 99 years with effect from December 25 1879 at a ground rent of
£6.75 per annum, and by notice dated June 9 1972 given to the landlord’s
predecessor in title, the Hearts of Oak Benefit Society, she claimed the right
to an extended lease of the house and premises under the Leasehold Reform Act
1967. Pursuant to such notice, on December 5 1972 an extended lease for the
statutory period of 50 years was granted to Mrs D E Ashby to commence on
December 25 1978, being the date on which the original term expired. Mrs D E
Ashby assigned her leasehold interest under the said lease in 13 Whittington
Road to the tenant, Mr C J Creasey, which was registered at HM Land Registry on
December 6 1982. On June 1 1983 the landlords acquired the freehold interest in
the said house and premises from the Hearts of Oak Benefit Society.
At the hearing
on December 10 1984 the tribunal was requested by counsel for the landlords to
determine the rent payable in accordance with section 15(2) of the Act and
clauses 1 and 6 of the extended lease. The landlords proposed the sum of £585
pa as the modern ground rent. Counsel for the tenant submitted that the parties
had agreed the modern ground rent at £6.75 pa, that the landlords had accepted
rent in that sum from the former tenant, Mrs D E Ashby, and the present tenant
and that section 15(2)(b) of the 1967 Act excluded revision of that rent within
the period of 25 years. Accordingly, on behalf of the tenant he submitted that
the landlords’ application to the tribunal was not valid. The tribunal
adjourned and gave its reasons in writing as set out below on January 14 1985.
Decision as to
jurisdiction
By section
21(1) of the 1967 Act as amended we have power to determine the amount of the
modern ground rent payable on an extended lease but only in default of
agreement. It is, therefore, necessary to decide the preliminary issues raised
by counsel for the tenant whether the power of determination is exercisable
after the commencement of the extended term and whether the modern ground rent
has been agreed at £6.75 by the parties.
By the
extended lease dated December 5 1972 under which the tenant now holds, the
original ground rent of £6.75 is payable until the expiry date of the original
lease at December 25 1978. Thereafter, by clause 6 of the extended lease, a
modern ground rent is to be payable (subject to 25-year review) calculated in
accordance with section 15(2). Counsel for the tenant contended that by
operation of section 15(2)(c) of the Leasehold Reform Act 1967 and clause 6(2)
of the extended lease, the period for determination of the modern ground rent
was restricted to a 12-month period immediately preceding (and terminating at)
the date of expiry of the original lease. He also relied on section 14(2) of
the 1967 Act in support of this construction.
In our view,
this contention is ill-founded for the following reasons:
(a) Section 15(2)(b) of the 1967 Act provides
the date by reference to which the valuation of the modern ground rent has to
be calculated, and subsection 2(c) does no more than permit such valuation to
be made, or more accurately ‘forecast’, 12 months, but no more, in advance of
that valuation date. The
parties or the tribunal must determine the rent.
(b) Alternatively, subsection 2(c) provides a commencement
limit for the period during which either the parties or the tribunal may
determine the rent but gives no termination limit to that period. It is
open-ended in the sense that either party may apply for its determination
subsequent to the expiry date of the original lease. This construction is supported
by section 15(6), which contemplates a situation where not only the
determination of a modern ground rent is subsequent to the expiry of the
original term but also the grant of an extended term. It is also borne out by
the requirement in section 15(2)(c) relating to written notice of the
landlord’s right to revise the rent after the first 25 years: for the giving of
such written notice a period is defined both at commencement (12 months prior)
and at termination (the expiry of the 25th year of the lease); but, as with the
original determination of the modern ground rent, no such defined period is
made for the determination of rent payable for the second 25-year period.
(c) Section 14(2)(c) relied on by the tenant is
a provision relating to recovery of costs and implies no termination point
for the period in which the parties or tribunal may determine the rent.
(d) A period limited to 12 months as contended by
the tenant’s counsel for determination of the modern ground rent appears
unreasonably short for all valuation purposes. The tenant is not prejudiced by
the absence of any termination date for the determination, since he himself may
always apply to the tribunal at any time for its determination if he cannot
obtain the landlord’s agreement; further, the valuation date for the modern
ground rent is fixed at the commencement of the extended term, subsequent rises
in price being irrelevant; and until the modern ground rent is determined, the
tenant by paying at the lower rate enjoys the use of his money.
(e) The situation is analogous, despite the 1967
Act being designed to give the tenant the right to enfranchisement, to the rent
review cases where, on the authority of the House of Lords’ decision in United
Scientific Holdings Ltd v Burnley Borough Council [1977] 2 All ER
62, time is not of the essence in implementing review clauses.
We accordingly
hold that the power to determine the rent payable on the extended lease is
exercisable after the commencement of the extended term.
Counsel for
the tenant also submitted that on the expiry of the original lease, no
obligation accrued to the tenant when he acquired the leasehold interest in
December 1982 to pay a modern ground rent and he relied on Schedule 1, para
10(4) in support. That schedule, in our view, relates to extension by
subtenants and has no application here. The tenant, as assignee of the original
tenant, holds on the terms of the extended lease, and his rights and
obligations are governed by that lease. If on the correct construction of that
lease a modern ground rent is determinable, such a determination binds the
tenant.
The final
submission of counsel for the tenant was that the original and present
landlords, by demanding and accepting rent at the old rate of £6.75 from the
original tenant and the tenant for the period from the commencement of the
extended lease to March 23 1983, had agreed that the rent for the first 25
years of the extended term should be at that rate. As supporting evidence, Mr
Gerrey produced a demand for rent for £3.37 for a six-month period dated March
23 1983 from the original landlords, the Hearts of Oak Benefit Society. In
answer to questions from the tribunal, he said that the tenant’s cheque in
payment of that demand and a further payment of £6.75 made in March 1984 had
not been accepted by the landlords.
On behalf of
the landlords, Mr Clark denied that there had been any agreement between
landlords and tenants as to the modern ground rent. He relied on a statement of
Mr R F Cheshire FRICS, partner in Walker Son & Packman, chartered surveyors
to the former landlords. Mr Cheshire said that there had been no agreement as
to rent reached with the former tenant, Mrs D E Ashby. Mr Clark also relied on
the evidence of Mr Rosen, managing director of the landlords, who produced two
letters, dated June 28 1983 and March 23 1984, in which he demanded payment of
rent at a rate higher than £6.75 pa from the tenant. The tenant had not agreed
to pay rent at the higher rate.
While the
tribunal places no great reliance on the written statement of Mr Cheshire, the
evidence produced on behalf of the tenant establishes, at most, that rent
continued to be paid at the old rate for some four years after the commencement
of the extended lease. In our opinion this falls far short of establishing an
agreement between the parties to modify the term of the lease for determination
and payment of an increased rent, a term which is clearly set out in a written
agreement and which constituted, as provided by the 1967 Act, the consideration
for the grant of the extended term. Nor, in our view, does the evidence adduced
by the tenant support any estoppel debarring the landlords from relying on the
written lease and its terms. Clear and unambiguous evidence of an agreement or
conduct is required to establish that the landlords were prepared to continue a
rent beyond the original 99 years for another 25 years at a level which was
originally fixed in 1879. Accordingly, we find that there is no agreement
between the parties as to the modern ground rent and that we have jurisdiction,
in default of such agreement, to determine the rent payable for the house and
premises in accordance with section 15(2). Our jurisdiction is, of course,
confined solely to the assessment of the amount of the modern ground rent; we
are not concerned with questions relating to its recovery or for what amount or
period.
It follows
that we find the application submitted to the tribunal on behalf of the
landlords to be a valid application. The matter can now proceed to a further
hearing when we will consider evidence on valuation.
Second hearing
on March 4 1985
The tribunal
reconvened to determine the amount of the modern ground rent in accordance with
section 15(2) of the 1967 Act as amended. Counsel for the tenant requested the
tribunal to assess the rent at a figure of £150 to £225 per annum. He produced
a valuation from Mr D H Barnfield FSVA MRSH, of Stephen Gracey, estate agents,
Palmers Green, London N13, dated March 4 1985 in which he stated that the
building as it stood commanded a registered rent of £750 pa exclusive and that
the ground rent to the site would be in the region of £225 pa exclusive,
calculated at 30%. He applied this ratio, 30%, as being that used for the
purpose of calculating the value of the freehold interest under the Leasehold
Reform Act 1967, where the site value would represent approximately 30% of the
total value of the vacant possession value of the property as a whole. In his
opinion, the vacant possession value of the property as a freehold was £45,000.
He asserted that any increase in the proposed figure for the rent would have a
serious effect upon the saleability of the property in the future, bearing in
mind that most modern ground rents were at a level of between £50 and £150 pa for
properties in urban areas.
On behalf of
the landlords Mr F D Jones FRICS, senior partner in Sturt & Tivendale,
chartered surveyors, submitted a valuation as follows:
|
Capital value of the property on a freehold basis with |
£23,500 |
|
|
Site value — London suburb — |
|
|
|
Say 38% of capital value or |
|
|
|
6 rooms at £1,500 per room, |
|
|
|
Land value for a serviced site in an established road |
9,000 |
|
|
Modern ground rent as at December 25 1978 |
|
|
|
6 1/2% of standing house site value |
£585 |
pa |
In support of his valuation, he submitted a plan of Whittington Road
showing the location and shape of the site of the subject property, a list of
four comparable properties, a plan showing their location by reference to the
subject property and its location in a well-established neighbourhood in Bowes
Park, predominantly residential but with some commercial use, very convenient
for British Rail and London Underground stations, bus routes and local
amenities. The date of valuation was December 25 1978 and was crucial to the
assessment, as in 1977-78 prices of secondhand old houses rose more than in the
whole of the four previous years. There was a plateau at December 1978, which
lasted for only a short time as prices rose even more during 1979. The Nationwide
Building Society Index of prices for older secondhand houses showed the
following rise:
|
1973 |
4th quarter |
100 |
|
1977 |
4th quarter |
134 |
|
1978 |
4th quarter |
171 |
|
1979 |
4th quarter |
229 |
|
1984 |
4th quarter |
341 |
Since December 1978, values had doubled as at the present day,
giving on his valuation of £23,500 at December 1978 a current value of £47,000,
which was reasonable. He supported his entirety value by
February 1979, at a time when transactions would reflect conditions at
Christmas 1978, making due allowance for preliminaries between the property
being put on the market and the acceptance of an offer. The particulars of
these transactions, concerning Victorian or Edwardian houses with approximately
similar accommodation, were as follows:
|
Internal |
Value |
Remarks |
|
|
Subject Property |
1,223 |
£23,500 |
Estimated with repair covenants satisfied |
|
66 Dunbar Road, N22 |
827 |
£21,500 |
Modern extension, small plot, small floor area, |
|
40 Sirdar Road, N22 |
1,280 |
£23,500 |
Satisfactory condition |
|
22 Selborne Road, N22 |
1,167 |
£27,000 |
|
|
|
After |
Modernised internally but exterior in poor condition |
|
|
20 Dorset Road, N22 |
700 |
£24,000 |
|
|
|
After |
Central heating, modernised, satisfactory condition; small |
Mr Jones also referred to the sale of a site of a rectangular plot
of land adjacent to 52 Lewes Road, where contracts had been exchanged in
January 1978 for a sale at £9,750. The site was for development of one
six-roomed house. He estimated that by December 1978 this value would have
increased to £12,500, which gave a value of £2,000 per room. Taking into
account that Lewes Road was located in Finchley in a better locality, this site
transaction supported his site value of £9,000 or £1,500 per room. In commenting
on the valuation submitted on behalf of the tenant, Mr Jones said that fair
rents bore no relationship to modern ground rents under section 15(2) of the
1967 Act. The level of ground rents charged by developers related to modern
properties and had regard to the high prices which were sought for the purchase
of the leasehold.
In answer to
questions from the tribunal, Mr Jones said that his figure of 38% for the
proportion of the site value to the entirety was based on leasehold valuation
tribunal decisions. Bowes Park was a Victorian suburb with good transport some
8 miles distance from central London and in his view justified such a
percentage.
Inspection
Following the
hearing, the tribunal inspected the subject property the same day. It comprises
a two-storey, mid-terrace house and premises, built of brick with slate roof in
1879-80, of typical Victorian style and appearance. Much of the immediate
neighbourhood is of the same period and is mainly residential but with some
commercial development also. Situated some 7 or 8 miles north of central
London, it is conveniently placed for London Transport and British Rail
services and for the usual urban facilities.
The site of
the property, which has a frontage of 18 ft approximately to Whittington Road,
is of irregular shape and may be loosely described as ‘dog legged’. The front
portion occupied by the house and front garden is more or less rectangular but
the back garden runs off at a slight angle and narrows to approximately 9 ft at
the rear boundary. The total depth is about 119 ft. Beyond the rear boundary is
a strip of land a few yards wide and then a railway cutting. There is no rear
access to the subject premises. The front garden is fenced on the road boundary
and has a single hand-gate. There is no off-street parking facility.
The house
itself contains, on the ground floor, a recessed porch and entrance passage,
front sitting-room with splayed bay window, double doors leading to a middle
living-room, a back living-room, and a kitchen with door to an outbuilding. On
the first floor there are a front bedroom, middle bedroom, separate wc, a rear
bedroom and a bathroom formed by partitioning. All main services are connected.
On visual inspection the house appears to be in average condition for a house built
a century ago.
The tribunal
also inspected externally all the properties referred to on behalf of the
landlord. No 20 Dorset Road is a small, early Victorian cottage in a back lane
and is no way comparable. No 66 Dunbar Road is a small mid-terrace house
situated in a much wider road near playing fields. No 40 Sirdar Road, of
slightly different style, and 22 Selborne Road are properties of broadly
similar size and location comparable with that of the subject property.
The tribunal
also inspected the site adjacent to 52 Lewes Road. Lewes Road is a quiet,
pleasant, residential road located in a good area of Finchley with
semi-detached houses built in the 1930s or later. The site, rectangular in
shape, remains undeveloped and appears to have contained a hard tennis court at
one time.
Decision as to
amount of rent
The tenant’s
valuer based his valuation on the level of fair rents for houses such as the
subject property and also had regard to the level of £50 to £150 per annum
which developers charged for modern properties. In our view, these modern
ground rents are depressed by reason of the developer’s wish to obtain a high
price for the leasehold and we place no reliance on them. As to an assessment
based on the level of fair rents, we do not regard these as relevant and rely
on a decision of the Lands Tribunal, Carthew v Estates Governors of
Alleyn’s College (1974) 231 EG 809, which rejected a similar argument. The
Lands Tribunal in that case set out their determined figures for rent and said:
We are
conscious of the fact that the above determinations of rental value for sites
are in each case higher than the figure agreed between the parties as
representing a fair rent of the site including the house on it. This is in one
sense anomalous, but the disparity stems essentially from the gulf . . .
between house prices on the one hand and house rents on the other, and it
illustrates that under current legislation the fair rent that a landlord
receives for a dwelling-house may well represent less than a fair return on the
capital value of the site alone.
Discarding the
fair rent comparison and in the absence of evidence of site sales in the
immediate vicinity, we agree with the landlords’ valuer that the standing house
approach is the correct approach. We noted that both valuers were not greatly
at variance on the current figure for the freehold value with vacant
possession, Mr Barnfield giving £45,000 and Mr Jones £47,000. Mr Barnfield,
however, gave no help as to the level of prices at December 1978, which is the
date of valuation.
From our own
knowledge and experience, supported by the evidence of both parties, we
consider that for houses of the type and character of the subject property, in
good repair and with no site disadvantage, £45,000 represents a realistic price
likely to be achieved at the present time. We think Mr Jones’ £47,000 is more
of an asking price or a top value for a fully modernised property. The indices
of price increases support Mr Jones’ submission that prices of houses similar
to the subject property have doubled since December 1978. Half the figure which
we have determined gives £22,500 and this seems to us an acceptable figure for
the entirety value, and supported by Mr Jones’ evidence relating to
transactions in February 1979, particularly in respect of 40 Sirdar Road and 22
Selborne Road.
As to the
appropriate proportion for the value of the site, we cannot accept the 38%
proposed by the landlords. Percentages of this order, in our view, are
applicable only for sites situated nearer the centre of London with immediate
access to all the amenities of the metropolis. We regard the figure of 30%
advanced on behalf of the tenant as the more appropriate percentage for sites
in London suburbs and one supported by leasehold valuation tribunal decisions.
However, the particular site is an unattractive one; the ‘dog-leg’ shape of the
rear garden abuts on to the separately owned small piece of land, which itself
adjoins the railway cutting, and the site is overlooked by properties on three
sides. These factors in our view make it an awkward one to develop and are
reflected in the 27 1/2% for the site value which we have adopted. Finally, in
making our valuation we have had some regard to the price achieved for the site
at 52 Lewes Road; the higher price there achieved reflects that it is a better
site, of rectangular shape, located in a much superior street and
neighbourhood.
The tribunal’s
valuation is therefore as follows:
|
Section 15(2) ground rent |
|
|
|
|
|
Valuation date: December 25 1978. |
|
|
|
|
|
Standing house value |
£22,500 |
|
|
|
|
Site value 27.5% |
|
£6,187.50 |
|
|
|
Ground rental value @ 7% |
|
0.07 |
|
|
|
|
433.12 |
|
||
|
|
Say |
£435 |
pa |
We accordingly determine that the annual rent payable by the
tenant in accordance with section 15(2) of the Leasehold Reform Act 1967 for 13
Whittington Road, N22, is £435 per annum, payable quarterly in accordance with
the terms of the lease.
