Landlord and tenant — Leasehold Reform, Housing and Urban Development Act 1993 — Collective enfranchisement — Appeal against leasehold valuation tribunal — Function of Lands Tribunal on appeal — Whether valuation of freehold interest in ‘no 1993 Act world’
Pursuant to
the Leasehold Reform, Housing and Urban Development Act 1993, the respondent
tenants served notice of collective enfranchisement to acquire the freehold to
a two-storey terrace building containing two maisonettes for a sum of £3,000.
The tenants each held long leases with some 73 years unexpired on the valuation
date. The appellant landlord had sought £15,000. The price was referred to the
leasehold valuation tribunal which determined the sum payable as £3,800; this
was based on the value of two 999-year leases of the maisonettes of £115,000
and the value of both the existing leases of £109,000, an uplift of £6,000. The
landlord appealed contending for an uplift of £30,000 and a yield of 7%.
rights of appeal from the decision of the leasehold valuation tribunal to the
Lands Tribunal. No real point of law or of valuation arose in this case. The
Lands Tribunal should be slow to disturb the decision of a local tribunal
unless convinced it was clearly wrong. It was correct that the effect of the
assumption in para 3(1)(b) of Schedule 6 to the 1993 Act (the determination of
the open market value of the freeholder’s interest) is that the valuation of
the freeholder’s interest has to take place in the ‘no 1993 Act world’, to
adapt a phrase well known in the context of compulsory purchase compensation.
The following
cases are referred to in this report.
Maryland
Estates Ltd v 63 Perham Road Ltd [1997] 2
EGLR 198; [1997] 35 EG 94
Verkan
& Co Ltd v Byland Close (Winchmore Hill) Ltd
[1998] 2 EGLR 139; [1998] 28 EG 118
Barry
Denyer-Green (instructed by Wallace & Partners) appeared for the landlord;
Bruce Maunder Taylor frics
represented the tenants.
Giving his
decision, JUDGE MARDER QC said: This is an appeal
from the decision of the London Leasehold Valuation Tribunal dated October 28
1996, whereby the leasehold valuation tribunal determined the premium payable
by the respondent leaseholders to the appellant freeholder to acquire the
freehold of 105/107 Holmleigh Road, London N16, at the sum of £3,800. The
respondents gave notice of intention to respond and appeared at the hearing of
the appeal to support the decision of the leasehold valuation tribunal.
I heard the
appeal on January 20 and 23 1998, when the appellant was represented by Mr
Barry Denyer-Green of counsel and the respondents were represented by Mr Bruce
Maunder Taylor frics, who
appeared by leave of the tribunal.
The background
facts of the appeal are not in dispute and may be summarised as follows:
(1) Holmleigh
Road is a residential road in the Stoke Newington area of the London Borough of
Hackney, with easy access to shopping, public transport and other local
amenities. The road consists partly of two-storey, late Victorian or Edwardian
terraced properties, some of which are individual houses and some, like the
subject properties, are purpose-built maisonettes. There are also some
four-storey blocks of flats in the road.
(2) The
subject properties are a ground-floor and a first-floor maisonette. The ground
floor (no 105) has three rooms, kitchen and bathroom/wc and a part of the rear garden, and is occupied by the
respondent Mr SJ Weeks. Mr Weeks’ lease is for a term of 99 years from December
25 1970, with approximately 73 years unexpired at the valuation date. There is
a ground rent of £50 pa from the date of the lease until 2003, £75 pa
thereafter to the year 2036 and £100 pa for the rest of the term (to 2069).
(3) The
first-floor maisonette (no 107) has four rooms, kitchen and bathroom with
access to the remainder of the rear garden via a back staircase. This is
occupied by Mr and Mrs Rubin under a lease for the same term of 99 years from
December 25 1970 (73 years unexpired) with a ground rent of £100 pa until 2003
and thereafter £200 pa until 2036 and £400 pa thereafter for the remainder of
the term to 2069.
(4) The two
maisonettes are entirely self-contained with separate entrances and there are
no common parts. So far as relevant both leases are in similar terms, placing
management and repairing obligations on the tenant, the landlord being
responsible only for insuring the premises, with the right to recover such sums
as were paid for keeping the premises insured.
(5) The
tenants jointly served an initial notice under section 13 of the Leasehold
Reform, Housing and Urban Development Act 1993 (the 1993 Act) dated October 19
1995 proposing a total purchase price of £3,000 for the freehold. By letter
dated December 19 1995 the landlords gave a counternotice proposing a total
premium of £15,000.
(6) An
application to the leasehold valuation tribunal was made in February 1996. It
was heard in October 1996 and by the decision dated March 20 1997 the premium
payable was determined at £3,800 for the reasons stated in the written
decision.
(7) Upon
appeal to the Lands Tribunal the parties agreed the facts set out above. They
further agreed the valuation date as October 28 1996, and that the landlord’s
share of marriage value should be 50% and that the issues remaining between the
respective valuers are:
(i) the value
of the assumed long leases (virtual freehold);
(ii) the
appropriate capitalisation rate for determining the diminution in the freehold
reversion (and whether the rate or a multiple rate should reflect the value of
the right of the landlord to earn insurance commission).
Mr
Denyer-Green, on behalf of the appellant, after a brief opening called Mr Eric
Shapiro bsc (est mgt)
frics irrv fci arb, senior
partner in Moss Kaye & Roy Frank, chartered surveyors of Swiss Cottage. Mr
Shapiro has over 31 years’ experience in the valuation of residential and
commercial property in Greater London. He is the author of text books, and
lectures widely on valuation and allied property matters.
Mr Shapiro
gave evidence in accordance with a proof which had been prepared for and
delivered at the LVT hearing. He described the location of the subject
properties, pointing out that although Hackney is a poor inner-London suburb
the immediate locality was well above average in residential quality, owing to
the presence of a large Jewish Hassidic community, resulting in higher values
for properties than might otherwise be the case.
Mr Shapiro
described the subject properties. He accepted that both maisonettes were sold
following obtaining vacant possession from a regulated tenant, in an
unmodernised state and without central heating or modern fitments. The basis of
valuation, therefore, was that of unmodernised flats. The 99-year lease of the
ground floor (no 105) was granted in May 1987 for a premium of £42,500, and was
sold to the present tenant (Mr Weeks) for £55,000 in February 1994 after the
1993 Act came into force.
The lease of
the first floor (no 107) was granted to the present tenants (Mr and Mrs Rubin)
in June 1992 for a premium of £52,000. The flat was unmodernised.
Mr Shapiro set
out the basis of his valuation by reference to the statutory formula in the
1993 Act Schedule 6. He expressed the value of the virtual freehold (that is to
say the value of the property after acquisition of the freehold based on
999-year leases of each flat at a peppercorn rent) as £125,000, relying on his
analysis of the transaction whereby 78/80 Holmleigh Road, a similar property, was
sold at auction in September 1996 for £101,000. Mr Shapiro had adjusted this
auction price to reflect fees, interest and profit.
He considered
the best evidence of the value of the existing leases was the price paid by the
present tenants, suitably adjusted to eliminate the effect of the tenants’
rights under the 1993 Act, which were foreshadowed at the time of Mr Rubin’s
purchase and were in force at the time of Mr Weeks’ purchase. He thus valued
the existing leases at £95,000 in agreement with Mr Maunder Taylor’s valuation
of this element.
Mr Shapiro
considered the appropriate yield rate to be 7%, based on an analysis of prices
paid at auction, and a comparison with current interest rates and the yield on
alternative investments, specifying PIBS, which yielded a range of 9–9.5%. His
valuation of the premium payable on this basis was £17,086.
In a
supplementary statement Mr Shapiro referred to the settlement of an
enfranchisement claim relating to 134/136 Holmleigh Road in June 1996, which
was relied upon by Mr Maunder Taylor as a further comparable. Mr Shapiro
offered an analysis of this transaction, which he said demonstrated that Mr
Maunder Taylor’s chosen yield rate of 13% must be strong, or that his valuation
of the virtual freehold must be wrong, or both.
Mr Shapiro
also criticised Mr Maunder Taylor’s reference to the Lands Tribunal decision Maryland
Estates Ltd v 63 Perham Road Ltd [1997] 2 EGLR 198; [1997] 35 EG 94
as incorrect. When that decision was properly analysed, the equivalent yield
was 9.69%, which did not support Mr Maunder Taylor.
In the course
of cross-examination by Mr Maunder Taylor, Mr Shapiro said that a purchaser
would be prepared to pay £17,000 for the virtual freehold, whereas the leases
with 73 years unexpired would be very difficult to sell. The major problem was
mortgageability. While he accepted that a 63-year lease might well have ‘sold
happily’, that was with the right to buy, which had to be discounted in this
valuation. He thought all post-Act transactions were ‘tainted’ by that factor.
When asked
about the works done by Mr Rubin as purchaser, Mr Shapiro took the view that
this was part repair and part improvement. He was unable to give precise
particulars, but he thought about £3,000–£3,500 represented improvements. He
accepted Mr Rubin’s evidence and accepted in consequence that his valuation of
the existing leases must be upgraded to an extent.
Mr Shapiro
said that his valuation of the landlord’s interest did not specifically refer
to insurance commissions, but he had regard to that source of income as an
element in his chosen yield rate. He had not changed his position on this; the
company earned a commission from the insurance brokerage company, which was a
subsidiary of the same parent company. The company was entitled to that
commission and did not hold it as trustee for the tenants, unlike service
charges. There was no difference from the 63 Perham Road case in which
the Lands Tribunal accepted that the landlord was entitled to a multiplier of
6.5 times the insurance premium.
Mr Shapiro
defended his adoption of a 7% yield. It was a good investment for a purchaser
with a rising ground rent, no problems of management and the ability to earn
insurance commission.
In relation to
134/136 Holmleigh Road it appeared that the landlord had not been advised by a
valuer, and he thought it possible that both sides felt it was not worth taking
to a tribunal hearing, but he was not aware of the full facts.
In
re-examination, Mr Shapiro said that if on a proper construction of these leases
it was held that the landlord could not necessarily keep his commission,
that could shift the yield slightly. He did not think it a major consideration,
but he would suggest upwards from 7% to 8%. If it was held that the landlord
could not keep the commission in any event, then the yield would be
pushed further out to about 8.5 or 9%.
Mr Maunder
Taylor, on behalf of the tenants, first called Mr Moses Rubin, who occupied the
upper flat (no 107) having purchased the leasehold interest in June 1992 for
£52,000. He described the condition of the premises at the time of purchase. A
new roof was required, and rewiring, replumbing and replastering of all
ceilings. Most windows were rotten and dry rot was found, requiring treatment.
All wood was in need of renewal and an internal wall required rebuilding. There
were no proper kitchen fitments and the bathroom equipment was antiquated. All
these defects were remedied.
Mr Rubin had
also inspected the ground-floor maisonette (no 105) in early 1994 with a view
to combining the two flats as a single house. He had found the floors, walls
and ceilings sound, in fair decorative order, with gas central heating and
recent rewiring. The kitchen, the bathroom and other fittings in the dining
room and bedroom were modest but new and in good condition. The flat was bought
soon afterwards by Mr Weeks, in February 1994.
Mr Rubin had
also viewed 78/80 Holmleigh Road when it was for sale. That property had been
occupied by squatters and the house was boarded up. The building was bare,
without wallpaper or floor coverings or kitchen fittings. There were visible
cracks over the front door, but they were thought to be of no consequence. The
property was sold for £101,000, but the purchaser sold on almost immediately
for £107,000, without carrying out any repairs so far as Mr Rubin knew.
Cross-examined,
Mr Rubin said it was the second purchaser who brought 78/80 Holmleigh Road into
a habitable state and who now occupies the ground floor and lets the first
floor. As to his own purchase of no 107, Mr Rubin said his own surveyor had
advised him verbally. He thought the building society survey was very
superficial and the building society’s valuation (as shown in the report) was
not the price paid. The condition of the property was very poor and a great
deal of work was necessary. Mr Rubin said that it was not worse than he
expected. He had expected to have to do a lot of work — many of the defects
were obvious though not spotted by the building society’s surveyor. He
described his own situation as ‘desperate’; the flat was marketed on a Monday;
he had viewed it on Tuesday and completed immediately in cash, taking a
mortgage loan later.
Mr Bruce
Maunder Taylor frics mae appeared
by leave of the tribunal on behalf of the respondent tenants and gave evidence.
He is the senior partner in the firm Maunder Taylor, chartered surveyors in
general practice with offices at Whetstone and Potters Bar. He is familiar with
Stamford Hill and his firm manages a number of properties in that area.
Mr Maunder
Taylor described the location, the property and the existing leasehold
interests. With regard to insurance, his view was that the provisions of the
lease enabled the landlord to recover his actual outlay only but not to make a
profit, which he would be liable to return on challenge. In any case, an
investor would not pay for the right to receive insurance commission, but would
bid a multiple of the ground rent. Hence he made no allowance in his valuation
in respect of insurance commission.
In making his
valuation Mr Maunder Taylor referred as comparables to 79 Holmleigh Road, a
similar first-floor flat, considerably improved. A price of £75,000 had been
agreed for this property in June 1996, but the sale fell through. It was
currently back on the market at £79,950, but he understood that no offers had
been made by October 1996 (the valuation date). He referred also to 78/80
Holmleigh Road, sold at auction in September 1996 for £101,000 and resold soon
after for £107,000. The auction sale was on behalf of a housing association and
the property was in poor condition. Mr Maunder Taylor had also become aware
since the hearing in the LVT of the sale of the freehold of 134/136 Holmleigh
Road in June 1996 at a price of £4,300.
Mr Maunder
Taylor valued the freeholder’s interest in the subject properties as a total
£1,587, applying a yield rate of 13% to the right to receive the rental income
and in deferring the reversion. He considered this rate justified by reason of
the location and type of property and, while recognising that public auction
prices were achieved which tended to reflect a lower percentage rate, he
enumerated several reasons for distinguishing these prices and applying a
higher rate in this case.
In valuing the
virtual freehold, Mr Maunder Taylor had regard to the sale of 78/80 Holmleigh
Road and considered the value to be £55,000 for the first floor and £46,000 for
the ground floor, totalling £101,000. He valued the existing leases at £52,000
and £44,000 totalling £95,000. On this basis, he calculated the marriage value,
agreed to be split 50:50, and arrived at a premium of £3,800 as in the
valuation exhibited. Mr Maunder Taylor believed this figure was supported by
the agreed sale of 134/136 Holmleigh Road with 81 years unexpired for £4,300,
bearing in mind the Delaforce effect and the relatively small sums
involved. This settlement at least showed how far out Mr Shapiro’s valuation
was.
In
cross-examination, Mr Maunder Taylor acknowledged his valuation and that of the
LVT had been different, though the end result was the same as the LVT had
determined. He had reconsidered his valuation in the light of the views
expressed in the LVT decision and had adjusted for the elements of repairs and
improvements so as to reconcile the two. He did not think the resale of 78/80
Holmleigh Road for £107,000 required a further adjustment, in view of the
effect on the price paid at auction of an apparent structural defect.
With regard to
prices achieved at auction sales, Mr Maunder Taylor had a number of
reservations. It could not be known if a vendor was bidding up the price nor
whether some hidden advantage was spotted by the purchaser. There were
additional costs involved in auction sales, whereas a private treaty sale at
seven times ground rent was often cheque in hand, without cost and without
hassle and saving time. The expense of management was another complicating
factor. Management of a large block was easier and more profitable and thus
could see a higher price.
Mr Maunder
Taylor said that his view of yield had regard to both auction and private
treaty prices. This is a poor area; the investment consists of two flats only;
insurance commission was not available to the purchaser. Balancing these
factors, he thought a yield rate of 13% was appropriate.
As to his
valuation of the freehold, Mr Maunder Taylor accepted that he had differed from
the LVT, but in using the sale of 78/80 Holmleigh Road as a comparable there
were a lot of imponderable factors. He said that in the end it was necessary to
stand back and make a judgment of what was the reasonable difference between
the existing leasehold and the virtual freehold. It was, in his view, a matter
of judging honestly what a purchaser without the benefit of analysis would pay
for a 73-year lease and what increase would he pay for a virtual freehold. It
was this difference that mattered, and if you increase the value of the
freehold you have also to increase the leasehold value. He had no fixed
differential in mind, as it must depend on the length of unexpired term,
condition, location, etc. The difference in this case was inherently small. Mr
Shapiro was wrong in saying that 73-year leases were difficult to sell. There
was plenty of market evidence to the contrary, including the purchases in this
case by Mr Rubin and Mr Weeks. A balanced view indicated that Mr Shapiro’s
£17,000 is ‘way out’.
Mr
Denyer-Green suggested that the examples given of sales of leases of 60–70
years were all in the world of the 1993 Act, ie affected by the tenant’s rights
under the Act. Mr Maunder Taylor replied that the Act nowhere required the
influence of those provisions to be ignored. There was no assumption that the
Act did not exist. In any case, he (Mr Maunder Taylor) had not found it difficult
to sell such terms before the Act. He had known of money being lent on a
45-year term, though admittedly not by a traditional lender.
Mr Maunder
Taylor accepted that in the statutory valuation the tenant’s bid was to be
ignored, and it must not be assumed that the tenant has the right to
enfranchise. He had valued on that basis, but still had to have regard to the
market and if the market was ‘corrupted’ by the effects of the Act, that had to
be taken into account. His experience suggested that there was no material
difference in practice at the level of 73 years between the bid of a purchaser
who would qualify under the Act and a purchaser who would not qualify. He did
not agree with Mr Shapiro that the Act had a big influence on the market where
the term was as long as 73 years.
As to
insurance commission, Mr Maunder Taylor took the view that the statutory
provisions did not permit a landlord to earn profit on insurance commissions,
though he agreed the point appeared to be devoid of judicial authority. He
disagreed with Mr Shapiro’s view that it was legitimate to regard insurance
commissions as a source of profit. He also noted that this was a new point not
taken by Mr Shapiro in the LVT nor reflected in his valuation.
In closing
submissions Mr Maunder Taylor emphasised that he entirely rejected any
suggestion of undue bias in favour of tenants. He had not yet appeared before
an LVT on behalf of a landlord, but he had recently refused to go before the
LVT on behalf of a tenant except on the basis of his own objective valuation.
He also
refuted the suggestion that a 73-year term was unsaleable or unmortgageable.
The present lessees demonstrated the contrary and Mr Shapiro was plainly wrong.
Mr Maunder
Taylor said that he and the LVT had reached the same conclusion but by a
different route. The tribunal had paid more attention to nos 79 and 105/107
Holmleigh Road; he had paid more attention to 78/80 Holmleigh Road; but on
careful reconsideration of the evidence, he did not disagree with the LVT’s
values.
The ‘spread’
between current leasehold value and virtual freehold was about 6%, which, in
his view, was about right for this kind of property in this area. The spread
sought by Mr Shapiro was about 18%, which was inconsistent with many previous
decisions of the LVT.
As to
capitalisation rate, he invited rejection of Mr Shapiro’s view as to the
relevance of PIBS. The financial market was not the property market. Risks and
returns were entirely different and unrelated; one was irrelevant to the other.
As to insurance
commissions, Mr Maunder Taylor commented that this new point represented a
U-turn by Mr Shapiro. He referred to section 18 of the Landlord and Tenant Act
1985, which defined service charges to include insurance premiums, and to
section 42 of the Landlord and Tenant Act 1987, which made a landlord trustee
of service charges.
Mr
Denyer-Green, in reply, contrasted the expert evidence given. Mr Shapiro had
been quite prepared to make adjustments to the yield rate if on a true
construction of the leases no insurance commission
price of 78/80 Holmleigh Road, had first declined to make any adjustment at
all, but reluctantly did adjust the virtual freehold value. Mr Maunder Taylor had
defended in cross-examination entirely different existing leasehold and virtual
freehold values to those which appeared in his proof and in his evidence to the
LVT. The reason given for the change was unconvincing, particularly as he had
originally agreed the current lease values with Mr Shapiro. He submitted that
where there were differences, Mr Shapiro’s view was to be preferred.
As to yield Mr
Denyer-Green pointed out that the only market evidence was that of auction
results. Mr Maunder Taylor’s evidence was assertion and opinion without factual
evidence. If market prices reflect the value of insurance commissions, then
that factor should be taken into account whatever the legal arguments.
As to the
current lease values, Mr Maunder Taylor had failed to adjust to reflect the
effect of the 1993 Act, but an effect of the Act was to reduce the problem of
mortgageability. Mr Maunder Taylor failed to consider, as he was required to
do, the hypothetical ‘no 1993 Act world’. Mr Denyer-Green invited acceptance of
the proposition that the 1993 Act ‘tainted’ all post-Act transactions, and
therefore all must be adjusted to reflect the ‘no-Act world’. Both Mr Maunder
Taylor and the leasehold valuation tribunal had failed to do this.
As to the
value of the virtual freehold, Mr Maunder Taylor had failed to adjust the sale
price of 78/80 Holmleigh Road adequately to reflect the difference between a
building in derelict condition and the subject property. The building society
report on no 107 indicated a state of repair far less serious than at nos 78/80
and, on Mr Rubin’s own evidence, the state of no 105 was even better. The
comments and adjustments made by Mr Shapiro had been confirmed by the evidence
of the price obtained on a speedy resale.
Mr
Denyer-Green accepted for the purposes of this appeal that section 42 of the
Landlord and Tenant Act 1987 had the effect proposed by Mr Maunder Taylor that
a landlord cannot make profit on insurance premiums. This was of relevance to
the yield rate only. Mr Shapiro’s evidence was that insurance commission was
nevertheless a factor taken into account in the market. Mr Denyer-Green
submitted that a minor adjustment in the yield rate was the only effect.
As to the sale
of 134/136 Holmleigh Road, this was a wholly comparable property. The premium
agreed was £4,300 where the lease had 82 years unexpired. This could not
support £3,800 in the present case, the figure accordingly must be higher than
£4,300.
Mr
Denyer-Green submitted that the LVT had fallen into error as to the condition of
78/80 Holmleigh Road, which was assumed to be more seriously affected than in
fact it was, nor did they have the evidence of the subsequent sale. The LVT was
also in error in making no adjustment to existing lease values for the effect
of the 1993 Act, as he submitted was required by reason of para 3(1)(b) in the
6th Schedule.
Decision
It was agreed
by the parties that I would not be assisted by a visual inspection.
It is
unnecessary to set out in full the statutory formula for determining the
enfranchisement price, but one element requires further consideration, namely
the effect of para 3(1)(b) in the 6th Schedule to the 1993 Act. This provides
that in determining the open market value of the freeholder’s interest (with
neither the nominee purchaser nor any participating tenant buying or seeking to
buy) the assumption must be made that ‘this Chapter and Chapter II confer no
right to acquire any interest in the specified premises or to acquire any new
lease’, except that account may be taken of a section 42 notice to acquire a
new lease already served by a non-participating tenant.
Mr
Denyer-Green is plainly correct in the submission that the effect of this
assumption is that the valuation of the freeholder’s interest has to take place
in the ‘no 1993 Act world’, to adapt a phrase well known in the context of
compulsory purchase compensation. However, I am unable to accept his further
submission that the LVT erred in law in failing to make an adjustment to allow
for this ‘no 1993 Act world’ effect. Mr Shapiro, in his evidence, expressly
drew attention to this factor in para 6.2 of his proof, but neither valuer made
an adjustment in their submitted valuations nor did the issue arise as a matter
in dispute between the parties. In the course of the hearing of the appeal
before me, Mr Maunder Taylor gave his opinion that there was no material
difference in practice, where as long as 73 years remained unexpired, between
the market bid of a purchaser who would qualify under the Act and a purchaser
who would not qualify. I accept that view and, accordingly, in the present
case, I accept that no further adjustment is required to take account of para
3(1)(b) of the 6th Schedule.
The remaining
issues in this appeal were those fully argued and determined in the leasehold valuation
tribunal. As the parties had agreed at the opening of the appeal, the issues
between them were:
(a) as to the
value of the ‘virtual freehold’, ie the value in the hands of the participating
tenants;
(b) the
capitalisation rate to be applied in valuing the freeholder’s current interest;
and
(c) whether
the rate applied in valuation of the freehold should reflect the right to
receive insurance commissions
As to point
(c) it was conceded by Mr Denyer-Green for the purposes of this appeal that the
landlord was not entitled to profit from such commissions and that in
consequence the capitalisation rate ought not to reflect that potential source
of income, save to the extent that the market might reflect it. I accept the
view of Mr Maunder Taylor that in general such an expectation does not
materially affect the market price.
As to the
remaining issues, it is of course clear that the premium as valued by Mr
Maunder Taylor was the same as that determined by the leasehold valuation
tribunal, but the latter arrived at the same result as the former by a slightly
different route. Mr Maunder Taylor had valued the new 999-year leases of the
two maisonettes to total £101,000. The comparable figure of the LVT was
£115,000. There was a similar difference in the valuation of the existing
leases. Mr Maunder Taylor had said £95,000. The LVT valued at £109,000. Thus
the difference between the two values (the uplift) was in each case £6,000.
As to the
landlord’s existing freehold interest, the figures put forward by Mr Maunder
Taylor (£1,587) and determined by the tribunal (£1,589) were virtually
identical; that necessarily followed from application of the 13% rate by both.
The result was a difference of £1.50 in the final valuation, rounded both by Mr
Maunder Taylor and the LVT to £3,800.
In sharp
contrast to this relative accord was the valuation put forward by Mr Shapiro.
He valued the new long leases at £125,000 and the current leasehold at £95,000,
a difference of £30,000. By applying a 7% rate, he valued the current freehold
interest at £4,172. On this basis the calculation of the premium came to over
£17,000. Even allowing for Mr Shapiro’s apparent willingness in evidence to
contemplate a rate of 8 or 9% to capitalise the ground rent, the resulting
premium would still amount to something in excess of £16,000. The disparity
between these valuations is very substantial and cannot be accounted for by the
common differences of view between valuers, operating upon similar assumptions
within a range of values in an area where mathematical precision is rarely
achievable. The difference stems from a basically different approach and a
different perception of the security of investment in the reversion.
Having
considered the evidence, I agree with the leasehold valuation tribunal in
preferring the views of Mr Maunder Taylor both as to the degree of uplift and
as to the appropriate capitalisation rate. Like the leasehold valuation
tribunal I consider Mr Shapiro has overvalued by a large margin both the
landlord’s current interest and the virtual freehold.
In my opinion,
this appeal again demonstrates the desirability of considering a limit to the
rights of appeal from the decision of a leasehold valuation tribunal to this
tribunal, an issue to which I recently drew attention in the case of Verkan
& Co Ltd v Byland Close (Winchmore Hill) Ltd LT ref LRA/12–13,
21–22/97*. No real point of
advantage of the appeal procedure to have ‘a second bite of the cherry’. As has
been said before, in such circumstances the Lands Tribunal should be slow to
disturb the decision of a local tribunal unless convinced that it is clearly
wrong. The LVT in the present case gave a reasoned decision entirely based on
the evidence of fact and valuation opinion which had been called. I see no
reason to differ from that decision on consideration of essentially the same
material.
*Editor’s
note: Also reported at [1998] 2 EGLR 139
For these
reasons the appeal will be dismissed and the premium payable by the respondents
affirmed as £3,800.
This decision
determines the substantive issues raised between the parties, and the tribunal’s
award is final. The parties are invited to make such submissions as they are
advised as to the costs of the hearing, and a letter accompanies this decision
as to the procedure for submissions in writing. The tribunal will, in due
course, incorporate an order as to costs in an addendum to this
decision. Rights of appeal under section 3(4) of the Lands Tribunal Act 1949
and Rules of the Supreme Court Ord 61 will not accrue until the decision has
been thus completed, ie from the date of the addendum.
Addendum
as to costs
I have
received and considered the submissions of both parties. The appeal failed, and
the appellant’s solicitors quite properly do not oppose the respondents’
application for costs. Mr Maunder Taylor, the chartered surveyor who appeared
by leave of the tribunal on behalf of the respondents, submits the account
rendered by him to the respondents in the total sum of £3,167.81 including VAT.
He invites the tribunal to make an order for costs in that sum, which is the
total liability of the respondents and which they have discharged by payment.
Mr Maunder Taylor asks that no order for taxation be made so as to avoid
further expense. The appellant’s solicitors in response say they believe this
to be wholly inappropriate, and invite an order for costs to be taxed if not
agreed. No reasons for that belief are stated.
I do not
consider it inappropriate in the circumstances of this case to order a lump sum
payment, as r 52(4) of the Lands Tribunal Rules 1996 enables me to do. Having
considered Mr Maunder Taylor’s itemised account dated January 26 1998, I find
the amount thereof to be reasonable, and accordingly direct the appellant to
pay the respondents’ costs of the appeal, assessed in the total sum of
£3,167.81 including VAT.
