Leasehold Reform, Housing and Urban Development Act 1993 — Determination of price for acquisition of freehold of two maisonettes — Appropriate risk rates — Marriage values
By an initial
notice dated December 15 1993 the tenants holding underleases of two
maisonettes and two garages in 36 and 37 Eaton Mews South, London SW1, gave
notice to acquire the freehold from the respondent landlords. That notice was
admitted by the landlords in February 1994 and the parties agreed the terms of
the proposed conveyance to the applicant nominee purchasers, save for the price
for the freehold. The nominee purchasers contended for a price of £265,000; the
landlords for £734,000. The unexpired terms of the underleases were 20.25 years
for the maisonettes and 13.25 years for one of the garages. The ground rents
for the maisonettes were respectively £150 and £100 pa.
having agreed to be represented by the freeholders) should be £583,300. The
reversion to the maisonettes should be valued using a risk rate of 6%, to give
£466,601. The freeholders were entitled to 50% of the marriage value.
The following
cases are referred to in this report.
Baptist v Masters of the Bench and Trustees of the Honourable Society of
Gray’s Inn [1993] 2 EGLR 136; [1993] 42 EG 287
Cadogan
Estates Ltd v Hows [1989] 2 EGLR 216; [1989]
48 EG 167; [1991] RVR 132, LT
County
& Metropolitan Developments Ltd v Brewer
(formerly Swanston) Trust [1971] EGD 675; (1971) 219 EG 775; [1971] JPL
632, LT
Delaforce
v Evans (1970) 22 P&CR 770; 215 EG 315,
LT
Lake v Bennett (1971) 219 EG 945
Lloyd-Jones
v Church Commissioners for England [1982] 1
EGLR 209; (1981) 261 EG 471, LT
Norfolk v Trinity College, Cambridge (1976) 32 P&CR 147; [1976] 1
EGLR 215; 238 EG 421; [1976] JPL 376, LT
Raja
Vyricherla Narayana Gajapatiraju v Revenue
Divisional Officer, Vizagapatam [1939] AC 302
Sked v Towngran Developments Ltd [1995] 1 EGLR 216; [1995] 05 EG
169, LVT
Anthony
Radevsky (instructed by Bircham & Co) appeared for the nominee purchasers;
Simon Berry QC (instructed by Boodle Hatfield) represented the freeholders.
Giving the
decision of the tribunal, LADY FOX QC said: This is an application made
pursuant to section 24 of the Leasehold Reform, Housing and Urban Development
Act 1993 (the Act) by Mr George A Donath, Mrs Lidia A Donath and Mrs Angela J
Morrison, the tenants, for the determination of the price to be paid for the
freehold interest in 36 and 37 Eaton Mews South, London SW1 (the subject
premises). The tenants are represented by the nominee purchaser, Mr GA Donath
and Mrs AJ Morrison. The tenants hold the subject premises under leases from
the trustees of the estate of the second Duke of Westminster, John James, Sir
Richard B Wilbraham and JH Newsom, as follows:
36 Eaton Mews
South and the west garage (now converted into living accommodation) held by Mrs
AJ Morrison under a sublease dated May 22 1989 for a term commencing on May 22
1989 to June 24 2015 at a ground rent of £150 pa;
The east
garage of 36 Eaton Mews South held by Mrs AJ Morrison under an underlease dated
May 22 1989 for a term commencing on May 22 1989 to June 24 2008 at a rising
annual rent as set out in the lease;
37 Eaton Mews
South and the east garage held by Mr GA and Mrs LA Donath under an underlease
dated July 28 1965 for a term of 51 years commencing on June 24 1964 at a
ground rent of £100 pa;
The west
garage of 37 Eaton Mews South was surrendered in 1991 to the reversioner, by Mr
GA Donath pursuant to the terms of a lease.
By initial
notice dated December 15 1993 the tenants gave notice of their intention to
acquire the freehold of the subject premises and by counternotice dated
February 15 1994 the reversioner admitted that the tenants were entitled to the
right of collective enfranchisement of the subject premises. By the date of the
first hearing on June 5 1995, the parties had agreed the terms of the proposed
conveyance and February 8 1995 was agreed as the date of valuation.
Accordingly, the unexpired terms of the leases of the maisonettes were 20.25
years, and of the lease of the east garage at 36 Eaton Mews South 13.25 years.
At the
hearings held on June 5 and 6 and November 28 to 30 1995 the nominee purchaser
was represented by Mr Anthony Radevsky, counsel, instructed by Bircham &
Co, solicitors, and the reversioner by Mr Simon Berry qc, counsel, instructed by Boodle Hatfield, solicitors. At
the first hearing on June 5-6 Mr Simon Berry stated that the intermediate
leaseholders were represented by the reversioner and that the tribunal was not
asked to apportion the price paid between them. The parties’ representatives
stated that the following facts were agreed:
(i) the
subject premises qualified as a block of flats within the meaning of section
101(1) of the Act, the two properties being separate dwellings within the
building and a material part of them lying above the two garages which were in
separate demises;
(ii) the
subject premises are the buildings known as 36 and 37 Eaton Mews South
presently comprising two maisonettes and three garages;
(iii) the west
garage of 37 Eaton Mews South is to be comprised in the freehold interest to be
transferred;
(iv) the
estimated rental value of the east garage, 36 Eaton Mews South is £1,900 pa.
Valuations of
the price payable for the freehold interest totalling £281,000, revised to
£265,000 at the hearing on November 28-30, and £734,400 respectively were put
forward by Miss Jennifer Ellis FRICS
of Langley Taylor, chartered surveyors, on behalf of the nominee purchaser and
by Mr Ian MacPherson FRICS of Gerald Eve on behalf of the reversioner and are
set out in full at schedules A and B. The parties’ representatives agreed that
the price to be determined pursuant to para 2(1)(a) and (b) and Schedule 6 of
the Act comprised two elements:
(i) the value
of the freeholder’s interest in the subject premises, and
(ii) The
freeholder’s share of the marriage value. There was no compensation payable
under para 2(1)(c).
The points at
issue between the parties as revised in the course of the hearings were as
follows:
|
|
Nominee purchaser |
Reversioner |
|
Capitalisation rate |
10.8% |
6% |
|
Deferment rate |
10.8% |
6% |
|
Freehold capital value of |
£580,000 |
£670,000 |
|
Freehold value of each |
£20,000 |
£40,000 |
|
Present leasehold value of |
£415,500 |
|
|
£300,000 |
|
|
|
Present leasehold value of |
£415,750 |
£300,000 |
|
Present leasehold value of |
Nil |
£3,000 |
|
Reversioner’s share of |
50% |
75% |
In addition
the parties disagreed: (a) as to whether there was an increase in prices
achieved in the central London residential property market between January 1993
and February 1995, with Mr George
surveyor claiming a 20% increase compared to no increase claimed by Mr David
Haines frics, the surveyor of the
nominee purchasers; (b) as to whether long-term investment prospects in the
next 20 years were good in Belgravia; and (c) as to the evidential value and
weight of negotiated enfranchisement sales relied on by the reversioner and of
auction sales of ground rents relied upon by the nominee purchasers.
A schedule of
comparable residential properties in both sections of Eaton Mews South, 52
Eaton Mews West, 28 and 43 Eaton Mews North and 8 and 9 Eaton Row was agreed by
the parties and is set out at schedule C.1. Further schedules agreed were
produced of three garages at 10 Shafto Mews, London SW1, and Byron Court,
Elystan Street, London SW3, and Rosemoor Street, London SW3, (see schedule
C.2); and of eight residential properties on the market, see schedule D.
At the hearing
on June 5 and 6 Mr Haines gave evidence in accordance with a written proof on
behalf of the nominee purchasers as to property values. He stated that he was a
partner in Langley Taylor, having previously worked for Knight Frank &
Rutley in the country house and estate department and as a valuer in the
district valuer’s office. He had been closely involved with the Department of
the Environment in the preparation of the 1993 Act and had lectured and written
a book on the subject. He acted as surveyor to Eton College and other
landlords, and also tenants on enfranchisement matters.
Mr Haines
described the location, accommodation and condition of the two maisonettes and
garages. He compared the subject premises by reference to location in the mews,
size, number and layout of rooms, quality of conversion, features and fittings,
length of lease and enfranchisement to the properties listed in the agreed
schedule C.1. In view of the ‘wealth of comparables’ he himself relied on
comparables in Eaton Mews South only, not considering it necessary to look at
properties in other locations. Of those in Eaton Mews South he relied in
particular on 15, 17 and 33. Mr Haines submitted that the property market had
remained in a depressed state since 1993 with no uplift and probably a downward
drift and produced articles in The Times, Sunday Times, Economist
and Investor’s Chronicle in support. He accordingly adopted the figure
of £580,000 as the freehold value of each subject mews house, a value which the
reversioner’s advisers themselves had been prepared to put forward in the
negotiations in early 1994. Leasehold values of 20 years’ length would, in his
view, be 50% to 60% of the freehold value; there being little evidence in
Belgravia of freehold sales he relied on sales of 75-year leases. As to
enfranchisement, he thought, due to uncertainty as to the operation of the Act,
the market had remained depressed and asking prices had fallen. He was
cross-examined by the reversioner’s counsel on the comparability and
adjustments for differences for these properties and also gave evidence and was
cross-examined on the other properties listed in the agreed schedule.
Improvements
Mr Haines
referred to secondary glazing, fitted cupboards and bookshelves, tiling and
fittings in bathrooms and kitchens, in particular ‘Gaggenau’ cooking units, for
which he felt a purchaser of a 20-year lease would be prepared to pay an
additional sum in the region of £10,000-£20,000. He did not consider such
fittings to be purely a matter of taste. In answer to a question from the
tribunal he accepted that on the purchase of a 90-year lease or freehold the
value of such improvements would be written off and he accordingly would make
no deduction from the freehold value for tenants’ improvements.
Mr George M
Pope of John D Wood & Co gave evidence in accordance with a written proof
on behalf of the reversioner. He stated his qualification and experience saying
he had joined John D Wood in 1970 after eight years in the Coldstream Guards,
becoming a partner in 1975 managing the Chelsea office specialising in
residential property until 1988 when he moved to the head office as joint
chairman and finance director. Since 1980 he had acted for the Grosvenor Estate
in conjunction with Mr Ian MacPherson of Gerald Eve. In support of his value
for the leasehold interest of £300,000 he relied on transactions at 29 and 33
Eaton Mews South and 52 Eaton Mews West, and in support of his freehold value
of £670,000, transactions at 17 and 25/26 Eaton Mews South. He drew attention
to the comparables, similarities to and differences from the subject
properties. In applying the comparables, all of which he had inspected
internally, he drew attention first to the difference between the two sections
of Eaton Mews South, rating the northern section as less attractive; second he
noted the differences in date, stating that, from January 1993 to February
1995, he considered a 20% increase in price should be made to take account of
the rise in values in the central London residential market, a rise to which
attention had been drawn in the annual statement of the joint chairman of John
D Wood in July 1994, and was confirmed by the research and survey conducted by
Savills. Demand for residential properties in central London came from overseas
and was not affected by the recession. He rejected the suggestion put to him by
Mr Radevsky on behalf of the nominee purchasers that this was ‘talking up the
market’. As to relativity between leasehold and freehold values he considered a
20-year lease worth 50%, and a 75-year lease 90% of the freehold value and he
considered these relativities to be supported by the many settlements for
extended leases achieved by the Grosvenor Estate, as particularly in a schedule
which he produced. He accepted that he had put forward in February 1994 a lower
value for the freehold but this had been a negotiating figure, adjusted upwards
in the light of the comparable transactions which had taken place in the mews
in the latter part of 1994 to 1995.
Inspection
Subject
dwellings
The tribunal
inspected the subject properties externally, and internally in the presence of
the tenants, during the afternoon of June 6 1995.
Eaton Mews
South lies between Eaton Square and Chester Square, and is bisected by
Eccleston Street which divides it into west and east sections. The subject
properties are in the west section. This section is also delineated by having
mainly three-storey dwellings on the north side (where the subject properties
are located) and mainly two-storey on the south side.
The mews is a
cul-de-sac, the approach from Eccleston Street being through an archway leading
to a cobbled mews roadway that is wide enough for parking. The streetscape is
varied, with some dwellings, like the subjects, being relatively recently built
or substantially rebuilt, and others being conversions from the original mews
buildings. The rears of the dwellings on both sides are dominated by the taller
and more substantial houses that front Eaton Square (to the north) and Chester
Square (to the south).
As well as
being a prestigious location, Eaton Mews is a convenient one for access to
public transport, high class shopping and the River Thames.
The subject
dwellings were built in the mid 1960s on three storeys, and have the external
appearance of being a pair of terraced houses with ground-floor garages and
entrances. The accommodation layouts are similar, the principal difference
being that no 36 has converted one of the garages into a ground-floor
living-room.
In summary,
the accommodation of each dwelling is arranged as follows:
Ground floor: entrance hall, rear room, bathroom/wc
Outside: single garage (no 36), two garages (no 37)
First floor: intercommunicating lounge/dining room, kitchen/breakfast room,
study, cloakroom (no 36) utility room (no 37).
Second floor: master bedroom with en-suite bathroom, two other bedrooms,
bathroom/wc.
In addition,
on the ground floor no 36 has a front
room, converted by the tenant from a former garage.
Neither
dwelling has a garden, but the rear wall of each abuts the rear gardens of the
houses behind, which front Eaton Square. The rear
gardens.
Both dwellings
have gas-fired central heating with radiators. The internal fittings of both
have been modernised and improved by the tenants in comparison with what was
likely to have been originally fitted when new.
Comparables
The comparable
dwellings were mainly located in Eaton Mews South (both west and east
sections), with one in Eaton Mews West (a short distance away leading off Elizabeth
Street) and two in Eaton Mews North (on the other side of Kings Road leading
off Lyall Street).
Eaton Mews
South (west section)
No 46: This is
opposite the subject dwellings. The tribunal was able to inspect it internally.
It is a two-storey plain fronted original mews house comprising living-room,
kitchen, utility room (with internal access to garage) on the ground floor, two
bedrooms (one with dressing room leading off), bathroom/wc on the first floor. It was smaller than the subject
dwellings and unimproved. There are no windows or outlook to the rear.
No 47: This
adjoins no 46 and is similar in style, but was in better condition. It was
inspected internally. On the ground floor it has an entrance lobby, split-level
living-room (with internal access to garage), and kitchen; on the first floor
it has three bedrooms (one with en-suite shower room), bathroom/wc and a dressing-room. Again there was
no outlook to the rear.
No 33: On the
same side as and close to the subject dwellings. It was inspected internally.
It is a three-storey plain fronted original mews house comprising entrance
hall, living-room, bedroom, bathroom/wc
on the ground floor; landing, L-shaped living/dining room, kitchen on the first
floor; landing, two bedrooms (one with en-suite bathroom/wc), bathroom/wc on the second floor. The house appeared to be the subject
of recent extensive refurbishment.
No other
dwellings were inspected internally but the following, all three-storey
dwellings located on the same side as the subjects, were inspected externally:
Nos 25 and 26:
This is a rebuilt and laterally converted property of similar size to the
subject properties, with rear extension to no 25, having attractive elevations,
but close to the Eccleston Street entrance and thereby in a noticeably noisier
position. It was in very good external condition and the roof garden was noted
(no 26).
No 29: This is
a rebuilt property with garage, also in good external condition.
No 34: This is
a rebuilt property with garage.
No 35: Adjoins
no 36, a rebuilt property with a garage. It has an attractive front elevation
and possibly a roof garden.
Eaton Mews
South (east section)
By crossing
Eccleston Street the east section (also a cul-de-sac) was entered. The tribunal
was of the opinion that it was less attractive than the west section. Three
comparables were inspected externally, all are three-storey dwellings:
No 15: A larger
double-fronted rebuilt property with an attractive elevation.
No 17: Another
rebuilt property having attractive elevation (garage in the middle), in good
condition.
No 20: At the
time of the tribunal’s inspection this dwelling was being gutted.
Eaton Mews
West
This was not a
cul-de-sac having accesses from Elizabeth Street at one end and from Eaton
Square (Eaton Place) at the other. It also had a substantial non-residential
user as almost the whole of the south side is a commercial garage. Only one dwelling
(immediately opposite the garage) was inspected externally:
No 52: A
three-storey rebuilt dwelling with two garages. It has an attractive elevation.
Eaton Mews
North
This is a long
mews accessed from Lyall Street and Lowndes Place. Two dwellings were inspected
externally:
No 28: A
two/three-storey rebuilt dwelling, with a wide frontage and garage, and having
an attractive elevation. In good condition externally.
No 43: A
three-storey rebuilt dwelling, with slated mansard roof snowcemmed elevation and
garage. Attractive elevation.
At the resumed
hearing on November 28 to 30 1995, the parties called evidence to support the
three elements of capitalisation rate, deferment rate and marriage value in
their valuations. Miss Jennifer Ellis FRICS, partner in Langley Taylor,
chartered surveyors, gave evidence on behalf of the nominated purchasers in
support of her revised valuation set out in schedule A. She described that she
had been trained as a pupil of Mr E L Norman FRICS,
practised in Debenham, Tewson & Chinnocks (DTZ) until 1989, from 1989 to
1995 in Caws & Morris where she had been appointed a director in 1990 and,
leaving in May 1995 to join Langley Taylor. She had been closely involved in
the preparation of the 1993 Act, advising the Building Societies Association in
1984, serving on the RICS working party on the government’s proposals and
lecturing and writing on the 1993 Act. She was a member of the general council
of the RICS, director of its trading company Business Services and external
examiner to Nottingham Trent University in its BSc/BSc (Hons)
estate surveying courses. She had advised both landlords and tenants, but since
the passing of the Act had acted only for tenants on all the main London
estates, including Smith’s Charity, the Eyre, Portman, Cadogan, John Lyon,
Harris and Ilchester estates.
Capitalisation
rate
After setting
out the agreed facts and her valuation method, Miss Ellis spoke in support of
her rate of 10.8% for capitalisation. She said by reason of the ownership of
the great estates in central London there was a dearth of evidence of central
London ground rent sales and she had prepared a schedule of auction sales of
ground rent sales, first as to England and Wales, and second confined to inner
London postal districts, selected on the basis that they were published open
market sales, effected in the 12 months prior to the valuation date, February 8
1995, of ground rents on leases of 75 years or over relating to small blocks of
flats. The average yield of the sales in inner London was 10.8%, and she had
accordingly adopted this percentage, revised from her earlier figure of 12.5%,
as the capitalisation rate based on the available evidence. When compared to
yields from other types of property and long date gilts, a rate of 10.8% appeared
reasonable.
Discount
rate
She had
adopted the same rate for deferment as for capitalisation, namely 10.8% and had
done so by reference to the prospects for growth in residential capital values
in Belgravia over the 20 years to the end of the lease term. Relying on indices
of house prices from the DoE, Halifax Building Society and DTZ, Miss Ellis had
come to the conclusion that an investor would take a cautious view, expecting
to see no more real growth in the value of houses in Belgravia than elsewhere.
Her rate of 10.8% was supported by the current gross redemption yield of 9.1%
to 9.6% on zero dividend preference shares issued by investment trusts.
Share of
marriage value
In the Lands
Tribunal decision of Lloyd-Jones v Church Commissioners for England
(1981) 261 EG 471* the share of marriage value on enfranchisement of houses
under the 1967 Act had been argued from first principles and reference to the Indian†
case [1939] AC 302; the Lands Tribunal had held that: ‘neither (party) can
unlock the marriage value without the other. In friendly negotiations they
would agree to divide it equally’. Miss Ellis said para 4(1) of Schedule 6 to
the 1993 Act provided that the reversioner was to receive 50% of any marriage
value unless a larger proportion would have been agreed on a sale on the open
market by a willing seller. Open market in law could include a monopoly
position: see Baptist v Masters of the Bench and Trustees of the
Honourable Society of Gray’s Inn [1993] 42 EG 287‡; and ‘willing’,
according to the dictionary definition, meant ‘ready’ or ‘intent to sell’, not
merely acquiescent. In her view, the transactions relied on by Mr MacPherson to
support a landlord’s share of marriage value in excess of 50% were not ‘open
market’ sales, in that they involved special circumstances and sales outside
the 1993 Act. Neither the Cadogan nor the Grosvenor nor the Ilchester estates
displayed the willingness required in the statute, selling only when compelled
to do so.
*Editor’s
note: Also reported at [1982] 1 EGLR 209
†Editor’s
note: See Raja Vyricherla Narayana Gajapatiraju v Revenue Divisional
Officer, Vizagapatam
‡Editor’s
note: Also reported at [1993] 2 EGLR 136
Mr Berry, on behalf
of the reversioner, cross-examined Miss Ellis. In answer to criticism of her
exclusion of other factors in arriving at her capitalisation rate, Miss Ellis
said that she had been solely concerned to determine what an investor would pay
for rental income stream. On this account she had deliberately confined her
inquiry to ground rents for leases of 75 years or more, where income stream was
the sole consideration for the investment. To have regard, as Mr MacPherson had
done, to the shortness of the lease and capital growth in the determination of
the capitalisation rate, would, in her view, result in double counting. Miss
Ellis agreed that she had been surprised in compiling her table of
capitalisation rates from auction sales of ground rents to find an increase in
interest rates for ground rents in London, but it supported her general thesis
that location and type of property were irrelevant in determining the
investment value of ground rents on their own. She considered the subject
properties for investment purposes must be valued as flats, not houses, since
this was how they were categorised under the 1993 Act.
In respect of
the rate which she adopted for deferment, Miss Ellis said that recent
statistics supported her view that the property market would not always stay in
boom and that the prime location of the subject premises in Belgravia did not
insulate it from the likely decline in property values in the long term. She
agreed that she had no first-hand evidence of any settlement achieved with the
Grosvenor Estate. Miss Ellis was closely questioned on the open market
transactions, particulars of which are set out in schedule C.1. She remained of
the view that in a settlement the tenant was in a weaker bargaining position
than the landlord and consequently subject to the Delaforce effect. She
submitted that Mr MacPherson consistently applied 6% as his capitalisation
rate, prior to entering any negotiation with a sitting tenant and imposed that
rate from the start on the parties. In the revised calculations made by Mr Marr
Johnson and Mr Boston in relation to 25 and 26 Eaton Mews South and 13 Gerald
Road respectively, they had employed 6% as a rate dictated by the Grosvenor
Estate, and not because they thought it to be the appropriate rate.
In
re-examination, Miss Ellis agreed that in a purchase of the freehold of flats
two or more parties were involved on the part of the tenants with all the
consequent differences in interest, management and repairing obligation.
Investment in flats differed from investment in a single house.
In answer to
questions from the tribunal Miss Ellis stated that the proportion of 1.4%,
which the capitalised ground rents represented in her valuation to the capital
freehold value, had no relevance, in her view, when seeking to determine the
capitalisation rate. She considered it inappropriate to compare such short term
leases to the ground rent value of 75-year leases where there was no capital
reversion value. She accepted that a tenant holding a short term lease in a
prime area, such as Belgravia, might seek an extension, and be willing to pay a
premium at some point during that term. This potential value should be taken
into account but not at the stage of determining the capitalisation rate. Asked
what evidence she would be prepared to accept to support a higher proportion of
market value than 50%, Miss Ellis replied that the requirement of a willing
seller precluded in most circumstances the possibility of the tenant agreeing
to a higher proportion. But possibly the signature of the tenant or his
proposed adviser on the calculation sheets of the Grosvenor Estate or a
personal statement by the tenant might support a higher proportion.
Mr Berry
called Mr Ian MacPherson FRICS, partner in Gerald Eve, chartered surveyors, to
give evidence in support of his valuation set out at schedule B. Mr MacPherson
said he had 25 years’ professional experience and had advised the Grosvenor
Estate since 1975, the Howard De Walden Estate since 1981 and the Ilchester
Estate since 1992 on leasehold enfranchisement valuations under the 1967 Act,
as amended, and the 1993 Act. He had also advised the Fitzwilliam (Wentworth)
Estates, Letchworth Garden City Corporation and many tenants’ associations and
individual leaseholder/ claimants. He had inspected internally the two subject
premises and garages. Before explaining the detail of his valuation, he wished
at the outset to state the reliance which he placed on negotiated
enfranchisement prices for houses on the Grosvenor and Cadogan Estates as
evidence of the relevant land market for the determination of enfranchisement
prices for houses under section 9(1)A of the Leasehold Reform Act 1967 as
amended. This settlement evidence covered all the houses on the Grosvenor and
Cadogan Estates for which enfranchisement prices had been obtained, except one,
60 Cadogan Lane, which had been determined by the Lands Tribunal in Cadogan
Estates Ltd v Hows [1989] 48 EG 167*. This settlement evidence had
been presented to the Lands Tribunal in the Lloyd-Jones and Cadogan
Estates cases and Mr MacPherson cited passages from these decisions to show
that they had been accepted as providing ‘massive’ support for the percentages
shown in the calculations made by the landlord’s surveyors. He said his
practice, as stated in those two cases, was to follow the historic settlement,
evidence which he had obtained from negotiating enfranchisement prices for
other houses in similar locations on a consistent basis unless he became aware
of more reliable evidence in a response to well founded points made on behalf
of leaseholders. In appendices Mr MacPherson produced 143 enfranchisement
settlements on the Grosvenor and Cadogan Estates relating to section 9(1)
valuations, 220 settlements on those estates relating to section 9(1)
valuations, and one settlement relating to section 9(1)C under the 1993 Act.
*Editor’s
note: Also reported at [1989] 2 EGLR 216
Capitalisation
rate
Mr MacPherson
proposed 6% as the appropriate rate for capitalisation of the ground rents on
the basis that: they were well secured; the landlord could look forward to a
substantial reversionary value in 20 years’ time; relatively low immediate
yields were acceptable to investors in respect of long term benefits due on
substantial estates of good residential properties; and that the rate of 6% was
supported by the land market evidence of comparable negotiated enfranchisement
prices for other houses on the estate. In this connection he considered that
the hypothetical assumptions to be applied by virtue of Schedule 5, para 4,
approximated to those laid down for enfranchisement of houses in the 1967 Act,
as amended. Accordingly, the pattern of yield rates for ‘flats’, varying with
the term unexpired, should conform with those which the settlements evidence
revealed, namely a rate of 5% for a term of zero to 10 years unexpired, rising
to 8% for 60 years or over unexpired, with a band of 6% for 20 to 30 years
unexpired. Accordingly, in the same way as the estate would have negotiated a
settlement at a capitalisation rate of 6% for a house with an unexpired term of
20 to 30 years, he proposed a 6% rate for the subject ‘houses’ with 20.25 years
unexpired, and applied the same rate in respect of the east garage at no 36,
(although it had an unexpired term of 13.25 years, with five-year rent reviews)
because it was a garage not a dwelling.
Deferment
rate
Mr MacPherson
applied the same rate of 6% in deferring the reversion values on the basis that
there was a long term trend for
growth rate in excess of inflation. The keenness of leaseholders to enfranchise
and the opposition of freeholders to the extension of enfranchisement indicated
that both interests considered property in central London to constitute a sound
investment. Reported sales of the Chesham Place Estate and Chalcots Residential
Estate at Swiss Cottage provided proof of investor interest in central London.
It was his view that the excellence of the location, quality of the property,
and greater potential for realising the marriage value by the shorter deferment
of the reversion, were all factors affecting the determination of the rate. Mr
MacPherson again relied on the consistent application of 6% deferment rate in
the negotiated valuations for enfranchisement of 364 houses on the Grosvenor
and Cadogan Estates and he listed some nine decisions of leasehold valuation
tribunals which had applied 6% to central London properties. He distinguished
tribunal decisions at 7 Queensmead, 58 Eton Avenue and 23 The
Little Boltons as giving undue weight to previous tribunal practice,
ignoring land market evidence arising from settlements which was available in
the present case and in respect of the first two decisions, applying a higher
deferment rate for flats. He maintained that the deferment rate should not
increase solely by reason of the length of deferment: see County &
Metropolitan Developments Ltd v Brewer (formerly Swanston) Trust
(1971) 219 EG 775; Lake v Bennet (1971) 219 EG 945.
Unlike Miss
Ellis, he considered evidence of auction sales of ground rents of blocks of
flats with leases of 75 years or over to be of no relevance to the security and
growth prospects on a 20-year lease; they were concerned solely with the rental
income stream over 75 years, as was also true of the leasehold valuation
tribunal’s decision in Sked v Towngran Developments Ltd [1995] 1
EGLR 216; [1995] 05 EG 169. While he had arrived at the same percentage of 6%
for both capitalisation and deferment on the basis of different reasoning, Miss
Ellis appeared to have adopted the rate for deferment by reason of the auction
sales evidence supporting her capitalisation rate; this could not be correct.
Nor had she been consistent in her application of differing rates in respect of
the east garage at no 35.
Marriage
value
He referred to
the terms of Schedule 6, para 4(2), and said after collective enfranchisement
that each participating tenant would enjoy virtually similar freedom and
opportunities to do what they liked with their property as if they owned the
freehold of their own mews house. In the hypothetical situation of the existing
freeholder voluntarily selling the freehold, outside the Act, to the tenant in
occupation by means of a similar arrangement, there was no doubt that the
tenant would be prepared to pay a share of the marriage value because it would
enable him to increase the value of the property. Adopting the freehold and
leasehold valuations assessed by Mr Pope, a marriage value of £330,522 was
arrived at. By para 4(1)(a) as the proportion had not been agreed by the
parties, it fell to the present tribunal to determine whether it should exceed
the statutory minimum of 50% and this depended on whether in a sale ‘in the
open market by willing sellers’ it would exceed 50%. As to the meaning of
‘willing’ seller he relied on the definition in the manual of the Royal
Institution of Chartered Surveyors: RICS Practice Statement 4.1.7:
a willing
seller … is neither an over-eager nor a forced seller prepared to sell at any
price, nor one prepared to hold out for a price not considered reasonable in
the current market. The willing seller is restricted to sell the asset at
market terms for the best price attainable in the ‘open market’ after proper
marketing, whatever that price may be. The factual circumstances of the actual
asset owner are not a part of this consideration because the ‘willing seller’
is a hypothetical owner.
Mr MacPherson
gave evidence and submitted detailed analyses of open market transactions to
support a greater share than 50% being achieved by the freeholder. (Particulars
of these transactions are set out at schedule D.) Just as the historic
settlement evidence, relating to section 9(1) and 9(1)A enfranchisements provided
in the analysis evidence of the practice relating to capitalisation, deferment
and entirety rates so he submitted the working document prepared in these open
market transactions also supported the adoption of a 6% rate, and provided
evidence that the landlord’s share of the marriage value now exceeded 50%. He
referred to a number of errors in the reanalysis of the transaction at 25 and
26 Eaton Mews South provided by Mr Marr Johnson who had acted for the tenant.
In the past, in the absence of open market evidence, reliance had been placed
on settlements on the Grosvenor and Cadogan Estates to support an equal
division of marriage value between the parties, but, in the light of the open
market transactions (set out in schedule D), Mr MacPherson invited the tribunal
to award the reversioner a higher proportion than 50% of the marriage value and
the proposed 75%.
In concluding
his evidence-in-chief Mr MacPherson was asked to consider Miss Ellis’ valuation
and approach. He said he did not think auction sales of property of very
different type, location and capital value to the subject premises —
differences which he illustrated by a plan, photographs, detailed comment and
comparison of yields — could provide relevant evidence in the present inquiry;
he had himself externally inspected or had arranged inspection of all
properties listed in Miss Ellis’ schedules, and considered them in no way
comparable; even taking the properties nearest to Belgravia listed on the inner
London schedule which included 21 Ongar Road, Fulham, 9 Pembridge Villas,
Notting Hill, 23/24 River Street, Clerkenwell, it was difficult to imagine a
prospective purchaser of the subject properties who would be interested in
them. He could recall in recent experience no negotiation in respect of an enfranchisement
price where a surveyor acting for the leaseholder had contended for a rate as
high as Miss Ellis’ original figure of 12.5%. In fact he had recently agreed a
price for a freehold for a house in Belgravia at 13 Gerald Road under section
9(1)(C) of the Act, as amended, with Mr Charles Boston FSVA IRRV MCIM, and
produced correspondence relating thereto in which Mr Boston agreed to a
capitalisation rate of 6% and that the landlord should receive more than 50% of
the marriage value. Mr Boston’s offer of 69% on May 22 had been considered too
low and with regard to the price of £250,000 finally achieved the landlord’s
share analysed out at 68%.
Long term
investment prospects in residential property in Belgravia
Continuing, Mr
MacPherson said that Miss Ellis had expanded her evidence at the November
hearing to take an uncommonly pessimistic view about the growth potential of
prime central London residential property. She had disregarded the substantial
international, as well as domestic, demand for such property, overlooked that
the dominant part of the investment was the reversion, and wrongly
over-emphasised the statutory categorisation of the subject properties as
‘flats’, so as to compare them to blocks of flats and not individual houses.
In cross-examination
by Mr Radevsky on behalf of the nominee purchaser, Mr MacPherson denied that he
had claimed the highest figure possible for enfranchisement in the
reversioner’s counter notice in April 1994; the price then sought, £826,500 was
based on 1994 values, including a lower value of £585,000 for the freehold of
each mews house. Although his present proposed figure of £734,400 was
significantly lower, he considered it to be reasonable, particularly in the
light of £653,000 achieved for the 75-year lease for 25 and 26 Eaton Mews
South, and taking into account the greater worth of a freehold. When questioned
on negotiated settlements, Mr MacPherson agreed that in every case a notice to
enfranchise the property had been served on the landlord prior to negotiations.
He agreed that, in these negotiations, he applied a capitalisation rate
according to a fixed formula derived from the unexpired term; he had not been
persuaded, by reference to money market rates, to apply a different rate.
Indeed, in the present case, when interest rates were at a historically low
rate, had he taken account of them he would have applied a lower rather than a
higher rate than 6%. When asked why he had not obtained the signature of the
leaseholder’s surveyor to his calculation of a negotiated price, Mr MacPherson
said he did not ask for a signature because neither in the present case nor on
earlier occasions would any surveyor have been prepared to sign. As regards the
open market transactions, he accepted that the Grosvenor Estate had been
looking
the marriage value, but he did not think that leaseholders’ professional
advisers would be prepared to assist the estate by signing the valuation
sheets; the present case relating to the proportion of the marriage value which
the landlord should receive was well known on the estate. Mr MacPherson said he
relied on his correspondence with Mr Boston to show that he was not himself
prepared to do a deal, where the landlord received no more than 50% of the
marriage value, and his analysis of the transactions for 13 Gerald Road showed
that a higher proportion had been agreed.
He was not
claiming his analyses were agreed, but he did claim that a large number of
settlements were agreed, based on his figures.
Mr MacPherson
said he had adopted a 6% rate for deferment by going direct to comparable
transactions and not, as had Miss Ellis, by reference to general trends in the
residential London market. After further inquiry he said that he understood
mortgages were available to leaseholders and the Grosvenor Estate with terms of
under 30 years, provided the mortgage was repayable with 10 years still
unexpired of the term. Mr Radevsky questioned Mr MacPherson closely on how he justified
his analyses of the transactions at 28 Eccleston Mews and 17 Eaton Mews South.
In answer to
questions from members of the tribunal, Mr MacPherson said that he did not
think investment prospects were affected by the operation of the 1987 Act,
which gave tenants in flats the first option collectively to purchase the
freehold. As to long term growth rates he accepted that the appeal of property
in Belgravia in part depended on the strength of the British economy and the
attraction of property in the best residential district of a major capital
city. When asked to comment on the requirement in Schedule 6, para 3, that a
valuation of the freehold interest should disregard the value of tenant’s
improvements, and the omission in para 4 of any such requirement in respect of
the valuation of the leasehold interest, Mr MacPherson stated that he
considered that improvements should be disregarded in valuation of both
interests. Otherwise, by its effect on the marriage value, the value of the
landlord’s interest would be higher where the property was unimproved than
where it was improved. In answer to a further question, he stated that the
lateral conversion of 25 and 26 Eaton Mews South did not, in his view make it
significantly different from the subject properties.
At the
conclusion of Mr MacPherson’s evidence, Mr Berry requested permission to recall
Mr Pope to give further evidence to refute Miss Ellis’ pessimistic forecast of
investment prospects in Belgravia. In accordance with a further proof, Mr Pope
maintained that Miss Ellis had taken insufficient account of the two-tier
market which had developed in residential properties. The Halifax index and
other indices relied upon by her, related to houses in low value brackets and
were not relevant to sales in Belgravia. He produced the November 1994 edition
of Savills Quarterly Residential Research Bulletin which reported: ‘in
Central London growth of 20% the year to September 1994 had been achieved’; and
the September 1995 edition made reference to ‘a high rise in values of 33% from
September 1992’. He relied on a graph entitled ‘Return to Trend’ as
demonstrating the wisdom of investment in central London residential property
in the long term. Cross-examined by Mr Radevsky on behalf of the nominee
purchaser, Mr Pope said that the statement, in the 1995 Annual Report of the
chairman of John D Wood, that ‘at present the market is subdued’, was explained
by hopes in respect of the opening of the new office in Belgravia not being
fulfilled. He agreed 34 Eaton Mews South had been on the market for two years
and the price had now been reduced. He did not accept that Savills Quarterly
was designed to talk up house prices nor that the placing of the line in the
graph on p3 was arbitrary, and without any mathematical significance.
On the
conclusion of the above evidence on behalf of the reversioner, Mr Berry
requested leave to call evidence relating to the sale for £280m of some 2,300
residential properties by Smith’s Charity to the Wellcome Trust and he produced
a schedule of some 58 selected properties prepared by Mr Roland Cullum of
Cluttons, the agents acting for the Smith’s Charity, and newspaper reports of
the transaction. He urged the tribunal to admit the evidence on the ground that
it represented a real market transaction. Mr Radevsky strongly objected to the
transaction being admitted. He reminded the tribunal that in correspondence
between the first and second hearing it had requested the parties to deliver
all new evidence by November 20, that the nominee purchaser, but not the
reversioner, had complied with this request, and that the advisers of the
nominee purchaser had totally inadequate opportunity to analyse it, since the
new evidence was produced late on Monday November 27 1995. After consideration
of the matter overnight, the tribunal at the resumed hearing on November 30
requested counsel for both parties to address them de bene esse and on
the assumption that the tribunal were of a mind to admit evidence relating to
the sale by Smith’s Charity, as to the relevance and weight of that
transaction. Mr Berry, on behalf of the reversioner, submitted that the
schedules of residential properties included in the sale set out the ground
rent, expiry date of the lease and values of the reversionary and freehold
vacant possession interests of each property agreed by the parties; it was
accordingly possible to analyse the yields which were the basis of an open
market transaction between parties with professional representatives. It was a
relevant similar transaction to support Mr MacPherson’s proposed rate of 6%. As
to weight, although it differed from the subject enfranchisement, being a large
transaction, not a purchase of a single reversion, it indicated that other
investors in the market were willing to invest at this deferment rate,
alternatively he submitted that account of the Smith’s Charity transaction
should be taken in assessing the potential of acquiring the freehold in the
subject properties.
Mr Radevsky,
on behalf of the nominee purchaser said the evidence admitted de bene esse
of the Smith’s Charity sale showed nothing. On the face of it, the only agreed
figure was the value of the reversion; it was not stated that the freehold
vacant possession values had been agreed. Some 117 properties out of a total
2,300 had been selected by Cluttons; this represented 5% of the whole but, on
the basis the total price was £280m, represented 14.6% of the total value. No
information was given as to rent reviews or ‘hope’ value arising from sitting
tenants and, even if time was available, it would not be possible on the
information disclosed to come to any conclusion about yields. 2,300 properties
had been sold for one global price and the tenants of Smith’s Charity believed
that the global price had been apportioned so as to load those properties where
the Landlord and Tenant Act 1987 was likely to apply. He again asked the
tribunal not to admit the transaction, it being of no relevance or weight.
The chairman
of the tribunal requested Mr Berry to explain whether reliance could be placed
on a document which appeared to have been prepared to enable the Smith’s
Charity and the Wellcome Trust to sidestep the statutory procedure laid down in
Part I of the 1987 Act, whereby tenants were given the first option to buy the
freehold. Mr Berry stated that he had been informed that the 1987 Act had been
followed to the letter; one tenant however, was taking proceedings against the
Smith’s Charity for alleged violation of the 1987 Act. After taking
instructions, Mr Radevsky informed the tribunal that on Monday November 20
there had been a court hearing in which the Smith’s Charity was represented by
leading counsel. A court order had been made on the following terms: (i) undertakings
to be given by the landlord that it would serve, within 48 hours, section 5
notices under the 1987 Act upon the plaintiffs, (they being tenants with
properties included in the sale to the Wellcome Trust); (ii) no immediate
completion of the sale to Wellcome Estate; (iii) expedition of its application
for an estate management scheme to the London Leasehold Valuation Tribunal;
(iv) leave being given to the tenants to reapply if Smith’s Charity was
dilatory; (v) leave to apply to the Court of Appeal. Far from being settled,
litigation was continuing by leaseholders challenging the lawfulness of the
disposal by Smith’s Charity.
After an
adjournment, the tribunal stated its decision not to admit evidence relating to
the transaction by the Smith’s Charity. We did so for the following reasons:
(i) That we
were not satisfied that it was a completed transaction.
(ii) Nor that
it was in conformity with the requirements of the 1987 Act.
(iii) That it
appeared to be a portfolio transaction not comparable to the subject
acquisition of a single freehold.
(iv) There
appeared to be a mismatch as to the number of properties selected for analysis,
5% of the total, and their value proportionate to the total value, 14.6% on Mr
Radevsky’s analysis.
(v) There was
no information relating to rent reviews in respect of the ground rents shown.
(vi) Finally,
that late production of the information gave the nominee purchaser and its
advisers no adequate opportunity to answer it.
Mr Berry, in
his final submissions on behalf of the reversioner, reminded the tribunal that,
in accordance with High Court rulings, it should be slow to arrive at a
decision unsupported by evidence on the method put forward by the parties. He
put forward Mr Pope as an experienced valuer with long first hand experience of
the Belgravia market, who had inspected the subject properties internally,
whereas Mr Haines’ valuation was based on second hand knowledge. He instanced
particulars in Mr Haines’ evidence and cross-examination, which indicated
uncertainty, hesitancy and superficiality in his approach. He urged us to
prefer Mr Pope’s comparables of 29 and 33 Eaton Mews South and 52 Eaton Mews
West for the leasehold value and 17, 25/26, 28 and 47 Eaton Mews South for the
freehold value, to those put forward by Mr Haines. He also urged the tribunal
to accept Mr Pope’s figure of £40,000 for the capital value of a garage,
suggesting that Mr Haines’ concentration on size of garage was an over refined
argument. He also invited the tribunal to prefer Mr MacPherson’s evidence to
that of Miss Ellis, suggesting that she lacked experience of the Grosvenor
Estate, was over technical and had valued on the basis of nationwide statistics
rather than data applicable to the central London residential market. She
wrongly dealt with the subject properties as flats and did not assess the 1993
Act in the context of the body of law which already existed and the potent
evidence relating to settlements. He equally submitted there to be a body of
comparable evidence of open market transactions to support a 75% share of the
marriage value to the landlord. When asked why the figure of 75% was chosen,
when the open market transactions showed differing proportions, Mr Berry said
Mr MacPherson was the expert and his opinion of the balance of the bargaining
power of the parties should be accepted.
Mr Radevsky,
in his final submissions on behalf of the tenants, reminded the tribunal that
Mr Haines’ figure of £580,000, for the freehold value had originally been
agreed with the landlord’s surveyors, at a time when they were putting forward
a claim for £826,500. The overall claim had now decreased by £100,000, yet
there was no explanation why the freehold value had increased to £670,000 in
less than 10 months, a period during which there was no market evidence
as to any increase in prices. He urged the tribunal to disregard 25 and 26
Eaton Mews South as a comparable, since the figures were disputed, and the
layout required the property to be considered as similar to one large house in
Eaton Square. He submitted that Miss Ellis’ approach to the deferment rate was
based on market evidence, not the unreliable settlements put forward by the
reversioner. He questioned why the Grosvenor Estate did not itself repurchase
if, as Mr MacPherson maintained, long term growth in central London was to be
expected. Mr Radevsky submitted that there was no evidence that the share of
marriage value ‘would have been determined by an agreement’ at more than 50% in
a mutually willing collective enfranchisement registration with the Grosvenor
Estate outside the 1993 Act. Despite two years since its enactment, the
Grosvenor Estate had been unable, in any of the transactions, to put forward a
signature on the part of the tenant to support such an agreement to a
landlord’s share of more than 50%. The nearest to evidence, which Mr MacPherson
was able to produce, was a ‘without prejudice’ letter by Mr Boston relating to
the enfranchisement of 13 Gerald Road. The exchange of correspondence merely
demonstrated that Mr MacPherson on behalf of the reversioner was as
intransigent in negotiations as he had shown himself in giving evidence.
Decision and
reasons
In this case
we are asked to determine the price payable for the freehold of two mews houses
and four garages on the Grosvenor Estate; although the houses appear, on
inspection, and are in occupation enjoyed as two separate vertically divided
units, they do not qualify, by reason of the arrangement of the demises, as
enfranchiseable houses under section 9(1)A of the Leasehold Reform Act 1967, as
amended in section 9(1)C of the 1993 Act; instead, by reason of the separate
conveyances of the two houses as separate dwellings within the building and a
material part of them lying above the two garages which were in separate
demises, they qualify as a block of flats within the meaning of section 101(1)
of the Act.
Miss Ellis’
approach to valuation was, accordingly, based on the view that section 9(1)A
and C had little or no relevance, and submitted that our valuation should be
based on Schedule 6 to the 1993 Act relating to collective enfranchisement. In
particular, she submitted that the tenant’s right to a 90-year extension, which
is not available in respect of an enfranchiseable house, requires a separate
valuation, and an addition to the value of the vacant leasehold possession.
The
reversioner’s case, while accepting that Schedule 6 to the Act applies, is to
value the freehold and leasehold values of the subject premises by reference to
comparable sales of houses as ‘houses’ in the vicinity, and Mr MacPherson seeks
to apply to the subject premises the percentages for capitalisation and
deferment (but not marriage value see below) which were consistently applied in
the negotiated enfranchisements of all houses on the Cadogan and Grosvenor
Estates under the 1967 Act.
It is the
tribunal’s view that, so far as the law is concerned, we must look to Schedule
6 to the 1993 Act. That Act has permitted the enfranchisement of a class of
dwellings (‘flats’) that previously were not enfranchiseable. The reversioner
deliberately made the dwellings non-enfranchiseable as houses under the 1967
Act by withholding one garage located under each ‘flat’ from the principal
lease. In contrast with the 1967 Act, the 1993 Act gives very specific rules in
Schedule 6 for the basis of valuation, including a definition of the marriage
value, and a direction as to the proportion to be awarded to the landlord.
Accordingly, we are of the view that these rules govern our decision, and in
the event of any conflict, must prevail over any valuation practice adopted in
relation to houses enfranchised under the 1967 Act. We consider further the
relevance of negotiated enfranchisement settlements below when discussing the
parties’ submissions relating to the appropriate rates for capitalisation and
deferment.
However, we
are of the view that determination in accordance with the 1993 Act is a more
complicated process than Miss Ellis allows, in that in practice, the market
would treat the dwellings as houses, because in reality that is what they are.
Indeed both Mr Haines and Mr Pope, in arriving at freehold and leasehold
values, have compared the subject premises to transactions relating to sales of
houses and, from our inspection, we consider this to be appropriate. It is
indeed probable that, after collective enfranchisement, the tenants in the
present case will sever so that each becomes owner of the freehold and able to
sell it separately in the market.
On this
account we do not think Miss Ellis’ claim for recognition of additional value
in the tenant’s right to a 90-year extension can be sustained. She calculates
the leasehold value by first accepting Mr Haines’ 999-year lease value of
£580,000, and then deducting from it the present value of the freeholder’s
interest (using 10.8% as to term and reversion); she then applies an equal
share of the marriage value based on these figures and adds the calculated cost
of the lease extension comprising premium, professional costs and allowing for
time and risk. She arrives at figures of £415,500 for no 36 and £415,750 for no
37. In our view, the addition of any enfranchiseable rights attributable to the
leasehold are reflected in prices paid in the open market. The tribunal was
accordingly unable to accept Miss Ellis’
evidence of market transactions as provided by both parties.
Freehold
and leasehold capital values
We, therefore,
turn our attention to the valuation of the freehold and leasehold capital
interests in the subject property. Evidence in the main was given by the
parties on this issue at the first hearing.
The freehold
interest in the context of collective enfranchisement is strictly a misnomer,
in that, for the purposes of calculation of the marriage value, an extended
lease of unlimited term without payment of a premium is the interest to be
acquired by each participating tenant which is to be compared to the current
leasehold term which he holds. Both parties recognise this distinction in their
valuations; Mr Pope on behalf of the reversioner values on the basis of new
long leases of 999 years at a peppercorn rent and Mr Haines values on a similar
basis, maintaining that there is no difference in value between a lease of 999
years and one of 110.25 years. We also accept this distinction and ‘freehold’
should be read throughout this decision as referring to a 999-year lease at a
peppercorn rent.
The tribunal
gave careful consideration and inspected all the comparables listed in the
agreed schedule, save 8 and 9 Eaton Row which was accepted by the parties as
not relevant. Of the comparables outside Eaton Mews South, several of the
transactions referred to were completed one year to 18 months prior to the
valuation date, February 1995; Mr Haines on the nominee purchasers’ behalf
maintained that there had been no increase in prices in the market, and
possibly a downward drift and he cited newspaper and journal articles to that
effect. Mr Pope, on the reversioner’s behalf, on the other hand argued in favour
of a 20% increase in the central London residential market, which was to be
distinguished from the national state of the market reported in the media, and
he relied in support on a survey of Savills and the annual statement of himself
as joint chairman of John D Wood in July 1994.
While we treat
with caution statements of estate agents as to the state of the market, we
think the evidence supports some increase in prices over the period January
1993 to February 1995, though of more modest proportions than 20% and have
taken this into account in applying the comparables.
We discarded
52 Eaton Mews West, as the location close to commercial garage premises
changed, in our view, the whole character of a mews and so affected the value,
of what otherwise appeared to be a pleasant mews house, as to make comparison
unreliable. Eaton Mews North, however, was a residential mews similar to Eaton
Mews South having the advantage of access by two separate roads; no 43, due to
the particular circumstances of the transaction, was not at the hearing put
forward by Mr Pope as a comparable, but he relied on no 28 and we consider it,
when adjusted for differences, to provide useful support for Mr Pope’s higher
values for the freehold interest. The date of transaction for 28 Eaton Mews
North closely approximates to the valuation date, the shorter duration of the
term sold and any eccentricity of layout is balanced by the larger size, wider
frontage and advantage of a roof garden. We accept it as a useful market check
for prices achieved within the subject Mews. Here we preferred the west
section, where the subject premises were located, to the east section, which
was narrower, more overlooked, with tall buildings in office use on one side.
No 20 on inspection was gutted and as its conversion appeared to be in
connection with the development of 2A Eaton Square, we considered the price not
comparable, being affected by external considerations unknown to us.
15 and 17
Eaton Mews South provided us with useful guidance; no 15 required considerable
adjustment to take into account its larger size by a third (250m2),
four years’ additional length of lease and its condition as a luxury specialist
house and, even applying Mr Pope’s order of rise in prices for the year’s
difference in dates, this transaction indicates, in our view, a lower figure
for the leasehold value than that advanced by Mr Haines. We found further
support for higher freehold values in the price of £625,000 achieved at no 17
for a 75-year lease at a rent of £1,250 pa. We regard this price as having
elements of an open market transaction of a similar sized house in reasonable,
but not luxurious condition.
Turning to the
comparable properties in the west section of Eaton Mews South, where the
subject premises are located, we reject nos 46 and 47 (a slightly better
conversion than no 46) being two-storey mews houses opposite the subject
premises which we were able to inspect internally. We agree with Mr Pope that
these are inferior houses, with no rear windows, skylights, awkward layouts and
unmodernised features. In our view, there are too many different factors in
these properties to base a comparison and we set them aside. We find ourselves
to hold the same view in respect of nos 25 and 26; here the prices achieved
relate to a complex transaction involving the combination of two houses, with
one having a rear extension with consequent ability to provide an extensive
suite of reception rooms, possibly for commercial purposes, on the first floor;
this transaction was rendered increasingly complex at the second hearing by the
differing analyses of its component valuation elements put forward by the
respective valuers. This leaves us with nos 29 and 33, both open market
transactions, both relating to longer periods of leases, but also three-storey
houses on the same side and close to the subject premises. No 33, in
particular, was much relied on by both parties and we having inspected it
internally, and taken into account its smaller size (one room and a garage
less), its longer lease by eight years, consider it strongly to support a
leasehold value midway between the figures advanced by the parties’ valuers.
To sum up,
adopting no 33 as the best comparable, being a sale of a property similar in
size, character, and layout in the same location achieved only six months prior
to the valuation date, supported by the prices achieved for 29 Eaton Mews South
and 28 Eaton Mews North, we arrive at values of £350,000 of the leasehold
interest and £670,000 for the freehold interest.
Improvements
While at the
first hearing the parties seemed to have differing points of view as to
improvements: see para 7 above relating to Mr Haines’ evidence, by the time of
the second hearing they were both of opinion that the value of improvements
should be disregarded throughout the valuation. Bearing in mind that Mr Haines
puts improvements as no more than £10,000 to £20,000, in total value, a sum
which can have little effect on the outcome, we accept this position as agreed
by the parties.
Garages:
freehold capital value
On December 12
1995 we inspected externally the three garages/parking spaces listed at 10
Shafto Mews, SW1; Byron Court, Elyston Street, SW3 and Rosemoor Street, SW3. At
Byron Court, parking spaces, open and undercover, were available within a large
block of flats and did not seem comparable to the acquisition of a single
garage. In terms of location in a mews, 10 Shafto Mews was the most similar to
the subject garages, but located, it would appear, as was the single garage in
Rosemoor, in a district where garage spaces were scarcer. The garage at Shafto
Mews was larger than the subject garages, although we questioned whether it
would accommodate four cars at one time.
In assessing
the freehold value, it would seem that the sale at 10 Shafto Mews, after
reducing the special purchase figure to £80,000, and assuming only three cars
could be accommodated, supports a figure in the region of £27,000. The
exclusive nature of the subject garages and their freehold interest however
requires some upward revision of this figure. Mr Haines considered the sale for
£35,000 of a garage in Rosemoor Street to be the best comparable, but viewed
the location of this garage, together with the length of lease, to ensure a
greater demand than for a small awkward garage in Eaton Mews South. Taking all
these factors into account, we concluded that £30,000 was an appropriate value
for the freehold vacant premises in respect of garage west, 37 Eaton Mews
South.
Capitalisation
and deferred rates
As to the
capitalisation rate, Miss Ellis’ method was to analyse market transactions of
sales of long term ground rents (over 75 years) on a miscellany of blocks of
flats and then to apply the average rate to both the income and the reversion
of the subject dwellings. In cross-examination it was made plain that her
comparables were not comparables in the physical sense of location and style.
It was also made plain, and seems clear to us, that there is no comparison
between an investment which has 20 years to run to its reversion to those which
have 75 years or more. We do not consider that returns on zero preference
shares and gilts support her argument for a rate of 10.8%. Zero dividend shares
which are intended to grow incrementally over a number of years to attain a
fixed value, differ from property reversions, in that there is no inflation
proofing, and there is the possibility that the shares will not attain the
fixed value of the portfolio on which they are based, if it does not perform
adequately. As to gilts, because interest rates have fallen in recent years,
many of the securities granted are now above par value and will be repaid at a
future fixed date at £100 which is less than they are now priced, this
representing a capital loss in nominal terms, and an ever greater loss in real
terms, because of the effect of inflation. Rates of return in these types of
investment are motivated and take account of contingencies totally different
from those obtaining in the property market.
While the
tribunal, therefore, was prepared to accept, particularly where, as here, the
income is of marginal worth, Miss Ellis’ contention that it was now established
practice to apply the same rate to deferment as to capitalisation, they were
unconvinced by her reliance on auction sales that as high a rate as 10.8% was
appropriate.
Mr MacPherson,
on behalf of the reversioner also accepted that the same rate should apply to
deferment as to capitalisation and he put forward 6%. Although he supported his
6% rate by reference to principles of valuation, his main argument for the
adoption of such a rate was its consistent use in negotiated enfranchisements
and he relied strongly, as evidence of the land market in Belgravia, on such
negotiations. Before turning to principles of valuation it is, therefore,
necessary to consider in some detail the nature of this evidence and the
reliance which the tribunal may place upon it.
Negotiated
settlements
Mr MacPherson
relied strongly, as evidence of the land market in Belgravia, on the
calculations prepared by the landlord’s surveyors in support of the negotiated
enfranchisement prices for houses on the Grosvenor and Cadogan Estates. These
negotiations comprise all sales of freeholds made pursuant to the 1967 Act with
its amendments, except for one, 60 Cadogan Lane, which was determined by the
Lands Tribunal; the actual figures given were 143 settlements under section
9(1), 220 under section 9(1)A and one under section 9(1)C. The consistent
practice in these negotiations was described in Lloyd-Jones v Church
Commissioners for England (1981) 261 EG 471 and appeared to have been
followed in the case before us; namely after notification of the tenant’s
intention to enfranchise, the landlord’s surveyor, (Gerald Eve, Mr MacPherson
acting for that firm in the present case), had sought the assistance of another
firm of chartered surveyors, (Mr Pope of John D Wood in the present case), to
advise them on the freehold and leasehold vacant possession values of the
subject premises on the assumption that the lessee did not have any right to
enfranchise under the 1967 Act. Then, the landlord’s surveyor prepared a report
to the estate setting out a full calculation; after consultation, resulting in
some cases in amendment, these figures were presented to the lessee, and
included: percentages for the rates of capitalisation and deferment; the
landlord’s proportion of marriage value; and where relevant, the proportion of
the entirety attributable to the site; and the percentage to be deducted for
the tenant’s right to stay on after the lease expired. In the Lloyd-Jones
case the member of the Lands Tribunal, Mr WH Rees frics, although noting that in the course of negotiations
‘the figures in the calculations may be altered somewhat’, and that in the 57
settlements relating to the Cadogan Estate ‘the lessee did not always agree
each figure’ in the calculation, nevertheless concluded that ‘the actual
figures shown in the calculation’, and not those merely derived from ‘the
analysis’ of the landlord’s surveyors, provided ‘massive support’ for the rates
proposed. He further considered that, in circumstances where settlements were
rapidly and widely known, and there was an association of tenants, that there
was no Delaforce effect pressurising the tenants to settle at a higher
figure than would be awarded by a tribunal.
In the one
failed negotiation, 60 Cadogan Lane, which had been determined by the Lands
Tribunal, the tribunal again accepted settlements as evidence of the land
market: see Cadogan Estates Ltd v Hows [1989] 48 EG 167; in that
case the tribunal relied on 134 settlements on the Grosvenor Estate covering a
period of 15 years in which 83% of the lessees had been professionally
represented. Before us, Mr Radevsky on behalf of the nominee purchasers,
cross-examined Mr MacPherson and advanced in his final submissions contentions
similar to those put forward on behalf of the lessee in the Hows case
which were rejected by the Lands Tribunal; namely that: the settlements’
evidence only demonstrated consistency of method and intransigence on the part
of the landlord’s surveyors, with certain elements in the valuation exercise
regarded as ‘non-negotiable’; the settlements were evidence of the final price
and not of the individual elements in that price; they were tainted by the Delaforce
(Delaforce v Evans (1970) 215 EG 315) effect; and were self
supporting and self perpetuating. It is also true to say that on a number of
occasions, eg in the decision concerning Clabon Mews, London leasehold
valuation tribunals have expressed themselves unwilling to rely on negotiated
settlements evidence.
As a tribunal
we have been much exercised as to the evidential value of these settlements. Mr
Radevsky on behalf of the nominee purchasers makes a strong case against them.
First, on legal grounds, that all the settlements relate to houses, where the
tenant had given notice of the right to enfranchise under the 1967 Act, as
amended, whereas we are concerned with a collective enfranchisement of two
residential dwellings under the 1993 Act which the estate had by its conveyancing
arrangements chosen not to bring within the earlier Act. Second, that in the
absence of statement or signature of the tenant or a professional adviser, no
consent to the figures on the calculation sheets by all parties can be
established and they remain a document solely made by and for the purposes of
the landlord. Mr MacPherson very fairly admitted that there was little
possibility of the tenant or his advisers being willing to sign the calculation
sheets. Third, any consent may be challenged as not fully voluntary, given that
the estate was the sole freeholder, occupying a dominant position, and only
willing to sell when legally obliged to. Factually Miss Ellis has shown the
evidence to be flawed: only two settlements under section 9(1)A and one under
section 9(1)C relate to transactions completed in the last five years; the
interval between the date of the claim for enfranchisement and the date of the
analysis is frequently lengthy, ranging from three to five years with no clear
indication of the date when the price was agreed or paid, encouraging, by
reason of the ever shortening term and in a rising market, the tenant to settle
over the odds; the figures in the calculations are capable of different
analysis according to the capital values adopted, and she exhibits a number of
transactions which, reanalysed, can be made to support different rates of
return. The very consistency is said to belie their market veracity; the
schedule shows rates increasing in bands of 10 years, with a rate of 6% given for
terms of 20 to 30 years (arguably the present terms of 20.25 years approximate
more closely to the lower band rate of 5% given for the 10 to 20 years band).
It is said that market transactions would be much more variable.
Against these
weighty arguments, we have the authority of two decisions of the Lands
Tribunal; they relate to properties under the ownership of the same reversioner
who appears before us and the Lands Tribunal approved as evidence the
calculation sheets made by Mr MacPherson’s former partner in the Lloyd-Jones
case, and by Mr MacPherson himself in the Hows case. Whatever charges
may be made against the Grosvenor Estate as the dominant partner in these
transactions, the factual position cannot be ignored that over a period
of 15 years a rate of 6% was consistently applied for capitalisation and
deferment of settlements relating to 20 to 30-year leases, and sums paid for
enfranchisement to the estate were calculable on that basis. As there were no
other sales these transactions, even if conducted in an unusually consistent
manner, effectively represented in fact the local land market. On balance, and
mindful that we are an inferior tribunal to the Lands Tribunal, we consider for
the purposes of transactions arising on the same estate and in relation to the
same type of enfranchisement that we must accept in this case the
negotiated settlements as evidence. This decision in no way determines the
evidential value of settlements when applied to different estates, different
landlords and different areas of London.
The present
case relates to a collective enfranchisement, not a purchase of the freehold of
a single house. None the less, as we have already stated with regard to capital
values, the market is unlikely to distinguish these particular ‘flats’ from
mews houses. Accordingly, the rate of 6% shown in the calculation sheets
relating to houses is evidence in support of the same rate for the subject
premises.
However,
should we be wrong to admit such evidence, we are convinced on valuation principles
that such a rate is appropriate. We agree with Mr MacPherson that the
excellence of location and quality of property support this lower rate.
As to
deferment rate, the difference between the parties largely turns on their
assessment of a 20-year investment in Belgravia. Miss Ellis, adopting a
generally cautious approach, argued in favour of 10.8% by reference to the
income stream derived from auction sales of ground rents in London and took no
account of the added characteristic in reversionary residential investment of
possible future occupation by the investor. Mr MacPherson, supported by Mr
Pope, reminded us that Belgravia is unique, of London’s position as a global
city and the high demand for houses located in good quality central residential
areas. In this connection we have to say we were not over impressed by Mr
Pope’s evidence relating to the chart in Savills’ Quarterly Bulletin
entitled ‘The Balloon Deflates’; this chart is statistically flawed and
represents an attempt merely to extrapolate the post-war trend upwards by
claiming it will continue.
In determining
the deferment rate we apply the assumptions in Schedule 6, para 3(1), in
particular that the tenant is not a purchaser and has no right to enfranchise.
In a situation, as here, where a great estate clings tenaciously to its
freeholds, we think an investor purchasing the reversion, faced with the
subject leases, would be mindful that in 20 years’ time he will obtain vacant
possession and a large capital gain with the possibilities of selling the
freehold, occupying the house himself or by a member of his family, or letting
at a full market rent. Even before 20 years there is the possibility of the
tenant offering a sizeable premium for extension or surrender of the lease. The
investor has a range of options which are likely to produce a capital gain; in
addition he has a ‘status’ property derived from its location in Belgravia and
rarity on the market with tax advantages over the receipt of income (though
this aspect was not explored in evidence). Given these favourable aspects of
the investment, we consider that even if the general property market including
Belgravia fails to recover its former rising character, the reversion on the
subject leases remains an excellent investment. We accordingly adopt 6% as the
rate of deferment.
For the
reversionary value of the garages the parties’ surveyors applied the same rates
of capitalisation and deferment as they used for the mews houses; we, however,
think it to be a different type of investment, with increased risk and costs,
and accordingly apply a rate of 8.5%.
Marriage
value
Schedule 6
para 4(2) defines marriage value as: ‘… any increase in the aggregate value of
the freehold … when regarded as being (in consequence of their being acquired
by the nominee purchaser) as interests under the control of the participating
tenants’ as compared with the value of those interests held separately; and the
increase in value is defined as that: ‘which is attributable to the potential
ability of the participating tenants, once those interests have been so
acquired, to have new leases granted to them without payment of any premium and
without restriction as to length of term’, and: ‘which, if those interests were
being sold to the nominee purchaser on the open market by willing sellers, the
nominee purchaser would have to agree to share with the sellers in order to
reach agreement as to price’. Two aspects of this definition are noteworthy.
First, that by reason of the continued separation, after collective enfranchisement,
of the freehold now held by the nominee purchasers, and the leasehold interests
still held by the participating tenants, the marriage value is defined, not as
under the 1967 Act by reference to direct merger of the freehold and leasehold
interest in the enfranchising tenant, but by reference to the opportunity of
the participating tenants to obtain without premium extended leases of
unlimited term. Arguably, because of the extra transaction costs involved, the
total sum attributable to marriage value should be less than a direct
enfranchisement of a single house by one tenant. Second, unlike the 1967 Act
which contains no definition of marriage value, Schedule 6 para 4, expressly
refers to an ‘increase’ attributable to having ‘to agree to share with the
sellers in order to reach agreement as to price’. The definition can thus be
said to recognise an element of market pressure which brings about the sale and
to rule out a situation where the marriage value accrues in entirety either to
the seller or the nominee purchaser. Arguably, the Act does not envisage the
award of 100% of marriage value to the landlord, a proportion which Mr
MacPherson maintained was achieved in some of the transactions which he relied
upon. It is agreed by the parties that there is a marriage value in the present
case although the variation in their values for the leasehold interest before
and after enfranchisement, rates of return and in method produce differing
amounts. In our experience there is an inevitable tendency for the tenant’s
surveyor to arrive at a smaller sum for the marriage value than that achieved
by the landlords’ surveyor.
Miss Ellis
relies on para 4(1) which provides a residuary definition of the freeholder’s
share of the marriage value as 50%, where the parties have not agreed otherwise
and it cannot be proved in a sale in the open market a greater share would have
been agreed by a willing seller. She applies, to the determination of the
landlord’s share of marriage value, the hypothesis accepted in Lloyd-Jones
that the arbitrator in awarding compensation must ascertain, to the best of his
ability, the price that will be paid by a willing purchaser to a willing vendor
of the land with its potential, in the same way that he would ascertain it in a
case where there are several possible purchasers. Similarly the principle of
that case that ‘neither can unlock the marriage value without the other. In
friendly negotiations they would agree to divide it equally’ is to be adopted.
The
reversioner proposes that 75% of the marriage value should be awarded to the
freeholder and submits that evidence of relevant comparable open market
transactions should lead the tribunal to determine under para 4(1)(a) that a
proportion higher than 50% would have been agreed on a sale on the open market
by a willing seller. Somewhat surprisingly, in view of the emphatic insistence
on their relevance to the determination of the other disputed issues of the
capitalisation and deferment rates, Mr MacPherson sets aside the 220 (221)
settlements under section 9(1)A of the 1967 Act which show the landlords
obtaining only 50% of the marriage value. He explained his present position as
follows: ‘such settlement evidence has been used with great effect in the past,
and rightly so in the absence of open market evidence available to prove the
elements of valuation for enfranchisement. However, there is now evidence of
direct relevance to the current case in five open market transactions’. Miss
Ellis, in reply, challenges these transactions as not truly ‘open market’ and
says that in each case Mr MacPherson’s analysis of the transactions is disputed
or there were special circumstances which meant the purchaser was not truly
willing.
Counsel for
the reversioner referred us to Norfolk v Trinity College, Cambridge
[1976] 1 EGLR 215 and Lloyd-Jones v Church Commissioners which
make it clear that far from being self evident, the existence of marriage value
and attribution of any share of it to the landlord was a controversial issue in
the first decade after the
1969 the sitting tenant’s bid was no longer excluded from valuation under
section 9(1)A and such a bid gave rise to the likelihood that the merger of
leasehold and freehold interests would produce an increase in value over the
two interests when valued separately. In the Lloyd-Jones case the
surveyor for the tenant argued that ‘the lessee would need to bid only a
nominal amount more than any other purchaser to obtain the freehold’ and
consequently since the tenant’s bid released the marriage value he argued in
favour of only 25% of the marriage value being awarded to the landlord. The
Lands Tribunal, accepting Mr Hopper’s contention on behalf of the landlord that
the parties were of equal bargaining strength, awarded 50% to the landlord. Marriage
value was thus generated by the tenant’s participation in the bidding, but the
statutory requirement of a ‘willing’ seller led the Lands Tribunal in both the Norfolk
and Lloyd-Jones cases to conclude it must be shared equally. Broadly,
then, a ceiling of 50% to each party was established and it would seem that the
Grosvenor Estate’s surveyors, including Mr MacPherson, acted on that assumption
by writing it into all their settlement schedules for enfranchiseable houses
under the 1967 Act. The 1993 Act appears to have changed the position, but, far
from being a ceiling, the 50% share of marriage value given to the freeholder
is now a ‘floor’ which in the absence of agreement or evidence of open market
sales is to be the landlord’s share.
Looked at
afresh, from first principles, therefore, and having regard solely to the
position in the Grosvenor Estate, it would seem that given the declared
unwillingness of the Grosvenor Estate to sell, the rarity of a sale by a
freeholder other than the Grosvenor Estate, and the shortness of the term
leaving the tenants with little option but to seek an extension, the balance of
market power is in the freeholder’s favour with a consequent possibility that
he might expect to obtain more than 50% as his share of the marriage value. Is
this reasoning supported by practice? It is true that Miss Ellis referred us to
a recent South East Panel decision where, without giving reasons, the tribunal
awarded on a lease extension a 60% share of the marriage value to the landlord.
On the other hand, we have the full weight of the 220 negotiated settlements on
the Grosvenor and Cadogan Estates where the marriage value has always been
divided equally and no claim was advanced by the landlord to a higher
proportion. Faced with this consistent practice under the 1967 Act, we feel
that we could only determine a proportion greater than 50% if there is good
market evidence to displace the statutory ‘floor’.
Open
market transactions supporting a greater share than 50% of the landlord’s share
of the marriage value
Although Mr
MacPherson refers in his first proof to five transactions, we have identified
eight which in the course of the hearings have been relied upon (see schedule
D). Five of these, 28 Eccleston Mews, SW1; 69 and 78 Addison Road; 35 Kinnerton
Street and 13 Gerald Road, relate to sales of freehold, but only the last two
were enfranchiseable properties under section 9(1)C. Three transactions, 126A
Hamilton Terrace, 25 and 26 and 17 Eaton Mews South, relate to surrenders of
existing leases and grant of new leases. From a careful consideration of the
available evidence, and the parties’ analyses of these transactions we would
place them on a spectrum, ranging from, at one end, the transaction where
special circumstances or unknown factors defeat any rational analysis of the
outcome, to transactions displaying some elements of bargaining, to those
approximating to open market transactions at arms’ length. On such a spectrum,
28 Eccleston Mews and 126A Hamilton Terrace are the least helpful; the first is
riddled with special circumstances, namely the purchaser of the freehold of
this unenfranchiseable mews property being the tenant of the adjacent main
house at 28 Eaton Place and the additional prior payment of £50,000 to link the
two properties, so as to make the transaction unreliable; the evidence for the
second is contained in a report made by Daniel Smith for the purposes of
section 32(3) of the Charities Act 1993, not section 9(1)C of the 1967 and 1993
Acts, and is again coloured by special circumstances; in this case they are a
company let, a surrender following a forfeiture with relief and the grant of a
new lease on terms that put it outside section 9(1)C. The two transactions in
Addison Road relate to unenfranchiseable properties let to companies where the
sale of the freehold was ancillary and linked to the principal sale of the
merged interests to a third party; the amount paid by the tenant for the
freehold was affected by the overall price and profit which the tenant was
deriving from the third party transaction and possibly eliminated any element
of independent risk.
Similar, in
character, though not so closely linked to a third party transaction, is the
complicated surrender of four leases and grant of two new leases relating to 25
and 26 Eaton Mews South; effectively, this was a tidying up operation with a
view to marketing the two houses as one unit, with the Grosvenor Estate
retaining the non-enfranchiseability of the property by introducing ground
rents over £1,000 pa in the new leases.
In the
transaction relating to 35 Kinnerton Street there is a hard figure of £235,000
paid as a premium for a house enfranchiseable under section 9(1)C, but the
share of the marriage value, based on estimated, not market established values,
varies according to the analysis.
The surrender
and grant of a new lease at 17 Eaton Mews South again has elements of a market
transaction but again is flawed by the co-operation of both landlord and tenant
to achieve a sale, while preserving the unenfranchiseability of the property.
There also appeared to be some confusion over the precise circumstances
relating to a mortgage leading up to the transaction. Finally, in 13 Gerald
Road we have another sale linked to an outside third party transaction but in
this case, far from co-operation, there was deliberate withholding of market
information by the tenant’s surveyor, Mr Boston, in order to obtain a
favourable price.
With the
assistance of the parties we have been able to analyse in some detail these
eight transactions. They reveal the extraordinary variety of circumstances, of
the structure of deals and of the motives of the parties; it is consequently
difficult to ascertain at what point in the spectrum the transaction becomes an
open market sale within the statutory requirement of Schedule 6, para 4(1)(a).
That subparagraph requires the tribunal to have regard to a hypothetical
agreement on the open market ‘at the date of valuation’. Arguably this rules out
Mr MacPherson’s comparables of 35 Kinnerton Street, 126A Hamilton Terrace and
13 Gerald Road, which were all effected subsequent to February 1995. The
paragraph also requires ‘such proportion’ in excess of 50% to ‘have been
determined by an agreement between the parties’ and since it continues ‘on a
sale’, we construe the inclusion of the word ‘agreement’ to refer specifically
to the proportion given to the landlord, and not merely the overall price paid.
Even accepting that the transactions relating to 35 Kinnerton Street, 25/26 and
17 Eaton Mews South and 13 Gerald Road, with all their discussed flaws, have
elements of ‘sales in the open market by a willing seller’, Mr MacPherson is
unable to offer them as evidence for anything more than the prices achieved;
the proportions in excess of 50% which he gives, 100%, 67.7%, 61.5% and 68%
respectively, have not been agreed by the other party, and is reanalysed by
Miss Ellis or other surveyors to give proportions of 48%, 60.5% and 50%
respectively (no differing figure is given for 17 Eaton Mews South).
Taking into
account all the above factors and arguments, we concluded that there was no
satisfactory evidence before us to justify the adoption of a higher proportion
for the landlord’s share of the marriage value and accordingly apply the
statutory 50% share for the landlord.
Taking all the
above factors into account and applying our knowledge and experience our
valuation is as follows:
36 & 37 Eaton Mews
South, SW1
Purchase
price payable by nominee purchasers in accordance
with Schedule 6 of Leasehold Reform, Housing and Urban Development Act 1993
Value of
freeholder’s interest
No 36
Dwelling
and west garage (converted into reception room)
|
|
|
£ |
|
£ |
|
£ |
|||||
|
Term |
|
|
|
|
|
|
|||||
|
Ground rent |
|
150 |
|
|
|
|
|||||
|
YP 20.25 years @ 6% |
|
11.54 |
|
1,731 |
|
|
|||||
|
Reversion |
|
|
|
|
|
|
|||||
|
Freehold value |
|
670,000 |
|
|
|
|
|||||
|
PV £1 in 20.25 years @ 6% |
|
0.3074 |
|
205,958 |
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
East garage |
|
|
|
|
|
|
|||||
|
Term 1 |
|
|
|
|
|
|
|||||
|
Rent receivable |
|
750 |
|
|
|
|
|||||
|
YP 3.25 years @ 8.5% |
|
2.73 |
|
2,048 |
|
|
|||||
|
Term 2 |
|
|
|
|
|
|
|||||
|
Agreed rent |
|
1,900 |
|
|
|
|
|||||
|
YP 10 years @ 8.5% |
|
6.56 |
|
|
|
|
|||||
|
|
|
12,464 |
|
|
|
|
|||||
|
PV £1 in 3.25 years @ 8.5% |
|
0.7676 |
|
9,567 |
|
|
|||||
|
Reversion |
|
|
|
|
|
|
|||||
|
Freehold value |
|
30,000 |
|
|
|
|
|||||
|
PV £1 in 13.25 years @ 8.5% |
|
0.3395 |
|
10,185 |
|
229,489 |
|||||
|
|
|
|
|
|
|
|
|||||
|
No 37 |
|
|
|
|
|
|
|||||
|
Dwelling and east |
|
|
|
|
|
|
|||||
|
Term |
|
|
|
|
|
|
|||||
|
Ground rent |
|
100 |
|
|
|
|
|||||
|
YP 20.25 years @ 6% |
|
11.54 |
|
1,154 |
|
|
|||||
|
Reversion |
|
|
|
|
|
|
|||||
|
Freehold value |
|
670,000 |
|
|
|
|
|||||
|
PV £0 in 20.25 years @ 6% |
|
0.3074 |
|
205,958 |
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
West garage |
|
|
|
|
|
|
|||||
|
Freehold value |
|
|
|
30,000 |
|
237,112 |
|||||
|
Value of freeholder’s interest |
|
|
466,601 |
||||||||
|
|
|
|
|
|
|
|
|||||
|
Freeholder’s share of |
|
|
|
|
|
|
|||||
|
Nos 36 & 37 |
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|
|
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|||||
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|
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|
|
|
|||||
|
Value after marriage |
|
|
|
|
|
|
|||||
|
2 dwellings and garages |
|
|
|
|
|
|
|||||
|
@£670,000 each |
|
1,340,000 |
|
|
|
|
|||||
|
2 garages @ £30,000 each |
|
60,000 |
|
1,400,000 |
|
|
|||||
|
Value before marriage |
|
|
|
|
|
|
|||||
|
Freeholder’s interest |
|
466,601 |
|
|
|
|
|||||
|
Leaseholders’ interest |
|
|
|
|
|
|
|||||
|
2 dwellings and garages |
|
|
|
|
|
|
|||||
|
@ £350,000 each |
|
700,000 |
|
|
|
|
|||||
|
East garage no 36 |
|
nil |
|
1,166,601 |
|
|
|||||
|
Gain on marriage |
|
233,399 |
|
|
|||||||
|
50% to freeholder |
|
116,700 |
|
|
|||||||
|
Compensation for loss |
|
|
|
|
|
|
|||||
|
from enfranchisement |
|
|
|
|
|
nil |
|||||
|
Enfranchisement Price |
|
|
|
|
|
£583,300 |
|||||
Accordingly we
determine the price payable for the freehold interest in 36 and 37 Eaton Mews
South and the four garages pursuant to section 24 of the Act as £583,300 (five
hundred and eighty three thousand, three hundred pounds).
|
Valuation of Miss J |
|||||||||||||||
|
A: |
Value of freeholder’s |
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
||||
|
1. |
Dwelling & garage @ 36 |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Term |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Rent receivable |
|
150 |
|
|
|
|
|
|
|
|
||||
|
|
YP 20.25 years @ 10.8% |
|
|
|
8.10 |
|
|
|
1,215 |
|
|
||||
|
|
Reversion |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Capital value |
|
|
|
580,000 |
|
|
|
|
|
|
||||
|
|
PV £1 in 20.25 years @ |
|
0.125 |
|
|
|
72,693 |
|
|
|
73,908 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
2. |
Dwelling & garage @ 37 |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Term |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Rent receivable |
|
100 |
|
|
|
|
|
|
|
|
||||
|
|
YP 20.25 years @ 10.8% |
|
|
|
8.1 |
|
|
|
810 |
|
|
||||
|
|
Reversion |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Capital value of house |
|
580,000 |
|
|
|
|
|
|
|
|
||||
|
|
PV £1 in 20.25 years @ |
|
0.125 |
|
|
|
72,693 |
|
73,503 |
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
3. |
Garage east, 36 Eaton Mews |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Term |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Current rent receivable |
|
750 |
|
|
|
|
|
|
|
|
||||
|
|
YP 13.25 years @ 10.8% |
|
|
|
6.88 |
|
|
|
5,160 |
|
|
||||
|
|
Increase in 1998 |
|
|
|
1,150 |
|
|
|
|
|
|
||||
|
|
YP 10.25 years @ 10.8% |
|
|
|
5.94 |
|
|
|
|
|
|
||||
|
|
PV £1 in 3.25 years @ |
|
0.717 |
|
|
|
4,256 |
|
|
|
4,894 |
||||
|
|
Reversion |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Capital value of garage |
|
20,000 |
|
|
|
|
|
|
|
|
||||
|
|
PV £1 in 13.25 years @ |
|
0.26 |
|
|
|
5,140 |
|
|
|
15,194 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
4. |
Garage west, 37 Eaton Mews |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Capital value |
|
|
|
|
|
|
|
|
|
20,000 |
||||
|
|
Freeholders’ interest |
|
|
|
|
|
|
|
|
|
162,605 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
B: |
Marriage value |
|
|
|
|
|
|
|
|
|
|
||||
|
|
After marriage |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Freeholder’s interest |
|
|
|
nil |
|
|
|
|
|
|
||||
|
|
Lessees’ interests: |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Dwelling/garage @ 36 |
|
|
|
580,000 |
|
|
|
|
|
|
||||
|
|
Dwelling/garage @ 37 |
|
|
|
580,000 |
|
|
|
|
|
|
||||
|
|
Garage east @ 36 |
|
|
|
20,000 |
|
|
|
|
|
|
||||
|
|
Garage west @ 37 |
|
|
|
20,000 |
|
|
|
1,200,000 |
|
|
||||
|
|
Before marriage |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Freeholder’s interest* |
|
|
|
162,605 |
|
|
|
|
|
|
||||
|
|
Lessees’ interests: |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Dwelling/garage @ 36 |
|
|
|
415,500 |
|
|
|
|
|
|
||||
|
|
Dwelling/garage @ 37 |
|
|
|
415,750 |
|
|
|
|
|
|
||||
|
|
Garage east @ 36 |
|
|
|
nil |
|
|
|
993,855 |
|
|
||||
|
|
Gain on marriage of |
|
|
|
|
|
|
|
206,145 |
|
|
||||
|
|
50% to vendors |
|
|
|
|
|
|
|
|
|
103,027 |
||||
|
|
Enfranchisement price |
|
|
|
|
|
|
|
|
|
265,677 |
||||
|
|
|
|
|
|
Say |
|
|
|
|
|
265,000 |
||||
*This
includes the vacant possession value of garage west @ 37
Valuation of
36/37 Eaton Mews South, London SW1 by Ian MacpPherson FRICS
|
|
|
|
|
|
£ |
|
£ |
|
£ |
|
£ |
|
1. |
Valuation of landlords’ |
|
|
|
|
|
|
|
|
|
|
|
|
36 Eaton Mews South — |
|
|
|
|
|
|
|
|
|
|
|
|
(converted to reception |
|
|
|
|
|
|
|
|
|
|
|
|
For remainder of existing |
|
|
|
|
|
|
|
|
|
|
|
|
Rent receivable pa |
|
|
|
150 |
|
|
|
|
|
|
|
|
Years purchase for 20.25 |
|
|
|
11.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,732 |
|
|
|
|
|
|
For reversion to |
|
|
|
|
|
|
|
|
|
|
|
|
Estimated value of |
|
|
|
670,000 |
|
|
|
|
|
|
|
|
Deferred 20.25 years @ |
|
|
|
0.307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
207,422 |
|
|
|
|
36 Eaton Mews South — |
|
|
|
|
|
|
|
|
|
|
|
|
Until rent review @ |
|
|
|
|
|
|
|
|
|
|
|
|
Rent receivable pa |
|
|
|
750 |
|
|
|
|
|
|
|
|
Years purchase for 3.25 |
|
|
|
2.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,160 |
|
|
|
|
|
|
For remainder of existing |
|
|
|
|
|
|
|
|
|
|
|
|
Estimated rent on review @ |
|
|
|
1,900 |
|
|
|
|
|
|
|
|
Years purchase for 10 |
|
7.36 |
|
|
|
|
|
|
|
|
|
|
Deferred 3.25 years @ 6.0% |
|
0.827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,571 |
|
|
|
|
|
|
For reversion to |
|
|
|
|
|
|
|
|
|
|
|
|
Estimated value of |
|
|
|
40,000 |
|
|
|
|
|
|
|
|
Deferred 13.25 years @ |
|
|
|
0.462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,211 |
|
|
|
|
37 Eaton Mews South — |
|
|
|
|
|
|
|
|
|
|
|
|
For remainder of existing |
|
|
|
|
|
|
|
|
|
|
|
|
Rent receivable |
|
|
|
100 |
|
|
|
|
|
|
|
|
Years purchase for 20.25 |
|
|
|
11.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,155 |
|
|
|
|
|
|
For reversion to |
|
|
|
|
|
|
|
|
|
|
|
|
Estimated value of |
|
|
|
670,000 |
|
|
|
|
|
|
|
|
Deferred 20.25 years @ |
|
|
|
0.307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206,845 |
|
|
|
|
36 Eaton Mews South — |
|
|
|
|
|
|
|
|
|
|
|
|
Estimated value of |
|
|
|
|
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
486,478 |
|
|
2. Calculation of |
|
|
|
|
|
|
|
|
|
|
|
|
Estimate value of new |
|
|
|
|
|
|
|
|
|
|
|
|
36 Eaton Mews South |
|
|
|
|
|
|
|
|
|
|
|
|
House and west garage |
|
|
|
|
|
|
|
670,000 |
|
|
|
|
East garage |
|
|
|
|
|
|
|
40,000 |
|
|
|
|
37 Eaton Mews South |
|
|
|
|
|
|
|
|
|
|
|
|
House and east garage |
|
|
|
|
|
|
|
670,000 |
|
|
|
|
West garage |
|
|
|
|
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,420,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less |
|
|
|
|
|
|
|
|
|
|
|
|
Value of landlords’ |
|
|
|
|
|
|
|
486,478 |
|
|
|
|
Value of participating |
|
|
|
|
|
|
|
|
|
|
|
|
36 Eaton Mews South |
|
|
|
|
|
|
|
|
|
|
|
|
House and west garage |
|
|
|
|
|
300,000 |
|
|
|
|
|
|
East garage |
|
|
|
|
|
|
|
|
|
|
|
|
Estimated ERV pa |
|
1,900 |
|
|
|
|
|
|
|
|
|
|
Less rent currently payable pa |
|
750 |
|
|
|
|
|
|
|
|
|
|
Profit rent pa |
|
1,150 |
|
|
|
|
|
|
|
|
|
|
Years’ purchase for 3.25 |
|
2.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,036 |
|
|
|
|
|
|
|
|
|
|
|
|
Say |
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
303,000 |
|
|
|
|
|
|
37 Eaton Mews South |
|
|
|
|
|
|
|
|
|
|
|
|
House and east garage |
|
|
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
603,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,089,478 |
|
|
Gain on marriage |
|
|
|
|
|
|
|
|
|
330,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. Calculation of |
|
|
|
|
|
|
|
|
|
|
|
|
Value of landlords’ |
|
|
|
|
|
|
|
|
|
486,478 |
|
|
Marriage value |
|
|
|
|
|
|
|
330,522 |
|
|
|
|
Landlords’ share @ 75% |
|
|
|
|
|
|
|
|
|
247,892 |
|
|
Total enfranchisement |
|
|
|
|
|
|
|
|
|
734,370 |
|
|
|
|
|
|
|
|
|
|
Say |
|
734,400 |
|
Schedule C.1 Schedule of comparables — Houses |
|||||||||
|
|
Address |
Unexpired term |
Accommodation |
Garage |
Agent |
Sale price |
Date of transaction |
Area |
Comment |
|
1 |
15 Eaton Mews South |
25 years to 22.04.2019 |
4 beds, 3 baths, 2 receps, utility, |
Yes |
Gascoigne-Pees |
£390,000 |
May 1994 |
250m2 |
Less second garage (17m2) let |
|
2 |
17 Eaton Mews South |
75 years to 20.09.2069 |
3 beds, 2 en suite baths, shower room, 2 |
Yes |
Friend & Falcke |
£625,000 |
May 1994 |
170m2 |
Not enfranchiseable. Excellent condition |
|
3 |
20 Eaton Mews South |
273/4 years to 29.09.2021 |
3 beds, 2 baths, dressing room, drawing |
On separate lease to 2009 at £2,200. |
Aylesford |
£365,000 |
January 1994 |
152m2 |
Not enfranchiseable. Immaculate condition. in connection with 2A Eaton Square |
|
4 |
25 & 26 Eaton Mews |
19½ years to |
No 25 — 3 beds, 3 |
Garage each on |
|
£650,000 for renewal |
November 1994 |
25-152m2 |
Lease extension after |
|
|
|
|
No 26 — 3 beds, 2 baths, 1 recep, |
|
|
|
|
26-198m2 |
Lease at 26 EMS EMS gge has already |
|
5 |
29 Eaton Mews South |
26½ years to 24.12.2019 |
3 beds, bath, shower, 3 receps, |
Yes |
Friend & Falcke |
£324,500 |
August 1993 |
155m2 |
Enfranchiseable |
|
6 |
33 Eaton Mews South |
28½ years to 25.03.2023 |
3 beds, 3 baths, 1 large recep room, |
On separate lease to 1998 at £1,600 pa |
Best Gapp |
£345,000 |
September 1994 |
148m2 |
Not enfranchiseable |
|
7 |
47 Eaton Mews South |
46½ years to 24.12.2040 |
3 beds, bath, shower rm, 1 double recep |
Yes |
Lurot Brand |
£375,000 |
August 1994 |
105m2 |
Not enfranchiseable. Only on 2 floors |
|
8 |
28 Eaton Mews North |
50½ years to 15.12.2045 |
3 beds, 3 en suite baths, 2 receps, |
On separate lease at £2,000 pa |
John D Wood & Co |
£650,000 |
March 1995 |
197m2 |
Including terrace. Not enfranchiseable. |
|
9 |
43 Eaton Mews North |
36½ years to 25.12.2030 |
3 beds, dressing room, 2 baths, 2/3 |
On separate lease to 1998 |
Lurot Brand at £100 pa |
£550,000 |
Feb 1995 |
140m2 |
Enfranchiseable |
|
10 |
52 Eaton Mews West |
18½ years to 25.12.2012 |
2 beds, 2 baths, drawing room, kitchen |
2, one on separate lease to 1997 at £2,200 |
Hobart Slater |
£205,000 |
April 1994 |
143m2 |
Not enfranchiseable |
|
11 |
8/9 Eaton Row |
21 years |
4/5 beds, 3 baths, 3 receps office/bed 5 |
Yes |
Knight Frank & Rutley |
£385,000 |
December 1993 |
255m2 |
Inclusive of roof terrace. |
|
Schedule C.2 |
|
|
|
|
|
Schedule of comparables — Garages/parking spaces |
||||
|
Address |
Tenure |
Description |
Agent |
|
|
10 Shafto Mews, SW1 |
28 years |
Double garage |
Douglas & Gordon |
£100,000 May 1995 |
|
Byron Court, Elystan Street, SW3 |
97 years |
Secure spaces |
Rategrove Ltd |
Undercover £30–36,000) |
|
|
|
|
|
In open £23–25,990) 1990 |
|
Rosemoor Street, SW3 |
78 years |
Single garage |
John D Wood |
£35,000 September 1994 |
|
Schedule D Transactions supporting a higher share to the |
||||||||
|
Property |
Type of transaction |
Date |
Price |
Freeholder |
Leaseholder |
Unexpired term |
G.R. |
L/Ls share of M.V. |
|
28 Eccleston Mews Mews House |
Sale of freehold. Not enfranchiseable |
Oct 1994 |
£150,000 |
Grosvenor estate |
Freeholder of adjacent no 28 Eaton Place |
Until 2050 56.25 yrs |
£1,250 pa with rent reviews |
100% |
|
69 Addison Road House |
Sale of freehold. Not enfranchiseable |
March 1993 |
£480,000 |
Ilchester estates |
Company |
Until 2060 67 yrs |
£1,000 pa with rent reviews |
62.75% |
|
78 Addison Road House |
Sale of freehold. Not enfranchiseable |
30 Dec 1994 |
£937,500 |
Ilchester estates |
Company |
Until 2040 45½ yrs |
£500 pa with rent reviews |
98% (McP) |
|
35 Kinnerton Street House |
Sale of freehold under S9(1)C |
Sept 1995 |
£235,000 |
Grosvenor estate |
|
51.75 yrs |
£100 pa rent review in 3 months |
100% (McP) |
|
126A Hamilton Terrace Converted coach |
Surrender & grant and grant of 99 yr |
July 1995 |
£180,000 |
John Lyon’s Charity |
|
34 yrs |
|
89% (McP) |
|
25/26 Eaton Mews South2 mews houses and |
Surrender & grant of two new leases |
Nov 1994 |
£650,000 |
Grosvenor estate |
|
2 leases expiring 2014 |
£60 pa |
67.7% (McP) 60.5% (M.J.) revised |
|
17 Eaton Mews South Mews House |
Surrender & new lease of 75 yrs at |
April 1994 |
£625,000 |
Grosvenor estate. Joint sale by L/L and |
|
Expiring 2015 21.5 yrs |
£35 pa |
61.5% |
|
1 Gerald Rd House |
Sale of freehold under S9(1)C |
May 1994 |
£250,000 (improvements £50,000) |
Grosvenor estate |
|
56.75 yrs |
£600 pa |
68% (McP) |
