Hordern v Viscount Chelsea and another

Leasehold Reform, Housing and Urban Development Act 1993 — New lease — Determination of premium — Lease expired by date of hearing — Whether deduction for Landlord and Tenant Act 1954, Part I rights The applicant tenant held an underlease of a first-floor flat at a ground rent of £175 pa the contractual term of which expired on September 29 1995. Following a notice claiming a new lease, the tenant applied to the tribunal for the determination of the premium payable; her valuers spoke to a sum of £233,340. The landlord sought £350,000 and contended that a 10% deduction should be made from the value of the existing freehold interest to reflect the risk that the tenant would claim security of tenure under Part I of the Landlord and Tenant Act 1954. Decision: The premium payable was £283,100. The value of a 90-year lease of the property would be £325,000 to which 1% should be added for equivalent freehold interest. The deferment and yield rates were 6%. A 25% deduction should be made to reflect the risk of the tenant claiming security of tenure under Part I of the Landlord and Tenant Act 1954 The following cases are referred to in this report. Lloyd-Jones v Church Commissioners for England [1982] 1 EGLR 209; (1981) 261 EG 471, LT Spath Holme Ltd v Chairman of the Greater Manchester and Lancashire Rent Assessment Committee [1995] 2 EGLR 80; [1995] 49 EG 128 Vignaud v Keepers and Governors of the Possessions Revenues and Goods of the Free Grammar School of John Lyon [1996] 2 EGLR 179; [1996] 37 EG 144 Stanley Gallagher (instructed by Baileys Shaw & Gillett) appeared for the tenant; Anthony Radevsky (instructed by Lee & Pembertons) represented the landlord. Giving the decision of the tribunal, LADY FOX QC said: This is an application under section 48 of the Leasehold Reform, Housing and Urban Development Act 1993 (the Act) by Mrs Joan Hordern, the tenant, for determination of the premium payable in respect of the grant of an extension of the lease of the first-floor flat at 45 Cadogan Place, London SW1 (the subject flat). The tenant held the subject flat pursuant to an underlease dated September 30 1968 for a term of 28 years less one day commencing on September 29 1967, and expiring on September 28 1995, at a ground rent of £175 pa. The said underlease was granted under the terms of the headlease between Charles Gerald John Cadogan (commonly called Viscount Chelsea) and Cadogan Estates Ltd and NAG Wickham and was assigned finally in 1993 to Ms EJ Crean whose term of 33 years from September 29 1962 expired on September 28 1995. The intermediate landlord therefore no longer has an interest in the subject flat. By notice dated May 2 1995 the tenant claimed the right to acquire a new lease of the subject flat setting out two additional clauses to be included in the new lease. By counternotice dated July 7 1995 the freeholder admitted the tenant’s right, but asserted that the terms of the new lease should be in the Cadogan Estate’s standard form for statutory lease extension under the Act. By reason of the tenant’s notice and pursuant to Schedule 12, para 5(1) to the Act, the term of the said underlease continues for the currency of the claim and for three months thereafter. Valuation of Mr Roger Doncom arics on behalf of the tenant A Diminution in value of landlord’s interest a Effective reversion to 999-year lease £ £ £ 90-year lease 300,000 1% for value freehold 3,000 303,000 55% of vacant possession Reversion 166,550 b Proposed interest Reversion to 303,000 Deferred 90 years 9% .0004 121 Diminution 166,529 B Marriage value Proposed interests aggregated (i) Freeholders 121 (ii) Claimants 300,000 300,121 Existing interests (i) Freeholders 166,500 (ii) Claimants 166,500 Marriage value 133,621 Share 50% 66,811 Premium payable 233,340 Valuation of Mr J Clark arics on behalf of the freeholder Calculation of premium for new lease first-floor flat, 45 Cadogan Place, SW1 £ £ £ £ A Diminution in value of estate’s interest (a) Value of estate’s existing interest Annual rent payable £175 Years’ purchase 0.25 years @ 5% Nominal Reversion to value of freehold in possession: (i) WA Ellis valuation of lease with 90 years unexpired @ peppercorn rent in amount of 350,000 (ii) Represents 95% of freehold equivalent @ 368,421 Say 370,000 196 (iii) Defer 0.25 years @ 6% 0.986 364,820 (iv) Less for risk of tenant claiming security of tenure under the Landlord and Tenant Act 1954 Part I 10% 36,482 333,518 333,518 (b) Value of estate’s proposed interest (i) Reversion to value of freehold in possession 370,000 (ii) Defer 90 years @ 6% 0.005 1,850 Diminution in value of estate’s interest 331,668 B Calculation of marriage value (a) Sum of values of proposed interests (i) Estate’s (from above) 1,850 (ii) Claimant’s (from above) 350,000 351,850 (b) Sum of values of existing interests (i) Estate’s (from above) 333,518 (ii) Claimant’s (for 3 months unexpired) 0 333,518 Gain on marriage 18,332 (c) Attributed to estate @ 100% 18,332 Premium payable 350,000 Mr Stanley Gallagher of counsel, instructed by Baileys Shaw & Gillett, solicitors, appeared on behalf of the tenant. He stated that the situation was somewhat unusual as the tenant was holding over on the expiry of the underlease on September 28 1995. Prior to the service of the tenant’s notice to enfranchise, the freeholder had served a notice under the Landlord and Tenant Act 1954 section 4 proposing a statutory tenancy on the termination of the underlease at a rent of £8,750 pa, but by virtue of Schedule 12, para 2 to the Act pending the present determination, the procedure under the 1954 Act was suspended so as to give the tenant the opportunity to enfranchise. The parties were agreed that the basis of valuation was set out in Schedule 13, para 2; no compensation was claimed under para 2(c) by the freeholder and the issues in the valuation to be determined were the diminution in the freeholder’s interest and the landlord’s share of the marriage value. On the basis that the parties were in broad agreement on the terms of the lease, Mr Gallagher said that he was taking the present hearing date as the date of the valuation. Mr Brian D’Arcy Clark ARICS gave evidence on behalf of the tenant. He said he was a founding partner in 1980 in Chesterfield, estate agents specialising in sales and acquisitions in central London residential property with its office located at no 28 in the same terrace as the subject premises. 50% of flats sold by his firm were located on or around the Cadogan Estate. He valued the landlord’s current interest in the subject flat as a 90-year lease at today’s date and would increase that value minimally, by 1% to arrive at the freehold value. He had inspected the subject flat and described it as a pied-à-terre rather than a one or two-bedroomed flat. It had an awkward layout, enjoying an attractive large reception room, a small main bedroom, cramped kitchen through which access was gained to the roof terrace and the second small bedroom. Under the schedule of dilapidations the fireplace was required to be replaced in the main bedroom further reducing the space, the bathroom was not en-suite, and there was little wall space for cupboards in the kitchen. The subject flat was old fashioned, in need of modernisation and redecoration. Rearrangement of the flat was difficult by reason of the roof terrace being located at the rear, and not via the reception room. Three planning applications were lodged in respect of the adjacent property 43/44 Cadogan Place and planning consent in respect of 46/47 Cadogan Place relating to substantial alterations meant it likely that for the next two years any occupant of the subject flat would be surrounded by building works. Under the terms of the new lease no caretaker in residence was required and Mr D’Arcy Clark would take 5% off the market price on this account. He produced a schedule of some 20 transactions relating to flats in Cadogan Place between 1992 and 1995 giving prices achieved per sq ft. Relying on this schedule and bearing in mind that price was affected by the position in the building, the ability to change the flat to the standard of accommodation required by the tenant, and its condition at the time of sale, he had concluded that the value of the subject flat in its present condition on a new 90-year lease at a peppercorn rent, with the service charge to be agreed at a rate appropriate to the building, was £300,000. In answer to cross-examination from Mr Anthony Radevsky on behalf of the freeholder, Mr D’Arcy Clark agreed that Mr Doncom in a letter dated August 15 1995 had referred to his valuation of the subject flat ‘on a long lease in a fully modernised state’ as ‘to the order of £350,000′. He agreed that he had included in his schedule all the transactions relating to Cadogan Place even though they were not directly comparable; they helped to give the full picture and the extraordinary layout of the subject flat made it very difficult to find any direct comparable. He agreed that 18 Cadogan Place was located opposite the entrance to the underground car park, but considered this might add value to tenants with cars. In answer to questions from the tribunal he agreed that an overall price per sq ft was appropriate when applied to the subject flat where the fine reception room should be valued at a higher rate than the rear rooms. There was no lift, and while he did not know the amount of the service charges he thought they would be about £1,500 pa. The roof terrace was not included in the demise, but the tenant had the exclusive use and no liability in respect of its repair. Mr Doncom gave evidence on behalf of the tenant in support of his valuation. He had been engaged on predominantly central London residential property matters first with Chestertons and for the last 12 years as the head of the professional and valuation department at Marsh & Parsons. In this period he had dealt with valuations and negotiations under the 1967 Leasehold Reform Act, the 1974 Housing Act and the present Act, as well as with registration and determination of fair and assured rents. He described the layout, condition and potential for modernisation of the subject flat. The provision of an internal galley kitchen next to the reception room would still leave unsolved the problem of access to the terrace by means of any resited bathroom. The schedule of dilapidations related to restoration of the fireplace, removal of security grilles to windows and redecoration and compliance would add little to the market value as any purchaser was likely to carry out a radical rationalisation of the flat. In making his valuation he had adopted Mr D’Arcy Clark’s figure of £300,000 as the market value of the 90-year lease, increased by 1% for the freehold value. In his experience the value of a flat subject to a sitting tenant is depressed to approximately 50% to 60% of the vacant possession value. This discount affords the purchaser room for holding costs and eventual profit in negotiating or waiting for vacant possession in due course. The percentage varied within modest parameters depending upon the age, hea1th and circumstances of the tenant, rather than location. Although the tenant was now aged 86, despite the actuarial factors, her life expectancy could be significantly extended. The tenant’s daughter stayed in the subject flat during the week in order to run her business in London and the prospect of a succession to the tenancy must be considered. As the tenant was financially in a position to meet a fair rent and pay off the level of dilapidations likely to be negotiated, any investor would have to anticipate a substantial wait for vacant possession. Mr Doncom accordingly adopted a discount of 55% to arrive at the value of the freeholder’s current interest, and relied on a transaction at 57 St Quintin’s Avenue where a payment to a statutory tenant of £47,000 represented 52.5% of the value of £90,000 of the flat with vacant possession. He referred to transactions effected by his firm at 39 Warwick Gardens, 21 Earls Terrace, 23 Upper Addison Gardens, and by David Smith and Boston Carrington at 2/14–15 Ennismore Gardens, SW7, which supported a 197 landlord’s share of the marriage value between 45% to 52% and justified a 50:50 split of the marriage value in the present case. In answer to cross-examination from Mr Radevsky, Mr Doncom did not accept that a different analysis of the figures in his transactions would give the freeholder a share between 72 to 77% of the marriage value. Nor did he accept that the deduction for the risk of the tenant staying on under the Landlord and Tenant Act 1954 was a notional exercise and to be represented by a 10% deduction, as recently confirmed by the Lands Tribunal in Vignaud v Keepers and Governors of the Possessions Revenues and Goods of the Free Grammar School of John Lyon [1996] 37 EG 144. Mr Doncom said that since the lease had expired and the tenant stayed on on a statutory basis, the risk had become greater. In answer to questions from the tribunal Mr Doncom said that he estimated the cost of dilapidations as in the region of £35,000; even if the tenancy passed to the tenant’s daughter as an assured tenancy at a market rent he considered there to be a strong possibility that the statutory tenancy would continue. He maintained that his analysis of the transactions concerning marriage value was not based on his personal interpretation of values worth as they had to satisfy the negotiators on both sides. Mrs Virginia Stourton, the tenant’s daughter, gave evidence that during the week she lived with her mother at the subject flat spending the weekends in a cottage in Gloucestershire. From her knowledge of her mother’s resources she had no doubt that she could meet the cost of dilapidations, and from inquiries at Kensington Town Hall, she understood that housing benefit would be available to assist her mother to stay on in the subject flat if she were unable to meet the fair rent out of her own funds. Mrs Stourton said the family had no plans to move her mother who, though she did not now go out, was perfectly fit and able to continue at Cadogan Place. The family’s intention was to enable her mother to have a peaceful old age. In cross-examination Mr Radevsky suggested that the tenant intended to effect a back-to-back sale so that any premium payable to the freeholder would be met by selling on to a third party. In reply Mrs Stourton said that somebody had expressed an interest in purchasing the subject flat and any money made out of such a sale would be used to enable her mother to go to an old people’s home. Mr Radevsky called Mr Michael Duncan, senior partner in WA Ellis, estate agents, to give evidence on behalf of the freeholder. Mr Duncan said he had had considerable involvement with leasehold reform cases ever since the 1967 Act, and his firm had standing instructions to advise the Cadogan, Ilchester and Portman Estates on value issues arising from leasehold reform. He had inspected the subject flat and valued the proposed 90-year lease with vacant possession as at mid-March 1996 at £350,000 (approximately £457.50 per sq ft). In support of his valuation he relied on four transactions, as follows: 1/56 Cadogan Place: Ground-floor two-roomed, refurbished flat sold in July 1994 for £265,000 on a 49-year lease. 6/66 Cadogan Place: Ground-floor three-roomed flat sold in September 1994 for £485,000 on a 49-year lease. On the basis that a lease of 50 years was worth no more than 82% of the value of the same premises for 90 years, the prices for these properties adjusted to a 90-year lease would be £323,000 for 1/56 and £590,000 for 6/66 Cadogan Place. 11/35 Pont Street, SW1: Third-floor flat, three rooms, two bathrooms, sold in good order on a lease for 80 years in October 1994 for £450,000. 15 Lennox Gardens, SW1: First-floor, two rooms with contracts exchanged on a 105-year lease in March 1996 for £320,500. His comparables in Cadogan Place were also relied on by Mr D’Arcy Clark for the tenant and in Mr Duncan’s view were the most relevant in the latter’s list of comparables. 18, 24 and 27 Cadogan Place had inferior locations in the more northerly terrace close to the hotel and car park; 81 and 84 Cadogan Place were large apartments located in the north facing terrace in a modern purpose-built block. In answer to cross-examination by Mr Gallagher, Mr Duncan said that his valuation was based on a resident caretaker but he did not consider that it had a great impact on the value. The flat would sell on the strength of the front reception room but he had applied a conservative price per sq ft to take account of the weaker rear rooms. When asked why he had chosen the two most highly priced flats as comparables from Mr D’Arcy Clark’s list of comparables, Mr Duncan said that they alone were located in the same terrace as the subject flat, which was a superior position. In answer to questions from the tribunal Mr Duncan agreed that his comparables were sold in refurbished condition and that he had valued the subject flat with the existing fittings but on the assumption it was in good decorative order. He did not consider the service charges as a relevant component of the price; but he would deduct 15% to 20% for an inferior location north of the intersection with Pont Street, and add 10% for a first-floor level. As to the level of fair rent likely to be achieved for the subject flat, a fair rent of £6,000 pa with effect from September 1995 had been registered for a two-roomed flat without roof terrace, in an inferior location in 10/61 Cadogan Gardens. Mr Julian Clark, an associate of Gerald Eve, chartered surveyors, with six years’ qualified professional experience gave evidence on behalf of the freeholder. He referred to the extensive knowledge and experience of his firm Gerald Eve in leasehold reform matters and in advising the Cadogan and other major central London estates. His valuation was based on the grant of a 90-year lease some three months after the determination by the leasehold valuation tribunal on broadly similar terms to the old lease and he had taken the valuation date as the first day of the tribunal’s hearing, ie April 22 1996. He relied upon the evidence of Mr Duncan for the value of £350,000 for a 90-year lease. There was no market evidence relating to freeholds of flats but taking into account that a lessee remained subject to the obligations of the lease, with control of the building and right of entry to the subject flat remaining with the freeholder, he considered a 5% differential appropriate and accordingly valued the freehold interest at £370,000. He adopted 6% both for deferment of the freeholder’s present interest for three months and for deferment of the reversion for 90 years; he adopted this rate as appropriate for a high value property in a prime central London residential location with long term security for investors. Such long term growth in central London residential property was demonstrated by reported high prices achieved for recent sales relating to the Chesham Place Estate, Chalcots Residential Estate at Swiss Cottage and the Smith Charity Estate to the Wellcome Trust. Some allowance had to be made to take account of the statutory assignable three-month unexpired term now enjoyed by the tenant with the associated rights to security of tenure under the 1954 Act on termination. Such rights suffered from a number of disadvantages; they were non-assignable, incapable of appreciation in value for purposes of capital gains or as security for a loan or improvements, and the rent which was reviewable every two years was payable out of income after tax; and by reason of Spath Holme Ltd v Chairman of the Greater Manchester and Lancashire Rent Assessment Committee [1995] 2 EGLR 80; [1995] 49 EG 128, likely to approximate to the level of market rents. Accordingly, he adjusted the value of the freehold in reversion by a 10% deduction on account of the tenant’s rights and relied in support on the Lands Tribunal decisions of Lloyd-Jones v Church Commissioners for England [1982] 1 EGLR 209; (1981) 261 EG 471 and Vignaud v John Lyon School. Mr Clark stated there to be some 31 leases for flats and maisonettes in Cadogan Place for which the contractual term had passed in September 1955 and which enabled the lessees to qualify for rights of security of tenure under the Landlord and Tenant Act 1954. Of these, 13 leases, just under half, had submitted a claim under the 1993 Act either for a lease extension or for a collective enfranchisement. Of the remaining 18, the lessees were continuing in occupation while procedures under the Landlord and Tenant Act 1954 were progressing. No statutory tenancies had been granted by the Cadogan Estate and the ultimate intentions of these 18 remain unclear. Mr Clark gave it as his opinion that at least half and maybe more of the 31 lessees would discount taking up a statutory tenancy at a fair rent. 198 The 1993 Act contemplated situations when either by agreement or determination by the tribunal the landlord’s share of the marriage value would exceed 50%. The present application was an exceptional case where the contractual term of the underlease had expired. In terms of a claim for lease extension under the Act this was the most extreme case with the tenant’s existing interest reduced to the statutory three-month period. The freeholder in these circumstances would only be willing to enter into a transaction with the claimant at a premium figure for the new lease which had proper regard to the imminent opportunity of achieving vacant possession. In cross-examination on behalf of the tenant Mr Gallagher challenged Mr Clark as to his lack of evidence to support his percentages for the differential for the freehold, deferment, the tenant’s rights under the 1954 Act and the landlord’s share of the marriage value; Mr Clark pointed out that 6% had been used by Daniel Smith in relation to the tenant’s comparable at 2/14–15 Ennismore Gardens, and by Mr D’Arcy Clark in his rough calculations in support of his figure of £350,000 in the Marsh & Parsons’s letter of August 15 1995; Mr Doncom had himself employed a 10% deduction for the Landlord and Tenant Act 1954 in his earlier calculations. The situation at 57 St Quintin’s Avenue was to be distinguished as there was greater certainty as to the tenant staying on where the option for a statutory tenancy had already been exercised. Mr Clark did not consider the personal resources of the tenant or the possibility of housing benefit to meet the rent altered the proportion of 10% for rights under the 1954 Act. The Cadogan Estate took a long term view and it was not its policy to buy out sitting tenants. In answer to questions from the tribunal Mr Clark said he did not agree that the tenant’s act in serving a notice to enfranchise the subject flat had released the marriage value. He could not say whether it was usual or the intention of the Act that on holding over a tenant should pay the full market value of a 90-year lease. Mr Radevsky in his final submissions on behalf of the freeholder invited the tribunal to accept the values for the freehold and leasehold interests, and percentages for deferment, Landlord and Tenant Act 1954 and landlord’s share of marriage value put forward by the freeholder’s witnesses; they were better supported by reasons. In assessing the tenant’s means as affecting her likelihood to continue in occupation, her capital, as well as her income, had to be taken into account; both were also relevant in assessing availability of housing benefit, which might be restricted to a proportion of the fair rent payable. As to marriage value, the 1993 Act established 50:50 as a floor; when the contractual lease had expired and the tenant had only a chance of a statutory tenancy the landlord’s share must increase to 100%. Mr Gallagher in his final submissions on behalf of the tenant urged the tribunal to have regard to the general range of comparables in Cadogan Place. The subject flat was unique and the freeholder’s four comparables by reason of different level, layout, accommodation and location had to be distinguished. As to the appropriate percentage deduction for the tenant’s rights under the Landlord and Tenant Act 1954, the Lloyd-Jones case had been refined by the decision in Vignaud to require the tribunal to have regard to the financial and other circumstances of the tenant. Here there were funds, either personal or from housing benefit, to ensure that the tenant would continue to occupy the subject flat, making a high probability that she would exercise her statutory rights. As regards the share of marriage value it was clearly in the landlord’s interest, whatever the general policy of the Cadogan Estate, to get the tenant out and since this could not be done without her consent the split of marriage value should be 50:50. Inspection The subject first floor-flat was within a six-storey, including basement, terrace of former houses built about 1840. The exterior stucco was in fair decorative order although there were many unsupported wires hanging down the face of the building. Security grilles had been fixed to the windows and doors fronting on to the balcony. There was a portico entrance to the property. The common parts had been decorated to a high standard and the main stairs had good quality carpeting. Although there was a lift within the building it did not serve the first-floor flat. Heating to the common parts was provided by a night storage heater situated on the ground floor. The conversion appeared to be longstanding and provided a living room, two bedrooms one of which was on a mezzanine floor, together with a small kitchen and an internal bathroom/wc. The living room was of good proportions, many of the original features, including the ceiling, cornices and wall mouldings having been retained. The flooring was of hardwood laid to herring-bone pattern. The original windows and doors lead on to a small narrow balcony and overlook a large private garden. The rear bedroom which is of more modest proportions, the ceiling height having been lowered, overlooks the rear terrace. The small cramped kitchen enjoys good natural light and provides access to the rear balcony. It also provides narrow and awkward access to the bedroom (a former staff room) on the mezzanine floor. This room is small and irregular in shape but also has good natural light. The internal bathroom/wc has mechanical ventilation. Decision and reason The determination of the price payable for the extended 90-year lease is to be made in accordance with Schedule 13 to the Act. At the hearing the parties intimated that the terms of the lease would be agreed between them with a little more effort. By letter of May 3 1996 the solicitors for the freeholder confirmed that the parties had now agreed the terms. Accordingly, as provided in Schedule 13, para 1, the date of the valuation is May 3 1996. The first contested element in the valuation is the vacant possession value of an extended 90-year lease of the subject flat, which the surveyors of both parties took to mean in a condition in accordance with the terms of the subsisting lease. From our inspection it is clear that the subject flat is a somewhat unusual unit to value, enjoying one excellent large living room of attractive proportions and aspect but with inferior supporting accommodation by reason of its size and awkward layout. We do not consider the rear terrace to add greatly to the value as it was not included in the demise, nor have we made any deductions in value for the loss of a resident caretaker. The tenant’s surveyor proposed a figure of £300,000 and provided a schedule of all recent transactions relating to flats carried out in Cadogan Place. We found few of these to be of direct assistance; flats in properties of nos 18 to 27 were located in a northern section of the terrace, which was inferior by reason of the entrance to the underground car park. Most contained larger accommodation and floor areas with the most similar, a first-floor flat in 27 Cadogan Place having a noisy corner location on to Pont Street. Of the higher numbers in the terrace, nos 81 and 84 were in a north-facing section in buildings of different character. This left as comparables two raised ground-floor flats at 1/56 and 6/66 Cadogan Place which were also relied on by the freeholder’s surveyor and a fourth-floor flat at D/63 Cadogan Place. All these flats had been entirely refurbished and enjoyed central heating; location of D/63 on the fourth floor without a lift made it difficult to compare and 6/66 Cadogan Place was a much larger flat with four rooms and two bathrooms. We accept 1/56 Cadogan Place as providing general guidance as to level of prices, despite its different floor location, absence of a fine reception room, and better condition. The freeholder’s surveyor also relied on comparable transactions at 11/35 Pont Street and 15 Lennox Gardens. The former with smaller rooms was located in a busy street in a building modernised to luxury standard of a different character. The latter, 15 Lennox Gardens, was of greater assistance since it too had a quiet location with reception room overlooking gardens and was on the first floor. In the light of these comparables we adopted £325,000 as the value of the 90-year leasehold interest in the property. The freeholder proposed a 5% uplift for the value of the freehold, but we adopt the 1% put forward by the tenant’s surveyor. As regards 199 the rate for deferment we consider 6% as an appropriate rate having regard to the excellent location. The final contested element was the proportion of the discount to be made to take account of the possibility that the tenant might exercise her rights to a statutory tenancy. In view of the now expired contractual term of the lease, that possibility is imminent. The tenant’s surveyor proposed a 45% discount and supported it by reference to a market transaction, at 57 St Quintin’s Avenue; the freeholder’s surveyor proposed a 10% discount and Mr Radevsky submitted that this was in line with the 10% discount determined by the Lands Tribunal in Lloyd-Jones v Church Commissioners (1981) 261 EG 471 and more recently in Vignaud v John Lyon School as the appropriate discount for the tenant’s rights under the Landlord and Tenant Act 1954 Part I in respect of enfranchised houses under the Leasehold Reform Act 1967, as amended. In the present case we are dealing with the extension of the lease of a single flat, not a house. Schedule 13, para 3 of the 1993 Act does not expressly direct, as does section 9(1)(A) of the 1967 Act, that the determination of the premium payable shall be made on the assumption that at the end of the tenancy the tenant has the right to remain in possession pursuant to the provisions of the Landlord and Tenant Act 1954, Part III. The absence of such an express assumption is not necessarily decisive as para 4 of Schedule 13 indicates that the making of assumptions other than those specified is not precluded, but it may well indicate that the treatment of flats is different from houses. Para 3(2) directs that the value of the landlord’s interest is to be based on ‘open market’ value, and such a value should clearly reflect — to the extent that the market would do so — the prospects of the tenant holding over on a statutory tenancy. Hague explains the need for such an assumption in respect of houses in the higher rateable value under section 9(1)(A) of the 1967 Act by reason of the fact that a tenant of such a highly rated house rarely allowed his tenancy to expire so as to rely on his statutory rights: Hague — Leasehold Enfranchisement 1987, p189, para 9.51. The position as to the possibility of a tenant staying on in a flat seems to us to be different. Mr Clark in his evidence on behalf of the freeholder stated that at the present time there are 31 contractual tenants of flats on the Cadogan Estate who still remain in possession after their terms have expired. In these circumstances there would clearly appear to be an increased risk that a tenant will exercise his statutory rights and the market evidence relating to 57 St Quintin’s Avenue suggests that such a risk may be quantified as 52.5%. We are accordingly of the view that in respect of a flat where evidence is available a higher proportion than the 10% adopted in the Lands Tribunal’s decisions may be appropriate. A further difference also exists on the facts relating to the tenant’s personal circumstances from the latest Lands Tribunal decision of Vignaud, though we have to express some reservation as to the extent to which valuation under Schedule 13 requires us to investigate the precise financial circumstances of an individual tenant. As we have said above, it is for the tribunal to see the matter (and its possible outcome) as the market would see it, and to make such discount as the market would do so in all the circumstances. In Vignaud the tenant at 74 Maida Vale, London W9, the property in question, agreed that she was unable to pay the regulated rent or the sum of £30,000 required to comply with the dilapidations notice. In our case, however, we had evidence from the tenant’s daughter, not the tenant herself, and of a somewhat ambivalent nature, that the tenant had financial resources to be able to meet the dilapidations and to afford to stay on (if necessary with the assistance of housing benefit) so long as she remained in good health. In these circumstances we consider the possibility of the tenant staying on to be greater than in the Vignaud case. Accordingly, taking all these matters into account we adopt a proportion of 25% for the risk of the tenant exercising her statutory rights to stay on. As regards the freeholder’s share of the marriage value, in so far as any market evidence was produced, it came from the tenant’s surveyor, Mr Doncom, and supported the statutory residual proportion of 50:50. Mr Clark on behalf of the freeholder urged us to accept the situation of a tenant holding over as the most extreme case where she had no bargaining chip in the negotiation. But we remain of the view that the tenant’s initial notice to extend the lease is a necessary condition to enable the realisation of the marriage value under the Act and we, therefore divide the marriage value equally between the parties. Having regard to all the above matters we make the following valuation: Premium payable by the tenant .in accordance with section 48(7) and Schedules 12 and 13 to the Leasehold Reform, Housing and Urban Development Act 1993. (a) Schedule 13 para 2(a) the diminution of the landlord’s interest in the tenant’s flat as determined in accordance with para 3. Term of existing lease Ground rent £175 YP 0.25 years @ 6% Nominal Value of lease for 90 years at a peppercorn £325,000 Add for equivalent freehold £3,250 £328,250 Deferred 0.25 years @ 6% 0.98 £321,685 Less risk of tenant claiming security of tenure under Part I, Landlord and Tenant Act 1954 — 25% 80,421 78,813 £242,872 242,872 Deferred 0.25 years @ 6% 0.98 Reversion to value of freehold in possession PV£1 in 90 years @ 6% 328,250 0.005 1,641 £241,231 (b) Marriage value Value of tenant’s extended lease 325,000 Value of landlord’s reversionary interest 1,641 £326,641 Less landlord’s existing interest 242,872 Tenant’s existing interest nil 242,872 Gain on marriage value £83,769 Landlord’s 50% share 41,885 (c) Compensation for loss arising from grant of new lease (para 5) nil 283,116 Premium payable by tenant say £283,100 Accordingly we determine the price payable by the tenant for the extended lease in respect of the first-floor flat at 45 Cadogan Place, London SW1, pursuant to section 48 and Schedule 13 to the Act is £283,100 (two hundred and eighty three thousand, one hundred pounds).