Leasehold Reform, Housing and Urban Development Act 1993 — Determination of price for acquisition of freehold of block of 10 flats — Whether loss of development value — Whether additional losses
The applicant
nominee purchaser sought the determination of the price payable for the
acquisition of a block of 10 flats in Godalming, Surrey, under section 33 of
the Leasehold Reform, Housing and Urban Development Act 1993; the flats being
let on 999-year leases at ground rents of £15 each pa. The notice of
application proposed a price of £3,000. The respondent landlord contended for
£30,000 for the freehold reversion alternatively £15,000 subject to a leaseback
of the flat-roof areas on the basis that there was potential development value
in the ability to add a further floor to the building.
owned no other property nearby, it suffered no loss compensatable under para 5
of Schedule 6 to the 1993 Act. There were compelling reasons why development of
the block would not be permitted and therefore there was no loss of development
value. By reason of the long unexpired terms of the leases, there was no
marriage value. A YP in perpetuity of 10 should be applied to the total ground
rents of £150 to give the price properly payable.
No cases were
referred to in this report
Ian Ross
(instructed by Baldocks, of Guildford) appeared for the applicant and called M
H Trent frics; Jonathan Rich
(instructed by Griffinhoofe) represented the respondent.
Giving the
decision of the panel, Mr Brian
Perrin said: The following reasons are promulgated following the
decision of the leasehold valuation tribunal issued on October 19, after a
hearing on October 6 1994, with regard to the price to be paid in accordance
with the Act for Treryn Heights, Frith Hill Road, Godalming, Surrey. The
tribunal have already issued their valuation of £1,500 to be paid by the
nominee purchaser to the reversioner plus the reversioner’s costs in accordance
with section 33.
Appearances
Nominee
purchaser: William Scarlett, represented by Mr Ian
Ross, of counsel, who called Mr M H Trent frics
of Clarke Gammon, chartered surveyors of Guildford.
Reversioner: Halcrow Ltd, represented by Mr Jonathan Rich, of counsel, who
called Mr P A Crook, the managing agent and a director of Halcrow Ltd.
Background
This application
concerns the price to be paid for a freehold block of 10 flats let on 999-year
leases from September 29 1969 at ground
reviewed. In addition each long lessee pays one 10th of the annual service
costs incurred by the lessor in repair, maintenance and renewal and insurance
of the property. Subsequently we were informed that the lessees in fact arrange
their own insurance, which is now excluded from the service costs. The freehold
is registered with the Land Registry, title no SY282016.
The nominee
purchaser, Mr William Scarlett, had served the appropriate initial notice on
Halcrow Ltd, on January 31 1994, having obtained a valuation from Mr M H Trent.
The notice proposed that the purchase price should be £3,000 for the freehold
interest in the specified premises.
Halcrow Ltd
served their counternotice, dated March 30 1994, admitting that the
participating tenants were entitled to exercise the right to collective
enfranchisement in relation to the specified premises. The counternotice
rejected the proposal with regard to price and gave alternative figures of
£30,000 for the freehold reversion, or £15,000 subject to a leaseback being
granted to the reversioner of the flat-roof areas, with the right to carry out
alterations to the relevant common areas, to allow access to the roof for
developing that area (subject to planning permission in the future) along with
provision for car park spaces within the common area of land. Subsequently the
matter was referred to the tribunal.
Inspection
The tribunal
inspected the plot upon which Treryn Heights stands and also a sample of one of
the flats. At the request of counsel we also inspected the immediate
neighbourhood, including a more distant view from a cul-de-sac off Charterhouse
Road. The later stands at a lower level than Frith Hill Road. Frith Hill itself
being an area of higher land standing quite prominently above the surrounding
countryside and urban area. We also observed the adjoining block of 14
maisonettes known as Sol-e-Vista which, we are told, was constructed about the
same time and was originally owned by Halcrow, though subsequently sold as a
separate parcel to the sitting tenants.
For the
nominee purchase
Mr Ian Ross of
counsel for the nominee purchaser addressed us. He stated that the only issue
before the tribunal was that of valuation and referred us particularly to
Schedule 6 to the Act. He went on to say that we should only take into account
the value of the freeholder’s interests, as he would be calling evidence that
the freeholder’s share of any marriage value would be nil and that there should
be no compensation for loss resulting from enfranchisement. He invited our
attention to para 5 of Schedule 6 and submitted that any such compensation for
loss is confined to ownership of any interest in other properties, not
the specified premises. This point gave rise to considerable argument in the
proceedings and will be referred to later. Mr Ross called Mr M H Trent frics and handed to the tribunal Mr
Trent’s report to the nominee purchaser, dated December 10 1993, which
concluded with his valuation of £3,000. Mr Trent stated that he had 20 years’
experience in general practice as a chartered surveyor in the area and that he
had inspected the property and site for the purposes of making his valuation.
Mr Trent described the property as being a purpose-built block of 10 flats
built about 23 years ago by a local building company, CG Robertson Ltd. He went
on to say that it was situated in a good residential area about three-quarters
of a mile north west of Godalming town centre, on high ground. He correctly
noted the site itself falls steeply away from the road (Frith Hill Road) and is
well screened from the west by mature trees. He described the building as being
approached from the road by a suspended reinforced concrete forecourt with car
park accommodation on either side. He had seen a copy of a sample lease and had
valued on the basis of approximately 975 years unexpired at a fixed ground rent
of £150 pa. He had divided his advice into three sections:
1. Schedule
6(3): capitalised value of the ground rent where he took £150 pa at 20 years’
purchase to provide a capital valuation £3,000.
2. Schedule
6(4): Mr Trent went on to say that, due to the length of the unexpired portion
of the lease, he considered any marriage value was nil.
3.
Compensation Schedule 6(5): He had considered potential redevelopment value,
but in view of his knowledge of the rigid planning policy of the area, as set
out in the local plan adopted in 1993 and an earlier refusal to add a further
floor to the building in October 1991, it would not be sensible to expect any
additional value under this heading, especially bearing in mind that such additional
development would detract from the value of the existing building and that of
neighbouring properties.
At this point
Mr Ross interjected and stated that we should not take this latter point into
account, bearing in mind the provisions of para 5 of Schedule 6 to the Act.
In answer to
questions, Mr Trent stated his firm managed blocks of flats and had negotiated
sales of such blocks of flats to sitting tenants associations, usually at 10
years’ purchase, outside the provisions of the Act.
Mr Trent was
asked to refer to some papers included in the bundle put before us, with
particular reference to the Waverley Borough Plan adopted June 4 1993, which
states:
Frith Hill,
Godalming
8.10 The
western wooded slopes of Frith Hill occupy a prominent position overlooking
Godalming and, in the Godalming Town Map Review of 1974, the County Council
adopted a Policy for the area (previously drawn up in 1968), designed to
preserve the visual character of the hillside and to prevent its further
domination by buildings. A number of general principles were specified and
these are incorporated into this Plan.
Policy DE2 limited development for housing
will only be acceptable within the area of Frith Hill, as shown on the
proposals map, when the local planning authority is satisfied that:
(a) Maximum tree cover has been retained to
preserve the wooded appearance of the hillside;
(b) Existing residential amenity is maintained;
(c) Development is along the road frontage on a
limited basis and is not in depth or above the prevailing height of the trees;
(d) Where older dwellings (eg victorian,
edwardian, etc) are to be replaced, it is to be by new residential buildings no
greater in height, scale and massing.
He had also
seen a copy of a letter written to Mr W Scarlett, the nominee purchaser, by
Waverley Borough Council dated April 25 1994 which reads as follows:
Dear Mr
Scarlett,
Treryn Heights, Frith Hill Road
Thank you for
your letter dated 20th April 1994 regarding the above.
I would
confirm that the development proposed in application WA91/1107 for the creation
of two flats on top of the existing building at Treryn Heights was refused on
9th October 1991 for the following reasons: —
1. The
proposal is contrary to Policy DE2 of the Waverley Borough Local Plan in
respect of the special policy for the Frith Hill area because, in the opinion
of the Planning Authority, the proposal represents an over development of the
site at an excessive density having regard to the character of the area, the
natural features of the site and the prominent location on a visually important
hillside and would result in a loss of amenity to existing dwellings and an
unacceptable increase in disturbance and congestion.
2. The
height, scale and massing of the development is excessive having regard to the
character of the area, its relationship to existing properties, the natural
features of the site and prominent location on a visually important hillside.
Since this
decision was made there has been no change to the Council’s policies for the
area and were a similar application to be submitted now I would anticipate that
it would he refused for the same reasons as set out above.
B Titmuss
Principle
Planner
Mr Trent
stated that the foregoing reinforces his view that there is no compensation due
under para 5 of Schedule 6.
In answer to
further questions, Mr Trent stated that he was aware that the adjoining block,
comprising 14 maisonettes, Sol-e-Vista, had
aware of the ground rent involved. Most importantly, in answer to a question,
Mr Trent stated that he had had regard to the nature and source of his
instructions from the nominee purchaser acting on behalf of the sitting tenants
and said he was generous in his approach to the investment value of this
particular block.
Cross-examined
by Mr Jonathan Rich, Mr Trent agreed that he would take any question of
redevelopment value into account if he considered it to be appropriate, though
he denied that this would be the case here. He had been aware that the
Sol-e-Vista block had been included in the earlier planning application, which
had been refused in October 1991. He knew that an adjoining, more recent
building, called Holm Court, had a pitched roof, but denied that the
introduction of a pitched roof and an additional two flats would be in any way
an advantage, even if it were to jump the very considerable hurdle of the local
authority. When put to him that there could be an increase in the value of the
flats individually and collectively once they had acquired their freehold by
reference to the fact that a potential vendor of a flat could state that he or
she had a share in the freehold, Mr Trent denied that this would have any
additional realisable value. Mr Trent agreed that a rogue landlord could be a
detrimental factor (though no suggestion that this is the case here was made by
either party). He confirmed his earlier views that 20 years’ purchase is a
generous multiplier. Mr Rich produced a table of inflation, which neither Mr Trent
(nor later we) found very appropriate or helpful. In answer to a question Mr
Trent said he was amazed to learn that £30,000 had been paid by Halcrow for the
freehold interest in Treryn Heights and even more amazed later to hear that
this figure was £40,000. He confirmed he had a background knowledge of freehold
investment sales outside the Act. When asked if he was prepared to give any
credit for any windfall which may come the way of the reversioner if any flat
lease should be forfeited, he knew of no case where this had happened and
refuted that this was a factor he should add to his valuation.
When Mr Rich
put to Mr Trent that an additional flat on the roof could be worth as much as £80,000,
Mr Trent viewed this as an over-optimistic value as he had knowledge of two
roughly similar flats at Holm Court, further along the road, one of which had
been sold for £67,950 in June 1994 and another more recently agreed at £66,000
in September 1994. While he was not prepared to give a hypothetical valuation
of an unbuilt flat in Treryn Heights, he considered it would be no more and
possibly less than Holm Court, bearing in mind the lack of a lift in the block
at present. The Holm Court flats were held on 99-year leases from about 1986.
He agreed that a pitched roof might be more weather-proof than the existing
flat roof, but this would not necessarily add to the value of the freehold
investment. Mr Trent had examined the statements put in by Mr Rich that morning
from a number of builders, planning consultants and valuers and was
particularly surprised to read a statement by a Mr Richard Hutchinson, a
speculative investor, that he was prepared to pay £15,000 to Halcrow for the
freehold and to instruct Strongfarn Management Ltd (current managing agents) as
managing agents, who would be paid 50% of any increase in value made from
development profits: see our later remarks. Re-examined by Mr Ian Ross, he
confirmed his qualifications and reaffirmed his view that security of income
was the main consideration in valuing an investment at all times. In answer to
questions from the tribunal, he could not recall having seen a clause in the
leases allowing redevelopment of the block.
Mr Ross then
called Mr William Scarlett, the nominee purchaser. He had acquired the lease of
his flat at 8 Treryn Heights in April 1985 from Mr LG Matthews, the previous
owner/occupant. Although no longer in residence himself, he did satisfy the
residential conditions. As nominee purchaser he had taken care to keep all
residents fully informed and on their behalf had instructed Mr Trent frics. He produced a copy letter from
Gascoigne-Pees of 224 High Street, Guildford, dated October 1 1984, who were
then managing the property on behalf of Mr Spooner, the freeholder. This letter
stated that Mr Spooner would accept a figure of £1,350 subject to contract for
the freehold interest and subject to Mr Spooner’s legal fees being paid.
Gascoigne-Pees had enclosed nine copies of the correspondence so that the other
tenants would be fully informed.
When
cross-examined by Mr Rich for the reversioner, Mr Scarlett agreed that he was
not currently resident. On a previous occasion, under the Landlord and Tenant
Act 1987, the residents had been given notice that the property was changing
hands at £40,000, which they then jointly considered was far too high, having
decided to make application under the Leasehold Reform Housing and Urban
Development Act 1993 once it came into force. He agreed that various inspections
and discussion had taken place with regard to the suitability of a pitched roof
to minimise future maintenance problems with the flat roof. He was indifferent
as to whether the roof was flat or pitched. In answer to a question, Mr
Scarlett denied that the enfranchising tenants would add two flats to achieve a
profit, which Mr Rich stated would be £70,000. Mr Scarlett took the view that
he personally would be against such a proposal as he was sure would be the
owner-occupiers of the top two flats. He made a categorical denial that this
aspect had been discussed among the other residents. No defined policy or
programme had yet been settled for a future residents’ association. In answer
to further questions, he denied that there is currently any redevelopment
aspect and certainly nothing that could be substantiated in any way. Although
not a valuer, he opined, that he could not see there would be any increase in
value due to the marriage of the two interests. The residents in the block were
not attracted to the idea of any future leaseback and he had seen no firm
documentary evidence that the property had changed hands for £40,000.
For the
reversioner
Mr Jonathan
Rich addressed us on behalf of the reversioner. He started by introducing five
typed statements, which he wished us to take into account to support his views
that additional compensation should be paid in respect of redevelopment
potential.
1. The first
was a statement by Mr Richard Hutchinson, signed on October 3 1994, in which he
stated he was prepared to pay £15,000 for the freehold and to share development
profits with Strongfarn Management Ltd, the managing agents. He described
himself as a speculative investor in various property ventures. He had been
subsequently informed by Halcrow Ltd that their hands were tied in view of the
current claim by the nominee purchaser on behalf of the participating tenants.
He stated he was aware of the planning application refusal of October 1991, but
considered this had failed due to design faults and local residential
objections. However, he took the view that a further application would be more
successful and that an appeal would succeed.
2. Mr John
Escott BA (Hons) Dip Town Planning, of Nationwide Surveyors, had submitted a
planning appraisal, having visited the site and reviewed the planning history.
He suggested that a revised application might be more successful, though agreed
that Waverley Council might not concur and that the ‘prospects of having to
lodge an appeal regarding an application for such a scheme cannot be
discounted’. His statement was dated October 5.
3. Robert
West, consulting structural engineer, wrote to state that the current building
was capable of carrying an extra floor, his letter being dated October 4 1994.
4. Mr Leon P
West BSC arics of Watson West,
chartered surveyors of Guildford, put in a short valuation report to assist the
reversioner in deciding on the viability of constructing two top-floor flats of
similar floor area and layout as the existing flats in Treryn Heights. The date
of his valuation was October 4 1994, the date of his report. He took the view
that a proposed could be valued at £80,000 long leasehold.
5. Mr John
Cooper Lawrence, consultant surveyor from Weymouth, in a letter dated October 5
1994, estimated it would cost some £71,000 to construct a mansard roof to form
two flats, to provide additional car parking and to follow for fees.
Mr Rich then
called Mr Peter Alan Cook of Stanley Road, Preston Way, Dorset, who is a
managing agent of Strongfarn Management Ltd, and (for one week) a director of
Halcrow. He advised us that he had no professional qualifications and could not
be called as an expert witness. In answer to questions he stated that his
clients had paid £40,000 for the freehold interest in Treryn Heights. In
response to a subsequent question he said his company would only sell on
freehold investments at 20 years’ purchase, but did not volunteer the price
they would be prepared to pay. While he considered a year’s purchase is the
usual basis of valuation, other methods could be used, where he considered
there was development potential as was his view here. However, he agreed the
figure in the counternotice was £30,000. Mr Crook went on to say, in answer to
questions, that he had arranged four schemes with Mr Hutchinson (as referred to
earlier) and there were no links otherwise between his company and Mr
Hutchinson. When asked to refer to the planning consultant, Mr Escott’s report,
he stated the earlier 1991 scheme showed four additional units on Sol-e-Vista
and two on Treryn Heights. In his view a revised scheme would be better for
Treryn Heights. Mr Rich asked him to consider whether £3,000 would be a fair
assessment of the value, assuming no potential development and no marriage
value. Mr Crook did not answer this question. In answer to further
questions, his experience was that long leases are forfeited from time to time
and that a windfall accrues to the reversioner. He considered the sum of
£30,000 was a fair assessment of the value on a commercial basis.
Cross-examined
by Mr Ian Ross on behalf of the nominee purchaser, Mr Crook stated that his
clients, Halcrow, had purchased the property for £40,000 after the planning
refusal and were prepared to take a risk that they would succeed on appeal,
although they were now prepared to sell an interest to Mr Hutchinson, as
recited earlier. However, he was not armed with any written or formal evidence
to put before the tribunal. Again, Mr Ross put to him the same question as
Mr Rich, that supposing there was no development value and no marriage value,
what would his assessment of the value be? Again, Mr Crook stated he did not
wish to reply as he considered this to be irrelevant. He agreed that
Halcrow had sold Sol-e-Vista for £2,800 in December 1992. Asked to enlarge upon
this information, particularly with regard to redevelopment potential, he
replied that Sol-e-Vista was a different type of building and there were
various problems and inherent structural drawbacks that made his company wish
to sell it to the sitting tenants. When pressed as to whether a valuation had
been prepared, in the present case under the Act, he said he preferred his
commercial approach to the matter. His company had not asked for, nor had, a
valuation made under the Act and the £30,000 was the figure he was originally
instructed by his clients to insert in the counternotice. He also stated that
he had approached Mr Hutchinson to ask him to participate and to produce the
submitted statement which was typed in his office and signed by Hutchinson
subsequently on October 4 1994. He stated he had a permanent deposit of £50,000
for Mr Hutchinson in order to acquire suitable propositions and that Mr
Hutchinson had seen Treryn Heights.
When Mr Ross
asked why no recent planning application had been made, Mr Crook replied that
current market conditions dictated this was premature and that similar
considerations arose to the preparation of any plans or architectural expense.
When asked why no appeal had been made against the 1991 refusal, Mr Crook replied
that there was some local resistance, particularly from residents of
Sol-e-Vista and he took the view then that an appeal would be premature and
futile.
In answer to
questions from the tribunal, Mr Crook affirmed that he had obtained vacant
possession by way of forfeiture of flats in the past, though usually from
lenders in possession.
Conclusion
Mr Rich then
addressed us and referred particularly to Schedule 6 and asked us to consider
the market place as a best possible evidence of value and that Halcrow had
agreed to take a loss of £10,000 from the £40,000 paid. Mr Rich then attempted
a residual valuation to reinforce his view that there was a development
potential, which could form the subject of compensation. In addition the
participating tenants could save management costs, which should be a further
sum added to the valuation. In his view, Mr Trent’s simple multiplication of
ground rents was not an acceptable method of valuation. Mr Rich seemed to
derive some comfort from his attempted residual valuation, which he stated
would be £7,500 per unit, based on an estimated sale price of £67,500 per unit.
He made no representations with regard to a possible leaseback of the roof
area.
Mr Ross on
behalf of the nominee purchaser, addressed us and stated the freeholder had
failed to appreciate Schedule 6 and that the tribunal should concentrate solely
on the investment value. He accepted that Mr Trent, his expert witness, had
looked at compensation for redevelopment which, in Mr Ross’ view, he should not
have done, though he accepted that we could take this into account in
considering the value of the reversioner’s interest under para 3, and we should
not make any additions for para 5 of Schedule 6. In his view, the recent
planning history was conclusive in showing that there was no opportunity for
development, particularly bearing in mind the lack of revised plans.
Turning to the
written statements produced on behalf of the reversioner, he stated none had
been tested, all were based on suppositions and that no plans were in existence
from which the various consultants involved could derive any worthwhile
information or advice.
Concerning the
evidence of Mr Crook, he pointed out that no valuation had been prepared or
produced let alone in accordance with Schedule 6. However, his expert witness,
Mr Trent, had produced a valuation which was over-generous and could well have
been a multiplier of 10 times the year’s purchase. However, he asked us to
settle the matter in the sum of £3,000, being 20 years’ purchase as put forward
by Mr Trent.
Decision
First, the
tribunal must state that the purchase price paid by the reversioners for Treryn
Heights (whether substantiated or not), plays no part in Schedule 6 of the Act.
Therefore we have disregarded all the assertions made in this respect.
Second, we
concur with Mr Ross that para 5 of Schedule 6 refers only to the affect of the
value of other premises held. In this case there is no other property held by
the freeholder and we, therefore, find no value can be attributed in way of
compensation for loss under para 5.
Third, we
considered whether there should be any additional value to be added to the
value of the freeholder’s interest to take account of any redevelopment value
or the value of the hope of redevelopment. Our site inspection from
Charterhouse Road showed the parapet wall at the top of Treryn Heights with its
present flat roof showing well above the existing fully leafed tree cover, so
it follows that an additional floor would stand well proud of this level. We
should emphasise that we are not planning inspectors, but, as much emphasis has
been laid on this particular aspect, we felt it only right to comment.
Fourth, we
have disregarded any possible leaseback as the matter was not pursued by the
reversioner.
Having seen
the site and the property and heard the arguments and submissions put to us, we
are bound to state that we find the approach of the nominee purchaser to be
more in accordance with the Act than that put forward by the reversioner. We
found the evidence of Mr Crook to be unconvincing, since he not only
disregarded the method of valuation stipulated in the Act, but also attached
unjustified importance to a hypothetical redevelopment value when, it appears
to us, there are compelling reasons that further development would be refused.
Indeed, Mr Crook negated his argument when stating that the reason for not
drawing up revised plans and making a resubmission was the current adverse
state of the property market.
We agree with
Mr Trent that the very long unexpired term of the leases precludes any marriage
value, which we confirm is nil.
However, we
find Mr Trent’s approach also flawed in that he admits having valued bearing in
mind the interests of the sitting tenants. Schedule 6 requires him to disregard
this.
Therefore, we
have taken 10 years’ purchase of the ground rents as being a suitable
multiplier to produce a capital valuation of £1,500 as the price to be paid by
the nominee purchaser on behalf of the participating tenants to the
reversioner. This multiplier of 10 was mentioned by Mr Trent earlier as part of
his local knowledge and expertise. In addition to the £1,500, the reversioner’s
reasonable costs, under section 33 of the Act, will be met by the nominee
purchaser.
|
Addendum |
|||||
|
Schedule 6 |
|||||
|
(3) Ground rent paid £150 pa |
YP in perpetuity 10 |
£1,500 |
|||
|
(4) Marriage value |
nil |
||||
|
(5) Compensation for loss |
nil |
||||
|
TOTAL |
£1,500 |
