Consideration payable under s12 for freehold of premises at Kingsbury, London NW9 — Building divided into two flats, each held on a 99-year lease from 1955 at an annual ground rent of £8.40 — Original disposal a sale by auction of subject premises with other properties in one lot for total of £20,000 — Auction lot a varied portfolio of properties comprising 44 flats (20 separate addresses in all) with lease terms from 90 to 999 years and unexpired terms from 66 to 978 years — Whether sum payable to be value of subject premises in isolation or as proportion of value of entire lot — Point also on calculation of insurance commissions
behalf of nominated person of £775 as single property — Valuer initially
submitted it would, inter alia, be extremely difficult and time-consuming to
carry out valuation of each property in auction lot to arrive at appropriate
fraction, being method proposed by landlords — In course of hearing, however,
he accepted landlords’ method — In tribunal’s view, his valuation constituted a
valuation de novo, which was not permitted by 1987 Act — Cousins v Metropolitan
Guarantee Ltd [1989] 2 EGLR 223 relied on in support — Proper method held to be
apportionment of total price of £20,000 for auction lot
for landlords that tribunal unable to determine apportionment not accepted —
Further submission that individual values of properties comprised in lot be
ascertained by independent expert appointed by president of RICS also not
accepted — Power to direct carrying out of valuation by such means not given to
tribunal under 1987 Act — In any event, it would deprive tribunal of the very
function, determination of the consideration, entrusted to them — Auction sale
held to be original disposal within s12(3)(a)(ii) whereby terms may be ‘subject
to such modifications as are necessary or expedient in the circumstances’ —
Tribunal decide to do their best on evidence presented and in light of their
own knowledge and experience — In their analysis of the auction disposal price,
999-year leases distinguished from leases on terms of 90 and 99 years — Effect
of insurance commissions regarded as spread evenly over all properties in
auction lot — Determination of £1,100
The following
case is referred to in this report.
Cousins v Metropolitan Guarantee Ltd [1989] 2 EGLR 223; [1989] 32 EG
56, LVT
S M Langley
FSVA FRVA ACIArb, of Langley Slater & Co Ltd, appeared for the applicant
nominated person, James P Sullivan; Miss Sarah Dobbyn (instructed by Freedman
& Co) for the respondent landlord company.
Giving their
decision, THE TRIBUNAL said: This is an application by Mr James P
Sullivan, the nominated person, pursuant to a purchase notice dated January 30
1989, to determine the amount of consideration payable in accordance with
section 13 of the Landlord and Tenant Act 1987 by the nominated person to the
respondent landlord on the disposal of the freehold interest in 1 and 1A
Hayland Close, Kingsbury, London NW9 (hereinafter called the subject premises).
At the hearing
Mr S M Langley FSVA FRVA ACIArb, of Langley Slater & Co Ltd, surveyors and
valuers, on behalf of the nominated person, and Miss S Dobbyn, of counsel
instructed by Freedman & Co on behalf of the respondent landlord, agreed
the following facts:
(i) That the subject premises were sold at
auction on March 30 1988 in lot 90 with other properties for a total sum of
£20,000 by Wynstan Investments Ltd, the original landlord, to the respondent
landlord.
(ii) That the said sale by Wynstan Investments Ltd
to the landlord was a disposal of the subject premises within the meaning of
section 4 of the Landlord and Tenant Act 1987 without a notice being served
under section 5.
(iii) That 1 and 1A Hayland Close, NW9, comprised
the whole of a building divided into two flats held on two leases for a term of
99 years commencing on June 24 1955 at a ground rent of £8.40 a year in respect
of each flat and that the said premises were premises to which the 1987 Act
applied at the date of the said disposal and the date of the purchase notice.
The tenants of 1 Hayland Close are M and N Sullivan and of 1A Hayland Close Ian
Blakeman and they, by unanimous consent, being the requisite majority of
qualifying tenants, nominated James P Sullivan as the nominated person pursuant
to the provisions of the Landlord and Tenant Act 1987.
(iv) That on January 30 1989 a purchase notice was
given pursuant to section 12 of the Landlord and Tenant Act 1987, on behalf of
the tenants and the nominated person, to the landlord requiring him to dispose
of the estate or interest in the premises to the nominated person upon the same
terms (including those relating to the consideration payable) on which the original
disposal to the landlord was made by Wynstan Investments Ltd ‘provided that the
question of the amount of the consideration which was paid to Wynstan
Investments Ltd (or the amount of consideration which is taken to have been
paid . . .) on the purchase of the interest in the premises be determined by a
Rent Assessment Committee in accordance with section 13 of the Landlord and
Tenant Act 1987’.
Mr Langley, on
behalf of the nominated person, submitted a valuation (amended at the hearing)
of the sum to be paid as the consideration for the transfer of the landlord’s
interest in the subject premises to the nominated person, which may be
summarised as follows:
|
Valuation of Mr |
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|
on behalf of the nominated person as at April 1988: |
|||||||
|
Annual rental income |
£16.80 |
||||||
|
YP for 66 yrs at 8% |
12.422 |
total |
£209.69 |
||||
|
Reversion to fair rent |
£2,800 |
pa |
|
||||
|
YP in perp deferred 66 yrs at 10% |
0.01854 |
total |
£51.91 |
||||
|
Freehold value |
261.60 |
||||||
|
Say |
275.00 |
||||||
|
Marriage value for a lease extension to 99 years equally |
500.00 |
||||||
|
£775.00 |
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In support of his valuation, Mr Langley gave evidence that the
subject property was situated in a quiet residential street on the east side of
Hayland Close, constructed about 1930 with a ground-floor flat (1 Hayland
Close), comprising three rooms, kitchen and bathroom, and the first-floor flat
(1A Hayland Close), comprising three rooms, kitchen and bathroom. There were no
garages. The subject premises were included in lot 90 and sold at auction on
March 30 1988. From the auction particulars lot 90 referred to 20 separate
addresses, comprising 44 flats, several with garages. The total rent income
amounted to £506.80 per annum and insurance commission was stated to be
approximately £500 in 1987. The terms of each ground lease to the properties
within the portfolio varied considerably, six of the listed ground leases being
for a term of 999 years and 13 being for 99 years, with one for an original
term of 90 years, and unexpired terms ranging from 66 to 978 years. The
unexpired term of the leases for the subject premises was 66 years, not 64
years as stated in his valuation, which should be amended accordingly.
In Mr
Langley’s view, it was extremely difficult and time-consuming to carry out a
valuation for each property within lot 90; the insurance commissions could not
be calculated and the value of property varied according to its location.
Accordingly, he had carried out a valuation solely of the subject premises as
at April 1988. At that time, on expiry of the lease, the subject premises would
have reverted to Rent Act protected tenancies, and on the basis of 1988
comparable registered rents for three-roomed flats with kitchen and bathroom in
Hayland Close, NW9, he estimated a fair rent of £1,320 per annum could be
achieved for each flat. From experience he considered that a purchaser of each
flat might be prepared to pay, say, £500 for an extension of the lease to 99
years and on this basis he assessed a total marriage value of £1,000, which in
the circumstances he would divide equally between the parties. He accordingly
requested the tribunal to determine a sum of £775 to be paid as the
consideration by the nominated person.
In answer to
questions from the tribunal, Mr Langley said his valuation of the subject
premises bore no direct correlation to the £20,000 price achieved at the
auction; the seller probably would not have valued separately each property,
but he expected that if the same exercise of valuation was conducted in respect
of the other properties in lot 90 they would total the figure of £20,000.
Miss S Dobbyn,
counsel on behalf of the landlord, submitted that the nominated person had in
the purchase notice requested the tribunal to determine the consideration to be
paid on the same terms as the original disposal on March 30 1988. Accordingly,
the consideration for the subject premises was a fraction of the £20,000 paid
and to arrive at that correct fraction it was necessary for the nominated
person to undertake the valuation of all the other properties included in lot
90. The valuation of the subject premises put forward on behalf of the nominated
person was irrelevant. It was for the nominated person, having chosen in the
purchase notice to have a transfer of the subject property on the same terms as
the original disposal, to produce evidence of the values of all the properties
in lot 90 in order to arrive at the correct proportion of £20,000 to be
allocated to the subject premises. She submitted that the tribunal should make
an order in the following terms:
(i) That the individual values of the freehold
properties comprised in lot 90 at an auction on March 30 1988 (which was sold
for a total of £20,000) be ascertained by an independent expert appointed by
the Royal Institution of Chartered Surveyors to be agreed, costs to be borne by
the tenants.
(ii) That the said expert thereby determines the value
of the freehold reversion of 1 and 1A Hayland Close, Kingsbury, NW9, as is a
correct proportion of said total of £20,000.
(iii) That the landlord and tenants abide by the
valuations of the said expert, and the landlord to dispose of the property to
the tenants for such sum as has been determined.
In answer to
questions from the tribunal, Miss Dobbyn said that the sum of £5,000 requested
by the landlord as the consideration prior to the application to the tribunal
was based on a price of £2,000 paid on February 1 1989 by the tenant of one
flat at 65 Boundary Road, Colliers Wood, for a 125-year lease. However, the
landlord was not inviting the tribunal to adopt such an approach. It was the
landlord’s case that it was wrong to produce a figure for the subject premises
in isolation: it must be tied as a proportion of the £20,000 and it was for the
nominated person to produce the relevant evidence, not for the landlord to
rebut the valuation produced. Miss Dobbyn said section 12(3)(a)(ii),
which permitted ‘such modifications [to the terms] as are necessary or
expedient in the circumstances’, where the original disposal related to
property in addition to the subject premises, was inapplicable as this section
had not been relied on in the purchase notice.
In reply, Mr
Langley rejected the landlord’s proposed reference to an independent valuer as
contrary to the 1987 Act, which contemplated that the rent assessment committee
would itself carry out the valuation. In any event, costs were to be borne by
the party incurring them (section 13(4)) and it would be wrong to require the
nominated person to pay the costs of such a valuation.
In answer to
further questions by the tribunal to ascertain the views of the parties as to
the propriety of methods which might be adopted to determine the apportionment
of the £20,000 so as to arrive at a figure for the subject premises:
(i) Both parties agreed that a distinction
between the leases of 99 and 999 years’ duration should be made, the
representative of the landlord stating that the value of the latter was
notional, while Mr Langley, on behalf of the tenant, said they would be
considerably less valuable than the 99-year leases.
(ii) Mr Langley stated he would take account of
the insurance commissions and considered a purchaser of lot 90 would pay £1,500
or three years’ purchase of the annual 1987 figure. Miss Dobbyn thought no
value should or could be attributed to the insurance commissions.
(iii) With regard to the 99-year leases, Mr Langley
thought they might be broadly equated, the unexpired terms being from 66 to 87
years and the properties being all located broadly in the same area. Miss
Dobbyn considered that there would be a significant difference between the
value of the leases according to the length of their unexpired term.
(iv) Both parties agreed that no significant value
could be attached by reason of the fact that two leases made provision for
rising rents.
(v) Both parties agreed that the whole analysis
should be conducted to ensure that a fair proportion of the total sum of
£20,000 was allocated to each property comprised in lot 90. Miss Dobbyn stated
that she considered such analysis to be speculative, impossible and one on
which the tribunal had no evidence to act.
Both parties
agreed that inspection of the subject premises was unnecessary and would not
assist the tribunal. Accordingly, we did not inspect the premises.
Decision and
reasons
The tribunal
carefully considered the valuation, and the method by which it was reached,
submitted by Mr Langley on behalf of the nominated person. In our view this
constituted a valuation de novo, which is not permitted by the 1987 Act;
we rely on the decision of the London Leasehold Valuation Tribunal, Cousins
v Metropolitan Guarantee Ltd [1989] 2 EGLR 223; [1989] 31 EG 56, [1989]
2 EGLR 116 in respect of 11 Belsize Crescent, NW3, to support this proposition:
it establishes that the starting point of our determination is the terms of the
original disposal, including the consideration then paid.
Accordingly,
we prefer the method proposed on behalf of the landlord (and subsequently
accepted by Mr Langley in the course of the hearing) whereby, in accordance
with the provisions of the 1987 Act, our determination must be an apportionment
of the total price of £20,000 achieved at the auction on March 30 1988.
We do not,
however, accept as submitted by Miss Dobbyn that our tribunal is unable to
determine such an apportionment; to direct that a valuation be carried out by
an independent valuer as proposed by the landlord is not a power given to us
under the 1987 Act and in any event would deprive the tribunal of the very
function, determination of the consideration, which is entrusted to us by
section 13 of the Act.
Further, we
consider that the auction sale of lot 90 was an original disposal which related
to ‘property in addition to the premises to which the Act applied’, ie the
subject premises, and accordingly comes within section 12(3)(a)(ii),
whereby the terms of the disposal may be subject to ‘such modifications as are
necessary or expedient in the circumstances’. The purchase notice requests the
rent assessment committee to determine the consideration in accordance with
sections 12 and 13 of the Act and nothing in the purchase notice, in our view,
prevents us from making such modifications to the consideration as are
necessary or expedient in the circumstances.
Consequently,
in the absence of any assistance from the landlord as to how the bid was
formulated or which leases provided the opportunity for obtaining an insurance
commission, we decided that we must do our best on the evidence presented to us
and in the light of our own knowledge and experience.
Making our
determination on the basis of an apportionment of the original price of
£20,000, we agree with the parties that a distinction must be made between the
999-year leases and those on terms of 90 and 99 years and that the first group
of longer leases are worth considerably less. We carefully considered the value
of the leases with unexpired terms which fall between 66 and 87 years and
considered it reasonable to place them in the same group for analysis.
As regards the
insurance commissions, having regard to the statement in the auction
particulars that insurances were controlled by the freeholder with an insurance
commission of approximately £500 in 1987, and noting in the lease for the
subject premises the tenant is required to insure the premises with an
insurance company of the landlord’s choice, and in the absence of evidence from
the other leases to indicate any different covenants, we consider that the
effect should be regarded as spread evenly over all the properties included in
lot 90.
Accordingly,
our analysis and valuation are as follows:
|
Analysis of disposal price on March 30 1988 |
|||
|
Total ground rents on 999-year leases |
£234 |
|
|
|
YP |
10 |
|
£2,340 |
|
Total ground rents on 90- and 99-year leases |
272.80 |
|
|
|
YP |
64.736 |
|
17,660 |
|
|
|
20,000 |
|
|
Valuation as at March 30 1988 |
|
|
|
|
Ground rents 99 years from 24.6.55 £8.40 pa |
|
|
£16.80 |
|
YP |
|
|
64,736 |
|
|
|
1,088.00 |
|
|
Say |
|
£1,100 |
We accordingly determine that the sum to be paid pursuant to
sections 12 and 13 of the Landlord and Tenant Act 1987 by the nominated person
to the landlord as the consideration for the freehold interest in 1 and 1A
Hayland Close, London NW9, is £1,100.
