Leasehold Reform, Housing and Urban Development Act 1993 — Extension of lease — Determination of price — Marriage value — Whether covenant by landlord to give notice of forfeiture should be inserted in new lease
The applicants
are the owners of a lease of a ground-floor flat with 79 years unexpired and
applied for the grant of a new lease at a peppercorn rent for a term expiring
90 years after the term date of the existing term. Their address for service of
proceedings being unknown, the landlords did not appear and were not
represented at the hearing of the tenants’ application for the determination of
the price payable for the extended term. On behalf of the tenants, a letter was
produced from a valuer setting out a valuation and showing the value of the
ground rent of £25 pa as £175; the marriage value of £2,000 being the
difference between the current open market value of the existing lease of £49,000
and the value of the lease as extended at a peppercorn rent of £51,000; that
the landlords’ share of the marriage should be 50%; and that no compensation
was due for development value. The tenants sought an additional covenant in the
new lease requiring the landlords to give notice to mortgagees before any
forfeiture proceedings. A prospective purchaser had offered to acquire the new
leasehold interest for £52,000.
unpaid rent since 1987 of £175. This included £175 for the value of the ground
rent of 7 YP; and 50% of the marriage value of £2,825. The marriage value was
the difference between the open market offer of £52,000 and the sum of the
value of the existing reversion of £175 and the value of £19,000 given by the
tenants’ valuer. The additional covenant sought was not necessary and not
ordered to be inserted.
No cases were
referred to in this report.
Jennifer
Israel, solicitor of Jennifer Israel & Co, appeared for the tenants; the landlords
did not appear and were not represented.
Giving the
decision of the tribunal, LADY FOX said: This is an application made
pursuant to section 50 of the Leasehold Reform, Housing and Urban Development
Act 1993 (the Act), by William Charles Waitt and Jean Susan Burkin, the tenants
for the determination of the premium and other sums payable to the respondents,
the landlords Malcolm Lloyd Morris and Susan Melancy Morris, and terms of the
lease on the grant of an extension of the lease of the ground-floor flat known
as 64a Parkhurst Road, Friern Barnet (hereafter the subject premises), in the
London Borough of Barnet. The subject premises are held by the tenants on a
lease from the respondent landlords dated March 27 1975 for 99 years commencing
on December 25 1974 at a ground rent of £25 pa. The unexpired term at the date
of the tenants’ application was 79 years.
On March 21
1994 Jennifer Israel & Co, solicitors acting for the tenants, sent by
recorded delivery notices under section 41(3) and section 42 of the Act to the
respondent landlords at their last known address, 27 The Moors, Welwyn Garden
City, Hertfordshire, notifying them of the tenants’ claim to exercise their
right to an extended lease under the Act. On the return of the notices by the
Royal Mail with a letter dated March 22 1994 stating that the landlords were
not known at the address, Jennifer Israel & Co applied to Barnet County
Court pursuant to section 50(2) of the Act for an order to dispense with
service of the section 42 notice on the landlords. By order dated April 22
1992, amended July 7 1994, the district judge of Barnet County Court ordered
service of the section 42 notice to be dispensed with.
At the hearing
on June 22 Mrs Jennifer Israel of Jennifer Israel & Co, solicitors, appeared
on behalf of the tenants, who were also present. She stated that the tenants
qualified as entitled to exercise the claim to an extended lease under section
39 of the Act, being tenants holding under a long lease exceeding 21 years at a
ground rent not exceeding two-thirds of the rateable value, which at the
relevant date was £207. The tenants had occupied the subject premises as their
principal residence and home since July 1987 and hence satisfied the residence
requirement in section 39(2)(b). Pursuant to section 56(1), the tenants sought
the grant of a new lease of the subject premises at a peppercorn rent for a
term expiring 90 years after the term date of the expiring lease, namely 169
years from July 1994.
Mrs Jennifer
Israel, on behalf of the tenants, produced a letter dated March 4 1994 by Mr
Alan J W Smith BSc FRICS of Messrs Lowe of East Barnet, in which after
describing the location, accommodation and state of repair of the one-bedroomed
ground-floor flat with parking space and garden area at the subject premises he
stated his valuation, summarised as follows:
Calculation
of the premium payable to the landlords of Mr A J W Smith BSc FRICS
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1. Decrease in value of |
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Current open market value of |
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£175 |
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2. Landlord’s share of |
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Current open market value of |
£49,000 |
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Current open market value of |
£51,000 |
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Marriage value |
£2,000 |
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Landlord’s share of marriage |
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£1,000 |
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3. Compensation due for |
Nil |
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Total premium to the |
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£1,175 |
In support of Mr Smith’s valuation Mrs Israel relied on transactions
relating to the subject premises. The flat had been offered for sale with the
existing lease of 79 years in January 1994 at an asking price of £52,950 and an
offer of £51,000 had been obtained in February, which fell through in March.
The tenants had then decided to apply for an extension of the lease and the
property had been placed on the market with the extended lease of 169 years in
April 1994 and a sale had been agreed subject to contract at a price of £52,000.
If the lease was not obtained the purchaser had agreed to pay £2,000 less. She
also referred to an asking price for the first-floor flat at 4 Parkhurst Road
of £50,000.
In answer to
questions by the tribunal, Mrs Israel accepted that the agreed price of £52,000
represented the best evidence of market value of the leasehold interest with
the extended lease. She thought Mr Smith on his valuation might have been
influenced by the earlier offer of £51,000 and while she agreed that his
calculation of the marriage value ought properly to have taken into account the
value of the reversion under the existing lease, she considered Mr Smith had
adopted a ‘broad brush’ approach. In answer to a question from the tribunal, Mr
Waitt said that carpets and curtains were included in the sale price, but were
not worth more than £500. As regards any sum payable by way of compensation to
the landlords, Mrs Israel agreed that there would be two leases with different
length of terms, but stated that this change had negligible effect in view of
the length of both terms.
Mrs Israel
submitted that no further sums in addition to the premium payable of £1,175
were to be included in the sum payable into court pursuant to section 51(5)
prior to the making of a vesting order of the new lease by the county court in
the tenants’ favour. In answer to questions she stated that no ground rent had
been paid by the tenants during the seven years in which they had been in
occupation, but she submitted that by operation of sections 47 and 48 of the
Landlord and Tenant Act 1987 these sums for rent were not due until the
landlords had served the required notices. She also stated that there was no
outstanding contribution for repairs; the tenants were under obligation under
the existing lease to pay half the cost of repairs to the structure and roof of
the subject house as listed in Schedule 4, but there was no requirement to pay
any contribution to the landlords. In practice the tenants of the two flats
shared the expenses of any repairs. Finally, Mrs Israel requested the tribunal
to include pursuant to section 57(6) a covenant in the new lease on the part of
the landlords not to take forfeiture proceedings against the tenants without
first notifying the tenants’ mortgagees, if any, of their intention to
institute proceedings and giving the mortgagees 21 days to remedy the breach
giving rise to such proceedings. She submitted that, though such a covenant was
absent from the existing lease, it was the current practice of building
societies and banks to require such a covenant and a reasonable landlord would
be prepared to include it in the lease.
At the hearing
on June 22 the landlords did not appear nor were represented. Notice was sent
by the tribunal to the landlords at their last known address of the proceedings
by letter dated June 23 1994 by recorded delivery. On June 27 1994 the letter
was returned with the information that the addressee was unknown at that
address.
Inspection
The tribunal
inspected the subject premises on the afternoon of the hearing. Parkhurst Road
is a residential road of properties built about the turn of the century. No 64a
is a self-contained ground-floor flat in a detached brick and slate two-storey
house, which was converted into two flats and modernised about 1974. Each flat
has an off-street hard standing for a car at the front, and use of half the
rear garden. Internally the accommodation comprises two rooms, kitchen and
combined bathroom and wc. The two living rooms and hallway have electric
storage heaters. There is a wall tie restraining the side walls, but generally
the property is in good condition throughout having been well maintained by the
tenants.
Decision
and reasons
This is the
first application to a London leasehold valuation tribunal for the surrender of
the existing lease of a flat and grant of a new lease under the Leasehold
Reform, Housing and Urban Development Act 1993 and we approach our task with
some trepidation. The tenants’ solicitors have obtained leave pursuant to
section 50(2) from Barnet County Court to dispense with service on the
landlords of the notice pursuant to section 42 of the Act in which the tenants
claim their right to acquire a new lease of the subject premises. Mrs Israel,
on behalf of the tenants, now asks us to determine the sums to be paid into
court and terms of the new lease. The procedure will then be for the grant of a
vesting order by the county court of the new lease to the tenants on payment
into court of the determined sums. In making our determination we have had the
assistance of Mrs Israel, representing the tenants, but have received no
representations from the landlords.
Our
jurisdiction is set out in general terms in section 91 and in relation to a
vesting order in section 51. The terms of section 50(3) require the county
court before making an order dispensing with service of the section 42 notice
to be satisfied that at the date of the application the tenants had the right
to acquire a new lease to the flat and that at that date they were not
precluded by any provision in Chapter I of the Act from giving a valid section
42 notice. Accordingly, our tribunal is able to rely on the making of the
county court order as establishing the tenants’ entitlement to a new lease
under the Act. Under section 51(5) the appropriate sum to be paid into court
comprises the premium and any other sums determined by the leasehold valuation
tribunal payable under Schedule 13 in respect of the grant of a new lease, and
any amounts also determined by us, as due to the landlords under the lease.
According to
Schedule 13, para 2 to the Act, the premium is made up of three elements: the
diminution in value of the landlords’ interest, the landlords’ share of the
marriage value and any amount of compensation payable to the landlords by
reason of any loss or damage suffered as a result of the grant of a new lease.
1. Diminution in value of
landlords’ reversion
The tenants’
valuer, Mr A J W Smith, gave a figure of £175 as the value of the present
reversion. This sum represents seven years’ purchase of the ground rent of £25
pa and we accept it as a proper figure for the first component in arriving at
the premium payable, taking into account that the value of a reversion of a
lease for 169 years, held on a peppercorn, is nominal.
2. Landlords’ share of the
marriage value
To arrive at a
figure for the landlords’ share of the marriage value, Schedule 13, para 4,
requires us to determine values for the interests of the tenants and landlords
in the subject premises both before and after the grant of the new lease and to
divide any difference of the two aggregated values between the parties.
We have market
evidence relating to the value of the leasehold interest after the grant of the
new lease, represented by the figure of £52,000 agreed by a purchaser with the tenants
on April 5 this year. Although curtains and carpets are described in the
particulars as being included in the sale, Mr Waitt at the hearing, having
clearly not considered their value previously, gave a figure of £500. On
inspection we concluded that the value of the curtains and carpets would not
materially have affected the price agreed and we make no deduction in respect
of them.
The tenants’
valuer gave a figure of £49,000 for the leasehold interest under the existing
lease by reference to an offer of £51,000 made for the subject flat in February
1994. We adopted the valuer’s figure of £49,000, the difference between the two
values thus being £3,000. As already determined, the value of the landlords’
interest before the grant is £175 compared nil after the grant of the lease. We
note with this item was omitted by the tenants’ valuer, an omission explained
by Mrs Israel as covered by his broad-brush approach. The total figure for the
marriage value is accordingly £2,825. We had no evidence before us of any open
market properties which might have
in accordance with Schedule 13, para 4(1)(b).
3. Compensation payable to
landlords
We accept Mrs
Israel’s contention that the landlords’ holding of two leases of different
lengths in the house as a result of the extension makes no material difference
to the landlords’ interest, and that no figure for compensation is required.
We now turn to
the other sums determinable under section 51(5). There are no intermediate
leases in the subject premises to be taken into account. On the tenants’ own
admission no ground rent has been paid since they took on the flat in July
1987. We are not satisfied that the conditions referred to by Mrs Israel in
sections 47 and 48 of the Landlord and Tenant Act 1987 have been complied with.
Mindful that the landlords are not represented, we conclude that the unpaid
ground rent for seven years is an amount due to the landlords and we determine
the sum of £175 as payable into court under this head. As regards any sum due
by way of repairs we accept Mrs Israel’s construction of the terms of the
lease. As the two tenants in practice each contribute directly to meet the cost
of any repairs we find no sum payable in respect of any obligations relating to
repairs.
Finally, we
consider the request of the tenants’ representative for a modification of the
terms of the existing lease to be inserted as a term in the new lease. The
effect of such a term is to introduce a positive covenant on the landlords’
part to give any mortgagee of the tenant 21 days’ notice of any forfeiture
proceedings for violation of the covenants of the lease. While we appreciate
that the inclusion of such a term may conform with the practice of lender
building societies and banks, we once again, in the absence of the landlords,
have some hesitation in introducing any modification in the lease. We
understand that the present tenants have in the past had the understand that
the present tenants have in the past had the benefit of a mortgage even though
the existing lease does not contain such a term. Further, although Mrs Israel
asked us to modify the terms of the existing lease, we are not satisfied in the
present circumstances that the introduction of the proposed term falls within
either of the conditions set out in that section; it may be ‘convenient’ but it
is not ‘necessary’ to remedy a defect in the existing lease (section 57(6)(a)),
nor is it obvious what ‘changes occurring since the date of commencement of the
existing lease’ make the continued inclusion of the term in its unmodified form
unreasonable. We accordingly make no order as to the term requested.
In the light
of the above factors our determination of the sums payable into court under
section 51(5) are as follows:
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(a) Premium payable under Schedule 13 para |
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£ |
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Para 3(1)(a) value of the |
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Ground rent £25 pa at 7 |
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175 |
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purchase para 3(1)(b) value |
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— |
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175 |
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Para 2(b) Landlords’ |
£ |
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£ |
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Para 4(2)(b)(1) the value of |
52,000 |
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(ii) The value of the |
— |
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52,000 |
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Less |
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Para 4 (2)(a)(1) the value |
49,000 |
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(ii) The value of the |
175 |
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49,175 |
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Marriage value |
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2,825 |
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landlords’ share 50% |
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1,412.50 |
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1,412.50 |
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Para 2(c) Compensation |
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Nil |
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1,587.50 |
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Premium |
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Say |
£1,600 |
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(b) Other amount payable |
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Nil |
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(c) Amount due to the |
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Unpaid ground rent from July |
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7 years at £25 pa |
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175 |
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Total sum payable |
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£1,775 |
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Accordingly, we determine the total sums payable
into court in the name of the landlords pursuant to sections 50 and 51(5) of
the Leasehold Reform, Housing and Urban Development Act 1993 by the tenants as
£1,775 (one thousand seven hundred and seventy five pounds).
