Wilkins v Castle New Tower Holdings Ltd ; West Midland Rent Assessment Panel (WM 220)

Freehold price of Sutton Coldfield detached house with 17 1/3 years of lease unexpired — Tenant contends for £550 or £600, according to valuation method adopted, landlord for £1,140 — Three issues in contention: (1) relevance of adverse differential; (2) whether reversion to be valued separately or ground rent to be valued in perpetuity; (3) relevance and value of insurance commission Adverse differential concept held not relevant to decision, but tribunal say they would have rejected it on the evidence — Tenant’s valuer’s argument of ‘common usage’ not considered sufficiently persuasive — Tribunal accept valuation of ground rent in perpetuity as appropriate for present length of lease and adopt 15 YP to give valuation of £600 — Tenant’s valuer ‘consistently argued’ that no additional value should be attributed to insurance commission, as such concept had never been introduced in his considerable experience in sale of freeholds to qualifying leaseholders and it was, in any event, tenuous — Landlord’s valuer referred to Lands Tribunal’s decision in Re Castlebeg Investments (Jersey) Ltd’s Appeal — Tribunal observe that there were no respondents to landlord’s appeal in Re Castlebeg and that Lands Tribunal member had warned that the decision was reached on the evidence adduced — Evidence provided by landlord’s valuer of letters and articles indicating that commissions and agencies are available to individuals — Held, despite limited evidence in Re Castlebeg, Lands Tribunal’s warning and rejection of claim in Horsham v Cefn Estates (an LVT decision) that benefit of value of insurance commission a proper matter to be taken into account in present case — Landlord’s figure of £18.90 for annual commission not contested, but tenant’s valuer’s multiplier of 6.5 preferred to landlord’s valuer’s 25, producing value of £123 and total price of £723 The following cases are referred to in this report. Castlebeg Investments (Jersey) Ltd’s Appeal, Re [1985] 2 EGLR 209; (1985) 275 EG 469, LT Horsham v CEFN Estates (1983) 267 EG 527, [1983] 2 EGLR 198 (LVT) Lynch v Castlebeg Investments (Jersey) Ltd [1988] 1 EGLR 223; [1988] 03 EG 101, (LVT) Wilkes v Larkcroft Properties Ltd (1983) 46 P&CR 157; [1983] EGD 723; 268 EG 903, [1983] 2 EGLR 94; 12 HLR 11 CA A E Green FRICS, of Chesterton, of Birmingham, appeared for the tenant; W K R Ricketts FRICS, of the William Ricketts Partnership, of Cardiff, for the landlords. Giving their decision, THE TRIBUNAL said: This is a decision on an application by the tenant for a determination under section 9 of the Leasehold Reform Act 1967, as amended, of the price payable for the freehold interest in a dwelling-house and premises at 61 Alcester Drive, Parklands, Sutton Coldfield, West Midlands. The tenant holds the subject property under a lease for a term of 99 years from March 25 1966 at a ground rent of £40 per annum. The tenant’s notice of claim to purchase the freehold is dated November 26 1987. The unexpired term of the lease at that date was, therefore, about 77 1/3 years. We and the parties accept that the qualifying conditions for entitlement to enfranchise under the Act have been met. The subject property comprises a two-storey detached house built in the mid-1960s of traditional brick and tile construction with hall, wc off, lounge, kitchen, laundry, four bedrooms, bathroom with wc. Windows are double-glazed and central heating is a warm-air system from a gas-fired boiler. The attached brick garage has a sun lounge at the rear of it. There are gardens to the front and rear and the site area is about 450 sq yds. At the hearing both parties’ representatives presented helpful written proofs of evidence incorporating their valuations. Mr Green’s valuation is £550 or £600, depending upon the method adopted; Mr Ricketts’ valuation is £1,140. Their valuations are set out below: Mr Green’s valuation Adopting the standing house approach: Present ground rent £40.00 pa YP for 77 years @ 8% 12.47 £499 Reversion to section 15 rent Entirety value of property £60,000 Site value at 30% 18,000 Modern ground rent at 7% £1,260 pa YP in perp def 77 yrs at 8% 0.033 42 £541 (NB At the hearing the parties agreed the ‘term for valuation’ at 76 3/4 years.) Adopting a YP in perpetuity: Ground rent £40.00pa x 15 YP = £600.00 Mr Ricketts’ valuation Term Ground Rent £40.00 pa YP for 76 3/4 yrs @ 7% 14.206325 £568 Reversion Value of property £60,000 Site value factor @ 30% 0.03 Site value £18,000 Yield @ 7% 0.07 Modern ground rent £1,260 pa YP of revision of perp def 76 3/4 yrs @ 7% 0.079415 100 Capitalised value of right to receive insurance commission Rebuilding cost £70,000 Insurance cost per £1,000 0.0018 Annual premium £126 Commission rate @ 15% 0.15 Commission £18.90 YP for capitalisation @ 4% 25.00 £472.50 £1,140.50 Say £1,140 220 Dispute on evidence: During Mr Green’s presentation of his proof of evidence Mr Ricketts asked the tribunal to regard part of it as inadmissible evidence as it referred to compromise negotiations. On inquiry by the tribunal to Mr Green, he accepts that the negotiations referred to were part of a bona fide negotiation for a settlement. We therefore hold that these matters must be regarded as privileged and, therefore, inadmissible. We therefore advised the parties’ representatives that we would shut this evidence out of our minds. Agreed facts: From the evidence given the parties agree: the value of the freehold interest in the subject property, at the relevant date, ie November 26 1987, was £60,000; 30% is the appropriate factor to apply to the vacant possession value to derive the site value; the unexpired term for the purposes of the valuation is 76 3/4 years (the parties accept that Parry’s Valuation Tables assume that a rent is collected at the end of a year whereas in this case it is receivable half-yearly: accordingly a deduction of six months is made in the unexpired period of years). The LVT decision in Horsham v Cefn Estates Ltd (1983) 267 EG 527, [1983] 2 EGLR 198 confirms this approach. Summary of issues in dispute: From the detailed evidence given, the issues in dispute can be summarised as: (1) the relevance of the adverse differential, ie differing rates per cent adopted by Mr Green in deriving a modern ground rent and the capitalisation rate per cent; (2) whether or not the reversion should be valued separately with a 76 3/4-year deferment or whether the ground rent should be valued in perpetuity; (3) whether or not values should be attributed to the landlord’s right to effect building insurance through the agency of the lessors or their agents and, if so, the value of the right. Evidence and decisions thereon: As to (1) — the adverse differential. We have no reason to determine this aspect of the dispute, as it is not relevant to our valuation from which we derive the price to be paid. However, for the information and guidance of the parties: if the concept of the adverse differential had been relevant to our determination we would have rejected the concept because the evidence in the case before us does not persuade us to adopt an adverse differential. The evidence of Mr Green is based upon ‘common usage’ and we do not consider this sufficiently persuasive. Our authority for this guidance is contained in the Court of Appeal case of Wilkes v Larkcroft Properties Ltd (1983) 268 EG 903, [1983] 2 EGLR 94. As to (2) — whether or not the reversion should be valued separately. As set out above, Mr Green provides two valuations: one including a valuation of the reversion at £42 and the other valuing the ground rent in perpetuity. Initially, at the hearing, his preference was the former, ie the aggregate of the value of the term plus the reversion. However, when reminded by the tribunal of several previous determinations adopting a valuation of the ground rent in perpetuity with leases of this length Mr Green stressed that in such a case his valuation is 15 YP applied to the ground rent. Mr Ricketts rejected a valuation of the ground rent in perpetuity as inappropriate and stressed the relevance of his valuation of the term plus the reversion. We have carefully considered the evidence of the parties on this aspect of the dispute, previous determinations referred to by the parties and our knowledge of previous determinations and decide that, in this case, ie an unexpired term of 76 3/4 years (for valuation purposes), a valuation of the term in perpetuity is more appropriate. We are aware of differing years’ purchases adopted in such valuations and, adopting the evidence of Mr Green, we find 15 YP is appropriate in this case. Our valuation of the freehold interest is therefore: ground rent £40 pa x 15 YP = £600. As to (3) — the relevance of insurance commission and its value. Mr Green consistently argued that no additional value should be attributed to this aspect, as such a concept had never been introduced in his considerable experience in the sale of freeholds to qualifying leaseholders and in any event it is tenuous. When pressed for his opinion on its value, if recognised by the tribunal in principle, he adopts 6 1/2 YP, being the YP applied in the case of Lynch v Castlebeg Investments (Jersey) Ltd [1988] 03 EG 101, an LVT decision in June 1987, which was introduced by Mr Ricketts in evidence. Mr Ricketts refers us to Re Castlebeg Investments (Jersey) Ltd’s Appeal (1985) 275 EG 469, a Lands Tribunal decision in 1985, which recognised that it must be correct to take account of any advantage which a lease may have to a freeholder including commission on a fire insurance premium. However, in that case there were no respondents to the landlord company’s appeal from the leasehold valuation tribunal and the member added a word of warning that the decision was reached, as indeed all decisions of the Lands Tribunal are reached, on the evidence adduced. In further support of his contention, Mr Ricketts referred to the Lynch case, where it was said that where there is sufficient evidence that a purchaser of a freehold reversion could obtain a commission in respect of the insurance premium this is a proper matter to be taken into account. Mr Ricketts provides us with evidence of letters and articles indicating that commissions and agencies are available to individuals. Despite the particular limited evidence in the Castlebeg Lands Tribunal case (1985), the warning contained in this decision and the rejection of the claim in the Horsham case, ante (1983), we accept Mr Ricketts’ evidence and decide the benefit of the value of insurance commission is a proper matter to be taken into account in this case. As to the amount, Mr Ricketts contends for a multiplier of 25 on the calculated commission rate of 15% on the insurance premium; Mr Green contends for a multiplier of 6.5. On the evidence presented we prefer Mr Green’s multiplier as being more likely to reflect the value. The commission calculated by Mr Ricketts, ie £18.90 pa, is not contested by Mr Green; accordingly we adopt the annual commission, upon which a multiplier of 6.5 is to be applied = £122.85, say £123. We should point out that we have considered going outside the limits contended for by the parties in relation to matters (2) and (3) (as identified in dispute) aforementioned, but both Mr Green and Mr Ricketts are experienced experts in valuation for enfranchisement. We have, therefore, dismissed the idea. Summary of decisions: We decide: (1) The concept of the adverse differential is irrelevant in the case. Had it been relevant we would have rejected it. (2) The value of the reversion (77 1/3 years) is so distant as not to require separate quantification; accordingly we adopt a years’ purchase in perpetuity applied to the ground rent. (3) On the evidence we accept there is value attributable to insurance commission, and a multiplier of 6.5 (derived from the evidence adduced) applied to the uncontested annual commission is appropriate. Accordingly our valuation is: Ground rent £40.00 pa x 15 YP £600 Value of insurance commission 123 £723 Conclusion: We determine that with the benefit of the evidence adduced, our evaluation of it and our inspection of the property, the sum to be paid by the tenant for the acquisition of the freehold interest in 61 Alcester Drive, Parklands, Sutton Coldfield, West Midlands, pursuant to section 9 of the Leasehold Reform Act 1967, as amended, is £723.