[2004] EWLands LRA_44_2002 (16 July 2003)
	LRA/44/2002

	LANDS TRIBUNAL ACT 1949
	
LEASEHOLD ENFRANCHISEMENT – premium payable for grant of new lease of flat – marriage value – market value of existing lease agreed – whether value affected by provisions of Leasehold Reform, Housing and Urban Development Act 1993 – appeal dismissed.

IN THE MATTER OF AN APPEAL FROM A DECISION OF THE LEASEHOLD VALUATION TRIBUNAL FOR THE LONDON RENT ASSESSMENT PANEL

BETWEEN	MARC OLIVER THIERY	Appellant
	and
		
	JOHN LYON’S CHARITY	Respondent

	Re:	Flat 1 
	34/36 Maida Vale
	London W9

	Before: N J Rose FRICS

	Sitting in public at 48/49 Chancery Lane, London, WC2A 1JR
	on 7 July 2003

The following cases, although not referred to in this decision, were cited in argument:

Daejan Properties Ltd v Weeks and Rubin  LRA/24/1997, unreported
Verkan & Co Ltd v Byland (Winchmore Hill) Ltd  [1998] 2 EGLR 139
Sinclair Gardens Investments (Kensington) Ltd v Franks (1998) 76 P & CR 230
Wellcome Trust v Romines  [1999] 3 EGLR 229
Phyllis Trading Ltd v 86 Lordship Road Ltd LRA/16/1999, unreported

B R Maunder Taylor, FRICS, MAE for the appellant with leave of the Tribunal
Kenneth Munro, instructed by Pemberton Greenish, solicitors of London for the respondent

DECISION
1.	This is an appeal by Mr Marc Oliver Thiery (“the appellant”), the underlessee of premises known as Flat 1, 34/36 Maida Vale, London W9, in the freehold ownership of John Lyon’s Charity (“the respondent”), against the decision by the Leasehold Valuation Tribunal for the London Rent Assessment Panel (“the LVT”) determining the premium payable for the grant of a new extended lease of his flat under the provisions of section 48 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”) at £50,695, of which £7,653 is to be paid to the head-lessee and the balance to the freeholder.  The appellant’s case was that the premium should be £40,946, including £6,174 to the intermediate lessee and the respondent contended that the LVT’s decision should be upheld.
2.	The appellant was represented, with leave of the Tribunal, by Mr B R Maunder Taylor, FRICS, MAE, a partner in Messrs Maunder Taylor, practising from 1320 High Road, Whetstone, London N20 9HP.  Mr Kenneth Munro of counsel appeared for the respondent and called Mr J P Hamilton, BSc, MRICS, with Messrs Cluttons at their office in St John’s Wood, London, NW8 6JN.
3.	There is only one issue in this appeal.  That is whether, in assessing marriage value, the open market value of the appellant’s existing lease, which is agreed to be £260,000, should be reduced to reflect the effect of the 1993 Act and, if so, by how much.  The LVT decided that it should be reduced by 7.5%.  Mr Maunder Taylor considers that no reduction should be made.  Mr Hamilton’s view is that the appropriate adjustment is 15%.
4.	The two surveyors produced a statement of agreed facts.  In the light of that statement and the evidence I find the following facts.  34-36 Maida Vale is a pair of semi-detached houses.  It is within the St John’s Wood conservation area and has been converted to form eight flats.  Flat 1 is on the ground floor at the rear of the building.  Access to the flat is down a passageway on the northern side of the building.  This passageway also gives access to one other flat, No.2, at the front of the building.  The accommodation is as follows:
Entrance Hall			
Bedroom 1		2.25m x 3.85m	
Bathroom		
Bedroom 2		3.35m x 4.70m	
En suite bathroom		
Kitchen		1.85m x 4.55m	
Reception		3.72m x 5.10m	

At the rear of the flat is an enclosed garden.  The gross internal floor area is 71.08m2 (765sq ft).  The net internal floor area is 48.24m2 (519 sq ft).  
5.	The subject property is held on a lease for a term of 68 years less 10 days expiring on 18 September 2047.  The rent payable is £125 per annum, rising to £175 with effect from 29 September 2001 and £250 per annum with effect from 29 September 2024.  The agreed valuation date is 25 May 2001, at which time the lease had approximately 46.32 years unexpired.
6.	Mr Maunder Taylor accepted that the right to claim a 90 year lease extension was sometimes of value.  As a result, he had from time to time received instructions to advise prospective purchasers, before they made an offer for a leasehold property, as to what figure they might have to pay for an extended lease, so that they could take that price into account when making an offer.  He had also advised freeholders who wished to consider making an offer to purchase an existing leasehold interest in their building and wanted advice on what premium would be received if the lessee served notice requiring a new lease.  Mr Maunder Taylor gave details of five instances where he had advised freeholders or prospective lessees in this way.  In each case the unexpired term of the existing lease was less than 35 years.  He had no record or recollection of having given such advice in cases where the unexpired term was more than approximately 35 years.
7.	In Mr Maunder Taylor’s opinion, if the 1993 Act had an effect in cases with 46 years unexpired or thereabouts, both he and Mr Hamilton would have had files in their offices, showing advice given to prospective purchasers of such properties, so that they could adjust the offers that they might otherwise have made, but they did not.  Moreover, Mr Maunder Taylor considered that there would be other valuers who would either have researched or come across such evidence in the market and this would be available for an informed assessment of the matter.  He had asked other valuers if they had such evidence.  He found that they had mixed views, but none of the valuers whom he had asked had been able to refer him to such “market evidence” where the lease had 40 or more years unexpired. 
8.	Mr Maunder Taylor referred, by way of illustration, to 15/16 Hyde Park Gardens, London, W2, of which he had been appointed manager in December 1998 and where most of the leases will expire in 2047.  This building contains 10 flats, of which only one has been the subject of a claim for a lease extension.  Mr Maunder Taylor conceded, however, that the lessees of several of the other flats did not qualify for an extension.  He had also considered whether the sales of three flats in the same building as the subject property had been at figures which were influenced by rights to new longer leases in due course.  Flat 3 had been sold in December 2000 and then re-sold a year later after it had been altered and refurbished.  No action had been taken to extend the lease, although it was not clear whether the first vendor met the qualifying residency test.  Flat 4 had been sold in May 2000.  No action had been taken to extend the lease but, again, Mr Maunder Taylor did not know whether the vendor was a qualifying resident.  The sale of flat 6 had taken place in June 1997 on the basis of the existing lease, although this was subsequently extended, based on a valuation date of December 1998.
9.	In relation to these sales, Mr Maunder Taylor said:
“The leases have between 40 and 50 years unexpired, which is not unusual for flats in parts of London similar to Maida Vale, and it is not difficult to find sales evidence for comparable purposes with that number of years unexpired.  Furthermore, the market is not restricted to potential owner-occupiers, there is also steady demand from investors.  It would appear that the first sale of flat 3 was to an investor who spent a year carrying out building works before reselling at a profit.  There is also demand from those who are buying flats in order to let, and who find that they have a better return on capital when buying shorter leases at a discount to full market value.  In my opinion, the market for flats such as these in locations such as these is relatively unaffected by the Act in cases where there are 40-50 years unexpired …”
10.	Mr Maunder Taylor added that, in early 2000, he had negotiated the premium payable for an extended lease of 44A Bilton Towers, Great Cumberland Place, London W1, located on the Portman estate and with some 48 years unexpired.  The landlord had been represented by Mr Hamilton and the effect of the 1993 Act rights on the value of the existing lease had not been raised by either valuer. 
11.	In conclusion, Mr Maunder Taylor said:
“It is my opinion that, in the subject case with about 46 years unexpired on the lease and with an estate landlord known in the market to be active in the LVT and Lands Tribunal, that there is no effect of the Act to be taken into account in assessing the value of that leasehold interest for marriage value calculation purposes.”
12.	Mr Hamilton expressed the view that, since the 1993 Act required the valuer to assume that chapters I and II conferred no rights to an extended lease, there must be a presumption in favour of making an allowance for such rights.  He said that the amount of the adjustment to be made could not be proved, as there could be no evidence of leases of flats with 50 years unexpired being sold that did not have the potential to benefit from the Act.  Nevertheless, he said, the size of the adjustment used by surveyors that should be made could be deduced from four sources and he gave examples of each.  They were as follows.  Firstly, where both side’s valuations had been exchanged and the amount of the adjustment was shown.  Secondly, where the amount used had been agreed and that agreement recorded in, for example, LVT decisions.  Thirdly, by Mr Hamilton’s own valuations of agreed premiums where the property in question had been sold close to the valuation date.  Finally, from LVT decisions where the tribunal had determined the amount of the adjustment.
13.	Mr Hamilton said that many lessees had taken advantage of the 1993 Act to claim lease extensions or to buy the freehold.  The right to do so, and to do so at a time that suited the lessee, was of value, as also was the fact that if terms could not be agreed by negotiation, the claimant could apply to the LVT.  None of these benefits was available in the “no Act world”.  It was difficult to put a value on such benefits.  A more tangible benefit was the share of marriage value that went to the claimant on any lease extension or purchase of the freehold.  As a result of the 1993 Act, tenants selling the leases of their flats had been selling their share (generally 50%) of marriage value as well.
14.	Mr Hamilton considered, in the light of all the evidence, that the appropriate adjustment for 1993 Act rights attaching to the subject property was 15%.  His valuation on that basis produced a premium of £60,446, but his clients had accepted the LVT’s determination and had therefore not submitted a cross appeal.
15.	In this case the two experts disagree as to whether it is possible to obtain market evidence to demonstrate how, if at all, the 1993 Act rights affect the prices paid for leases of residential properties to which the Act applies.  Mr Hamilton considers that all deals in the market are affected by the Act, and so untainted market evidence simply cannot be produced.  Mr Maunder Taylor’s view is that, if there is a value to such rights 
“some evidence from the market, some signs of its existence, must be there for the expert to research, find and quantify.”
16.	In my judgment, there is some justification for both viewpoints.  I agree with Mr Hamilton that any premiums paid for flats in this part of London in or close to the valuation date in 2001 will have been agreed in the “1993 Act world” and cannot therefore be considered to be entirely untainted by the Act.  On the other hand, I think Mr Maunder Taylor is right to suggest that, if little or no interest has been shown in exercising their 1993 Act rights by the owners or prospective purchasers of a lease with a particular unexpired term, that is a strong indication that such rights are of little or no value.
17.	Mr Maunder Taylor said that his experience, and indeed that of Cluttons, demonstrated that people purchasing leases with more than 35 years unexpired were not prepared to pay a higher price because of the rights.  In support of this view he referred to five cases where he had been asked to provide valuation advice to people considering entering into transactions on properties affected by leasehold enfranchisement legislation.  Since none of those cases related to a lease with more than 35 years unexpired, he concluded that the Act had no valuation implications in such cases. 
18.	In considering the weight to be given to that evidence, it is in my view necessary to bear in mind that the present appeal concerns a converted two bedroom flat in Maida Vale.  None of the cases to which Mr Maunder Taylor has referred relates to a comparable property.  One was a shop with two flats above in Priory Road, London N8; the second was a semi-detached house in Golders Green, London NW1; the third was a semi-detached house in East Acton, London W3; the fourth consisted of two shops, each with a self-contained flat above in Carshalton, Surrey and the fifth comprised two substantial buildings in Mayfair, used partly as flats and partly as hotels.  In my judgment, this evidence proves nothing more than that some people seek professional advice before deciding how much to pay for property affected by enfranchisement legislation.  It does not begin to assist in determining whether a prospective purchaser of a lease of the subject property would have attributed a value to the 1993 Act rights attaching to it.
19.	Mr Maunder Taylor also suggested that it was relevant that Mr Hamilton had not pointed to any cases where his firm had been asked to advise prospective purchasers of leases with more than 35 years unexpired.  Mr Hamilton, however, said that he had been approached from time to time by existing lessees, asking what they might have to pay for the freehold or an extended lease, but since his firm acted for landlords of large estates in the area he was unable to give any advice of that nature.  Occasionally, if a lease extension had been granted in the same building, he might be able to disclose the premium paid, but otherwise he always recommended that the tenant should seek independent advice.  I accept that evidence and attribute no significance to Mr Hamilton’s failure to adduce evidence of the type to which Mr Maunder Taylor referred. 
20.	In Mr Maunder Taylor’s expert report he said:
“At 34/36 Maida Vale there are eight flats, understood to have been originally leased for similar terms, only Flat 6 has extended its lease with Flat 1 (the subject flat) seeking to do so.  In my opinion, if it is right that flats with about 46 years unexpired attract a premium value because of the effect of the Act, then I would have expected to see more than two out of eight lessees having taken action to extend their leases.  After all, as time goes by in an inflationary environment the premium payable for a new lease becomes progressively greater.  It is my opinion that the facts as known with regard to these eight flats indicate the reverse: that many existing owners and purchasers are satisfied with the leasehold interest which they own/are buying, from which it is reasonable to assume that they would not pay a premium for rights which they show no present inclination to claim.”
21.	Mr Hamilton pointed out, in an addendum to his proof of evidence which was served in advance of the hearing, that between March 1998 and June 2002 notices seeking a lease extension had in fact been served in respect of four of the flats at 34/36 Maida Vale and a fifth application – to extend the lease of flat 4 – had been made but was eventually deemed to have been withdrawn.  Rather surprisingly, Mr Maunder Taylor did not consider it necessary to revise his opinion once it had become clear that one of the significant factual assumptions upon which it had been based was erroneous.  In my judgment, it is impossible to conclude, from the history of applications in the same building as the subject property, that the 1993 Act rights are of no value. 
22.	I now turn to the quantification of those rights.  Mr Maunder Taylor said that, if I found that an adjustment should be made, I should go no further than the evidence provided by 25-31 Hyde Park Gardens and 23-35 Stanhope Terrace, London W2.  The price payable for the collective enfranchisement of these blocks of 82 flats was determined by the LVT.  The valuation date was 3 April 2002, at which time the leases had between 45 and 46 years unexpired.  Evidence for the landlord was given by Mr A Ford MRICS of Cluttons and Mr Maunder Taylor gave evidence for the tenants.  Mr Ford made an adjustment of 10% for the effect of the 1993 Act and Mr Maunder Taylor made none.  The LVT decided to make a deduction of 5%.  The LVT decision is the subject of an appeal to this Tribunal.  In that connection, agreement has been reached that the existing leasehold interests have a value equal to 77% of the virtual freehold value.  That agreement reflected all adjustments and no further part of the statement of agreed facts and issues dealt with an adjustment for the effect of the 1993 Act.  In the present appeal, where the unexpired term of the lease is very similar, it has been agreed that the value of the existing lease with 1993 Act rights is 80% of the extended lease value.  If the same overall relationship agreed with Mr Ford were applied to the subject property, this would produce a value for the rights equivalent to 3% of the value of the extended lease.
23.	Mr Hamilton referred to the negotiations for the extension of the lease of flat 6, 34/36 Maida Vale, which had been sold in June 1997 with the benefit of the Act rights for £230,000.  In that case the valuation date was December 1998.  At that date, both valuers agreed that the value of the existing lease excluding 1993 Act rights was £195,000.  This showed an allowance of approximately 15% for a lease of 483/4 years unexpired.  Mr Hamilton also referred to the LVT decision on 54 Springfield Road, London NW8, a house held under a lease with approximately 56 years unexpired on 24 August 1999, the valuation date.  Both valuers agreed that the leasehold value should be adjusted by 15% for the Act rights and this adjustment was accepted by the Tribunal. 
24.	Mr Hamilton’s valuation of Flat E, 127 Hamilton Terrace, NW8 as at 31 August 2000 included an allowance of 15% for 1993 Act rights where the unexpired term was about 46 years.  Shortly after the notice claiming an extended lease was served, the flat was sold for £247,500.  In his valuation of the premium which he agreed with the tenant’s surveyor, Mr Hamilton adopted an existing lease value of £210,000, which was 84.85% of the sale price.
25.	Mr Hamilton’s valuation of Flat 2, 149 Hamilton Terrace, NW8 as at 1 June 2000 included an allowance of 15% for 1993 Act rights where the unexpired term was approximately 31 years.  The lease of the flat was sold for £395,000 at about the same time as notice was served claiming a lease extension. In negotiating the premium payable for the extension, Mr Hamilton agreed with the tenant’s surveyor that the existing lease value was £335,000, or 84.81% of the sale price with the benefit of the Act rights, although the claim was subsequently withdrawn because the claimant failed to sign the new lease.
26.	Reference was also made by Mr Hamilton and Mr Munro to the following LVT decisions:
Property	Unexpired terms at valuation date	Discount	
12 Sherwood Court, Seymour Place, W1	
	25.48		
	10.53%	
Harrowby Court,
Harrowby Street, W1	
	24	
	10%	
3/31 Lennox Gardens, SW1		14.33		20%	
4 Cheyne Gardens, SW3		48.27		<10%	
2/6 Bryanston Square. W1		15.25		10%	
1/1A Bryanston Square, W1		16+		15%	
63/65 Hamilton Terrace, NW8		49.55		10%	
57 Shawfield Street, SW3		32.25		15%	
10 Dorchester Court					
78/81 Sloane Street, SW1		29.6		10%	
44/46 Lower Sloane St, SW1		42.25		12.5%	
149 Hamilton Terrace, NW8		28.75		5%	

27.	As I have indicated, all assignments of leases of flats which have taken place in central London in recent years have been influenced by the 1993 Act.  As a result, valuers have inevitably had to do their best to quantify the effects of the Act without being able to rely on unimpeachable comparable evidence.  It is not surprising, therefore, that no entirely consistent pattern emerges from a consideration of the various forms of comparable evidence that are available. In my judgment, however, most of the evidence that has been produced in this appeal (including, and of particular significance, that relating to flat 6, 34-36 Maida Vale) suggests that the 7.5% deduction determined by the LVT was not excessive.  The onus is on the appellant to show that the LVT’s decision was wrong and he has not discharged that onus.  The appeal fails.  I determine that the premium payable by the appellant shall be £50,695, of which the payment to the freeholder is £43,042 and the payment to the head lessee is £7,653.
28.	A letter on costs accompanies this decision, which will take effect when, but not until, the question of costs is decided.
					Dated:  16 July 2003

					N J Rose

ADDENDUM
29.	It has been agreed that the respondent’s costs of the appeal shall be paid by the appellant, such costs if not agreed to be assessed on the standard basis by the registrar of the Lands Tribunal and I so order.
					Dated: 4 August 2003

					N J Rose