Lease Extension and Enfranchisement in Brighton - Leasehold Valuation Decision 2005

Regarding a recent Lease Extension in Brighton:

On the 5th April 2005 the initial lease enfranchisement notice was served and a counter-notice was  served dated 10th June 2005 accepting the leaseholder’s right to enfranchise but  disputing the price and seeking an indemnity in the Transfer to observe and perform the landlord's obligations under the leases.

It was clear that the only disputed matters are what is known as the 'hope value' for the one non-participating flat having the shorter lease with just over 60 years unexpired, and the capitalised value of any rent obtained for some  9 storage cupboards.

In essence the dispute between the expert witnesses amounted to this. The leaseholders adopted the approach that the only thing the landlord can expect from
the one relevant non participating tenant is the hope of lease extension and the
generally accepted way of valuing this is to say that it should be 15% of marriage value. The Landlord took the view that in view of the number of  tenants who had already extended their leases, the 'hope' of the remaining lease being extended is almost guaranteed and he considered  that the appropriate figure should be 50% of marriage value.

When starting his evidence, the Landlord produced a copy of a list of people allegedly giving a license fee for the storage cupboards making a total of £3, 600 per annum. He also produced what purported to be a copy of a blank demand for payment. He said that according to his information there was a waiting list for these storage cupboards and, accordingly, if someone gave up occupancy, there would be someone else to step into his/her shoes.

The Leasehold Valuation Tribunal only has jurisdiction to resolve matters which are in dispute. The Leasehold Valuation Tribunal had 2 issues to resolve i.e. the 'hope'
value of the non participating tenant with a short lease and the capitalised value of any income received from the storage cupboards.

As far as hope value is concerned, this is something which is not actually provided for in the 1993 Act. The landlord said  in his report that it is part of marriage value. Having said that, he conceded, in evidence, that this was wrong. It is not.

However, it is clear that over the years professionals involved in enfranchisement have come to accept that there must be some value to a freeholder in the potential of tenants with short leases coming forward asking for a lease extension. This is despite the obvious fact that in a 'no Act world' a tenant would not automatically be entitled to a lease extension. In the present case the majority of tenants had applied for extensions and had been given 999 years.

In the then recent (15th September 2005) Lands Tribunal series of appeals heard
together including Arbib v. Earl Cadogan, it was said that:- "Decisions of LVT's and this Tribunal on questions of fact and opinion should not be treated as evidence of value in later cases. Such decisions do not establish any conventions or precedents. A decision of this Tribunal setting out general guidance on valuation principles or procedure, however, may be applied or referred to in subsequent cases"

This was put to both experts for their comments. The Leaseholders pointed out that
although he was actually seeking to rely on previous LVT decisions, he was relying on the Lands Tribunal case which first set hope value at 15% in a case where the unexpired term was almost identical to this case. The Landlord made no comment but was clearly seeking to rely on the LVT case he had produced.

Whether the Schulem B case was in the category of opinion or guidance is difficult to ascertain from the decision. As it was the first known Lands Tribunal case to state specifically that hope value was something to be taken into account and the appropriate percentage of marriage value in a lease with this sort of unexpired term was 15%, this Leasehold Valuation Tribunal considered that this amounts to guidance. It therefore took this as its starting point.

It was known that Mr. Ford, the tenant of the only relevant flat, was elderly and it
was therefore considered likely, on the balance of probabilities, that an application would be made to extend the lease sooner rather than later.

In these circumstances, the Leasehold Valuation Tribunal considered that compared with a normal lease of this unexpired term, there is a greater chance of a capital windfall coming to the freeholder within a foreseeable period and the decision of the
Leasehold Valuation Tribunal was therefore that the hope value in this case is 20% of marriage value.

Turning now to the question of the storage cupboards, the Leasehold Valuation Tribunal was not impressed with the Landlord’s attitude in simply ignoring requests for evidence from the leaseholders and then ignoring Orders made by the Tribunal.
This is clearly unreasonable behaviour. If this had been the only remaining issue in dispute, the Landlord would probably have faced an Order that it pay part of the leaseholder’s  costs of representation.

As it turned out, there was another substantial issue in dispute and not much time in the hearing was spent on the cupboards. The evidence was sparse, to say the least. Having said that, the Tribunal noted that the landlords made no protest when it was suggested that tenants were paying license fees for these cupboards. The Leasehold Valuation Tribunal therefore concludes that license fees are probably being paid.

In the absence of any further evidence, these arrangements can only be licenses at will and the Tribunal agreed with the leaseholders that one could not use the usual capitalisation rates which would apply to leases and tenancies because these depended on security of tenure and income. Doing the best it can from the limited evidence available, it is the Tribunal's decision that one could not look beyond a year of income and the decision is that the capitalised value of the income from these cupboards is a figure of £3, 600.

Get a Brighton Conveyancing quote.