Lease Extension in Exmouth - Leasehold Valuation Decision 2004

This matter arises from an application made by Leaseholders who sought a lease extension in respect of their flat in Douglas Avenue, Exmouth, Devon, EX8 . The Leasehold Valuation Tribunal to determine was therefore the price payable by the tenants for the lease extension, and the percentage uplift applicable in calculating the same.

Both parties made both written and oral representations in respect of their case for the lease extension premium.

Current legislation gave the leaseholders  the right to acquire a new lease upon
payment of a premium calculated in accordance with the provisions of Schedule 13 of the 1993 Act, i.e. the aggregate of. -

  • the diminution in value of the landlord's interest in the tenant's flat once the new lease is granted,
  • the landlord's share of the marriage value, and
  • any amount of compensation payable to the landlord in respect of any other property.

Provided that the necessary requirements of the Act (as to Applications, Notices etc. ) have been complied with, Section 48 provides for determination by a Leasehold Valuation Tribunal of any matters in dispute.

Section 56 obliges the landlord to grant a new lease at a peppercorn rent for a term expiring 90 years after the expiry of the current lease.

The Flat was  a spacious first-floor flat in the large brick building known which now consists of 7 self-contained residential units. The Leasehold Valuation Tribunal inspected the property on 2 November as aforementioned, and confirmed that the property details are as described in the agreed Valuation Report.

A copy of the relevant Lease for the Flat  was originally granted on 5 July 1960 for a term of 99 years, was provided to the Leasehold Valuation Tribunal.

The leaseholders, proposed that the correct figure for the value of the lessee's unexpired interest should be £170, 000, and that the appropriate sum payable for the lease extension should therefore be £12, 076 (calculated in accordance with the Schedule/Calculation).

The Leaseholders expert, considered that an uplift of 11. 75% was applicable for this lease extension, and gave details of comparable properties where leaseholders had purchased either a lease extension or a freehold interest in the recent past.

All the four comparables were situated in Exmouth and within two-thirds mile of the subject property, and a schedule was prepared showing that the values of the lease extensions or freehold purchases ranged from £4, 722 to £12, 500, with corresponding percentage uplifts from. 5% to 13. 3%, depending upon the circumstances.

The Leaseholders gave evidence that 'Exmouth was a popular retirement area, and
that people did not necessarily see property as a long-term investment. There representative considered that, in his experience, there was very little difference between valuation figures for purchase of freehold interest and valuation for lease extension. In many cases, it was said, proposed lease extensions become freehold purchases, with the value remaining the same, and sometimes negotiations for lease extension started after a sale of the property had been agreed, with prices inflated as a result.

It was argued on behalf of the freeholder that the value of the lessee's unexpired interest should be £146, 152, and that the premium for lease extension should be £24, 000.
The Freeholder’s expert, considered that an uplift of 32% was appropriate, and cited comparables including the case at Victoria Park Road, Exeter, and the Eastern Tribunal's decisions in respect of Collier Close, Maidenhead, Berkshire in April 2004.

The Freeholder considered that there was a substantial difference in value  between freehold purchases and lease extensions, and that the 10-15% uplifts often found in cases of the former were not appropriate in the latter, which should have "at least" 30% uplift.

The comparable at Victoria Park Road, with an uplift of 61%, was (it was conceded) unusual on its particular facts, where it was said that the Landlord was "tougher" than the tenant.

In arriving at his valuation of the lessees' unexpired interest, the freeholder’s representative stated that he had relied upon "Valuer's gut feeling", because there are very few cases for comparison outside the London area, and there are insufficient cases to identify a pattern: there seems to be a wide discrepancy between the approach. used in individual cases.

Conclusion and Lease Extension Decision

Having carefully considered all the evidence, and in all the circumstances of the case, the Leasehold Valuation Tribunal found that the only truly comparable lease extension transaction was that in respect of 27B Salterton Road. In that lease extension case, there were 58 and a half years left to run on the lease (slightly more than the 55 years remaining in the subject case), and the value of the unexpired lease was said to be £203, 500. An uplift of 8, 1% was applied.

The Leasehold Valuation Tribunal considered and determined that the valuation and figures put  forward on behalf of the Leaseholders were appropriate, and therefore found that the premium to be paid for the lease extension should be £12, 076