Freehold Management (Traders) Ltd v Plumley and another

Two-storey, semi-detached house at Barnet with 47 years of lease unexpired — Landlords contended for £1,650 against LVT’s determination of £855 — Tenants appeared in person with no expert valuation evidence — Two percentage figures in dispute — Landlords argued for 40%, in place of LVT’s 30%, of entirety value for site value and for 6%, in place of 7%, in the reversion — Landlords’ valuer, a building surveyor, who had no experience of transactions under Leasehold Reform Act 1967, relied on various plots in Finchley and Crouch End, north London, to which he gave site values of 46%-48% — From his general experience, site values as a percentage of the whole had not changed since 1983, but as he had no evidence to support percentages derived from transactions in that year he applied 40% in present case — Tribunal accepted that evidence, it being ‘obvious that [he was] well placed by his experience to come to the conclusion he did’ — Landlords’ valuer also had no evidence of ground rents determined in open market, but in his experience ground rents of flats in the area had not increased as much as other property values — A hypothetical £400 resulted in 2%, which he considered supported 6%, but the tribunal derived no assistance from this evidence and was therefore left with the LVT’s figure of 7%, giving a determination of £1,100 — Landlords awarded £200 costs — Point taken by landlords before LVT that tenants’ notice of claim was not addressed to true owner, being addressed to the preceding owner (an associate company), was dismissed by LVT for reasons stated in appended decision and was not pursued before Lands Tribunal The following cases are referred to in this report. Middleton-Smith v Harrow School Road Trust (1981) 262 EG 73, LVT Nash v Central Estates (Belgravia) Ltd and Trustees of the Royal Liver Friendly Society (1978) 249 EG 1286, LT Official Custodian for Charities v Goldridge (1973) 26 P&CR 191; [1973] EGD 364; 227 EG 1467, CA R L Dubow, solicitor (of the Solicitors’ Property Centre, Cuffley, Herts) appeared for the appellant landlord; Mrs L Plumley appeared for herself and her husband, Mr S A K Plumley, the respondent tenants. Giving his decision, MR REES said: This is an appeal by the freeholder of a house [95 Sherrards Way] in Barnet, Herts, against the decision of a leasehold valuation tribunal determining the price to be paid for the freehold interest under the provisions of section 9 (1) of the Leasehold Reform Act 1967, as amended, at £855. Before me the appellant contended for a sum of £1,650; the respondents sought to uphold the decision of the tribunal below. By the time the matter came before me only two percentage figures were in dispute. Attached hereto is a copy of the decision of the leasehold valuation tribunal, which sets out the facts concerned, none of which was disputed before me. In summary, it suffices for me to note that the tenants hold the premises under a lease dated December 18 1934 for 99 years from March 25 1933 at a ground rent of £9.45 per annum. The tenants’ notice to purchase the freehold interest was dated June 27 1985. The subject property was described in the decision of the tribunal below [at para 13]: The tribunal found the property to be located in a pleasant residential area in a quiet and wide tree-lined road. It was a two-storey, semi-detached house built in the 1930s. There was a side driveway to a concrete garage at the rear which was built on part of the rear garden. There were two reception rooms and a small kitchen on the ground floor. The rear reception room had been extended a little and there was a door from it to the rear garden. There were three bedrooms, a bathroom and a separate we on the first floor, the third bedroom being a small single bedroom. Central heating was provided by a gas boiler on the kitchen wall. The garden was approximately 110 ft long by 23 ft at the front and 21 ft at the rear. The tribunal’s valuation was: Term Ground rent £9.45pa YP 47 years at 7% 13.69 £129.37 Reversion to section 15 rent Entirety value £58,000 Site value at 30% 17,400 Section 15 rent at 7% 1,218 YP in perpetuity at 7% deferred 47 years 0.594 723.49 852.86 Say £855 Before me the appellant contended for 40% in place of 30% and for 6% in place of 7% in the reversion: £129.37 was not disputed. The landlord’s solicitor called Mr C R K Jones ARICS, whose evidence related to those two figures. Mrs Plumley appeared for herself and her husband and gave evidence, submitting that the decision of the tribunal below was correct. Mr Jones, who is qualified in the building subdivision [of the RICS], referred to the sale of auction of two plots with planning permission for two detached houses in Hilton Avenue, Finchley, N12, in 1987 for £138,500. He put the value of the freehold interest with vacant possession in each house and its land when completed at £150,000. The site value therefore represents 46% of the value of the whole. In respect of a plot in Montenotte Road, N8, for three town houses, he arrived at 48%, the relevant date being September 1986. He also referred to a site in Dale Grove, N12, where planning permission was granted for 11 flats, the resulting percentage being 47. He said that from his general experience site values as a percentage of the whole had not changed since 1983, but he had no evidence to support percentages derived from transactions in that year. So he applied 40% to the subject house. Since the subject house is semi-detached, neither of the transactions is strictly comparable and the subject house stands on a small plot. However, I see no reason to reject Mr Jones’ evidence that the correct percentage is 40. It was obvious that Mr Jones is well placed by his experience to come to the conclusion he did. As to a modern ground rent for the site of the subject house, he had no evidence of such ground rents being determined in the open market. In his experience the ground rents paid in respect of flats in the area had not increased as much as other property values. The highest he could find was £80 per annum in respect of a flat of about 1,000 sq ft. He considered that, having regard to the differences in plot area, by comparison with that figure the modern ground rent for a semi-detached house should be £400 per annum. He took the site value as 40% of the agreed entirety value of £58,000, ie £23,200, and expressed the £400 as a percentage of that figure, resulting in 2%, which he did not consider unusually low having regard to the large increases in property values: he considered that it supported 6%. He agreed that £400 per annum was a hypothetical figure and, as I pointed out to him during the hearing, that made his derived percentage of 2 also hypothetical. In reply to a question put to him by me, Mr Jones said that he had no experience of transactions under the Leasehold Reform Act 1967 as amended and he was unable to be of assistance to me when I asked him at what percentage a modern ground rent on such a house as the subject property would sell in the open market with the tenant not bidding. I derive no assistance from Mr Jones’ evidence on the last matter at all: 6% is so far removed from 2% that he has in effect discarded the calculation. Moreover, £400 per annum is very low when compared with either the £1,392 per annum contended for by the appellant or with the modern ground rent determined by the tribunal below (£1,218 per annum). I am not prepared to accept Mr Jones’ evidence as to 6% and so I am left with the 7% determined by the tribunal below. The calculation then becomes: Term £129 (agreed) Reversion Entirety value (agreed) £58,000 Site value at 40% 23,200 Section 15 rent at 7% 1,624pa YP in perpetuity at 7% deferred 47 years 0.594 965 1,094 Say £1,100 I was referred to the decisions mentioned in para 14.2 of the appendix hereto and to the authority quoted in para 14.3, but neither assists me in this matter, which is essentially one of fact, valuation, which has to be determined on the evidence before me. I received written submissions as to costs. The respondents will pay £200 towards the appellant’s costs. APPENDIX LEASEHOLD VALUATION TRIBUNAL FOR THE LONDON RENT ASSESSMENT PANEL Ref LON/LVT/262 DECISION OF LEASEHOLD VALUATION TRIBUNAL ON AN APPLICATION UNDERS21 OF THE LEASEHOLD REFORM ACT 1967 Applicant………………………………………………………………..MR S A K PLUMLEY (tenant) Respondent……………………………………………FREEHOLD MANAGEMENT SERVICES Re: 95 Sherrards Way, Barnet, Herts. RV at date when tenant’s notice was given: £318. Date of tenant’s notice: June 27 1985 Application to tribunal dated: January 10 1986 Heard: July 2 1986 Appearances: Mrs L M Plumley for the tenant (tenant also in attendance); Mr R L Dubow MA Oxon, of Leslie Dubow, solicitor for the landlord. Members of the Leasehold Valuation Tribunal: MR E WOOLF LLB (Chairman), MR D E F BALDOCK FRICS, MR F M KING JP. Date of tribunal’s decision: August 8 1986. 1. This decision is made on an application by the tenant of 95 Sherrards Way, Barnet, Herts, for a determination under section 9 of the Leasehold Reform Act 1967 of the price payable for the freehold interest in the premises. The tenant holds the premises under a lease dated December 18 1934 for 99 years from March 25 1933 at a ground rent of £9 9s per annum. The tenant’s notice of his claim to purchase the freehold interest was dated June 27 1985 and was addressed to ‘Freehold Management Services PO Box 45 Waltham Cross, Herts EN7 5HN and all others on whom a copy of this notice may be served.’ 2. No formal notice pursuant to the Leasehold Reform (Notices) Regulations 1967, as amended, was served by the landlord in reply to the tenant’s notice, but by letter dated August 12 1985 the landlord’s solicitors (Leslie Dubow) wrote to the tenant’s solicitor (P W Moody) as follows: re 95 Sherrards Way, Barnet. I am now prepared to agree that your client is entitled to the benefit of the Leasehold Reform Act 1967. Subject to contract my client will be prepared to sell for the sum of £3,000 plus my costs and disbursements amounting to £138.00 inclusive of VAT. On February 18 1986 Leslie Dubow wrote to P W Moody as follows: You will be aware that this matter has been now referred to the London Rent Assessment Panel. My clients have therefore taken further advice on valuation. With a view to settling the matter they will be prepared to accept a sum of £1,750 in full and final settlement plus my costs of £150 plus VAT and the surveyor’s fee of £100 plus VAT. 3. At the commencement of the hearing Mr Dubow on behalf of his clients made application to the tribunal that the tenant’s application be not proceeded with on the grounds that the tenant’s notice to the landlord of June 27 1985 was invalid because the landlord’s name had been inserted for service as ‘Freehold Management Services’ whereas the true owners of the property were ‘Freehold Management (Traders) Limited’. Mr Dubow produced to the tribunal (a)    Copy entries of the register in HM Land Registry showing in the Proprietorship Register that Freehold Management (Traders) Ltd (Co Regn No 1410173) of PO Box 45, Waltham Cross, Herts EN7 5HN was registered on November 29 1982 with Title Absolute in nos 87 and 95 Sherrards Way. (b)    A cyclostyled letter dated December 7 1982 headed ’95 Sherrards Way’ but with no indication of addressee; the letter was on headed paper ‘Freehold Management Services’ and the address was ‘Registered Office: PO Box 45, Waltham Cross, Herts EN7 5HN.’  The letter read:         Dear Sir/Madam,         Re 95 Sherrards Way         Please note that our Associated Company, Freehold Management (Traders) Ltd, have acquired the freehold interest in the above property. We shall, in future, on their behalf, be rendering you invoices for the Ground Rent. We enclose herewith Letter of Authority from the previous freeholder’s Solicitors.         Yours faithfully,         F.M.S. Secretary. Mr Dubow stated that this was a copy of the letter which had been sent to the tenant. 4. He said that he had only just discovered that the tenant’s notice had been incorrectly addressed. He accepted that he had not taken the point previously and had corresponded with the tenant’s solicitor and with the tenant on the basis that the notice had been correctly served. He had not drawn the error to the notice of the tenant. 5. Mrs Plumley said that the landlord’s statement that the notice was incorrect had come like a bolt from the blue. The tenant had no knowledge of Freehold Management (Traders) Ltd and neither had he nor had she any recollection of having received the letter of December 7 1982 referred to by Mr Dubow. They had dealt only with Freehold Management Services. 6. In a further submission, Mr Dubow said that the date of the notice of enfranchisement was important because if the tenant’s notice were held to be invalid and a reservice became necessary, the date of valuation would be the new date and prices of unencumbered freehold properties in the area had increased considerably during the last year. 7. We adjourned shortly to consider the landlord’s application and on our return we dismissed the application to set aside the tenant’s application to the tribunal to determine the freehold price of the subject property on the following grounds: (a)    Freehold Management Services had been held out as agents of the landlord with the same address as the landlord owners stated in the copy entries of the register in the Land Registry. Accordingly, service on them was good service on the landlord. Furthermore, there was no doubt that the landlords had received the notice. (b)    If Freehold Management Services were not the immediate landlord of the property as Mr Dubow now urged, they were required to comply with the requirements of paras 5 and 6 of the tenant’s notice, and para 6 in particular required them to give written notice to the tenant stating whom they knew or believed to be the reversioner and to serve copies on all persons known or believed by them to have an interest superior to the interest of the tenant. This Mr Dubow accepted Freehold Management Services did not do. (c)    On August 12 1985 Mr Dubow on behalf of his client (presumably Mr Dubow acted for both the landlord and Freehold Management Services) agreed that the tenant was entitled to the benefit of the Leasehold Reform Act 1967 and accordingly he led the tenant to believe that the notice had been correctly served. (d)    In the tribunal’s opinion, there had been no miscarriage of justice. The owner had been made aware of the claim and the owner’s solicitor had done nothing to bring the error to the notice of the tenant. (e)    The tenant on his part professed to have no knowledge whatsoever of the existence of Freehold Management (Traders) Ltd. The whole of his correspondence had been carried on with the person or body to whom he paid his ground rent and the letter of December 7 1982 purported to have been sent to make him aware of the identity of the new owner had not been received by him and on the face of it had not been sent otherwise than by ordinary post. 8. The tribunal were of the opinion that to have ruled that the tenant’s notice to enfranchise was invalid and to set aside the application to the tribunal would have been grossly inequitable and have resulted in considerable injustice to the tenant, who might have been saddled with a larger compensation price for the freehold than otherwise. Furthermore, in the tribunal’s view the landlord was estopped from asserting the incorrectness of the tenant’s notice because (i) of his failure to comply with para 6 of the tenant’s notice and (ii) of the admission by his solicitor that the tenant had the right to enfranchise under the Act of 1967. They concluded that the date of valuation was June 27 1985 the date of the tenant’s notice as mentioned above in para 1. 9. Mrs Plumley regretted that the tenant was not represented professionally, but they were not able to afford to employ a solicitor or surveyor. She said that they had offered £1,000 to purchase the freehold but this had not been accepted. She put the following documents in evidence: 215 (a)    A photograph of the property when the ground rents had been offered for sale by auction on November 5 1980 by Willmotts, chartered surveyors. (b)    Copy of a letter dated July 9 1971 to the tenant from London Housing and Commercial Properties Ltd stating they were willing to sell the freehold to the tenant for £450. (c)    Copy of a letter dated November 7 1980 from Willmotts stating that the freehold interest in the subject property had been offered at auction on November 5 1980 but was unsold. It was now offered to the tenant at the price of £750. (d)    Details of sale by auction of the following freehold ground rents all at the price of £750 each: 15 Linkway, Barnet; 17 Linkway, Barnet; 31 Sherrards Way. (e)    Copy of the Land Registry map showing the subject property. (f)    Copy of letter dated November 29 1985 from Bairstow Eves stating that having carried out an inspection of the property the current value for an unencumbered freehold interest in the property was in their opinion £58,000. 10. Mrs Plumley also submitted details of the following further sales of freehold reversions: 1981 4 Sherrards Way, £650 (lease of 51 years) 1985 35 Cedar Lawn Avenue, £750 (lease of 41 1/2 years) 11. Mr Dubow referred briefly to the very considerable increases in the prices of property in the area which had occurred since 1971 and indeed since 1980, but both he and Mrs Plumley were prepared to agree an entirety value of £58,000 for the subject property at the date of valuation in the absence of evidence of the sale recently of cleared sites in the area. 12. Mr Dubow did not present to the tribunal a formal valuation for the enfranchisement price of the subject property, but he said that he had been advised and that he had arrived at a compensation figure of £2,250 on the following assumptions: (a)  An entirety value of £60,000; (b)  The use of 7% for capitalising the ground rent; (c)  The use of 40% of the entirety value to obtain the site value; (d)  Decapitalisation at 7% to obtain the section 15 rent; (e)  Recapitalisation at 6% of the section 15 rent deferred for 47 years. As the result of agreement on the entirety value at £58,000, he now thought that the compensation figure should be £2,100. In response to questions by the tribunal, he said he thought the figure of 40% to obtain site value from entirety value for the area was appropriate and he had been so advised. On the matter of a lower percentage to recapitalise the modern ground rent as against the percentage he used to decapitalise site value, he could only say that he had been so advised, but he had no arguments to justify his action. Tribunal’s inspection of property 13. The tribunal found the property to be located in a pleasant residential area in a quiet and wide tree-lined road. It was a two-storey, semi-detached house built in the 1930s. There was a side driveway to a concrete garage at the rear which was built on part of the rear garden. There were two reception rooms and a small kitchen on the ground floor. The rear reception room had been extended a little and there was a door from it to the rear garden. There were three bedrooms, a bathroom and a separate we on the first floor, the third bedroom being a small single bedroom. Central heating was provided by a gas boiler on the kitchen wall. The garden was approximately 110 ft long by 23 ft at the front and 21 ft at the rear. Tribunal’s valuation and reasons 14. The tribunal agreed with the parties that in the absence of evidence of recent sales of comparable cleared sites in the area, the ‘standing house’ approach was the method to be adopted for estimating the site value of the subject property. They noted that the parties had agreed £58,000 as the entirety value and were prepared to agree that that figure represented a fair figure for the subject property at the date of valuation. In their consideration of the percentage of the entirety value which would appropriately reflect the value of the site, the tribunal were not able to agree with Mr Dubow. They agreed that a percentage of 40% might be appropriate in more central areas (Middleton-Smith v Harrow School Road Trust (1981) 262 EG 73 and Nash v Central Estates (Belgravia) Ltd and Trustees of the Royal Liver Friendly Society (1978) 249 EG 1286), but in the present case, and having regard to the fact that the house was semi-detached, they were of the opinion that 30% was the appropriate figure to adopt. The tribunal were not able to agree with Mr Dubow on the matter of the different percentages he adopted (i) for decapitalising site value to obtain the modern ground rent and (ii) for recapitalising to assess the value of the freehold. Mr Dubow was unable to give the tribunal any reasons for justifying his method and we were of the opinion that the same percentage should be employed for recapitalisation and for decapitalisation (Official Custodian for Charities v Goldridge (1973) 227 EG 1467 (CA)). The tribunal’s valuation, therefore, was as follows: Term Ground rent £9.45 pa YP 47 years at 7% 13.69 £129.37 Reversion to section 15 rent Entirety value £58,000 Site value at 30% 17,400 Section 15 rent at 7% 1,218 YP in perpetuity at 7% deferred 47 years 0.594 723.49 852.86 Say £855 Tribunal’s decision 15. We accordingly determine that the price to be paid by the tenant for the acquisition of the freehold interest in 95 Sherrards Way, Barnet, Herts, in accordance with the provisions of section 9 of the Leasehold Reform Act 1967, as amended, is £855.