Being aware of the shifting ground rent

Valuation disputes often occur in enfranchisement and new flat lease claims (made under Part I of the Leasehold Reform, Housing and Urban Development Act 1993). A leaseholder claiming a new lease of a flat must pay a premium to compensate the landlord for the diminution in its reversionary value once the new lease is granted (as the new lease is for a term 90 years longer than the current term). The premium must also include a sum representing the loss of the ground rent once the new lease has been granted (the new lease is at a nominal rent). However, as ground rents usually form a small part of the premium payable, it is thought unusual for disputed ground rents to reach the First-tier Tribunal (Property Chamber) (FTT), or beyond. Ground rents and valuation But this is what happened in Proxima GR Properties Ltd v Spencer [2017] UKUT 450 (LC); [2017 ] PLSCS 209, where the landlord challenged a decision of the FTT on the premiums to be paid for three new lease claims. The parties had agreed all the elements of the valuation except for the sum payable for the ground rent which is lost on the grant of the new leases. Michael Spencer owns three leasehold flats at a property in east London. A lease was granted for each flat in September 1985 for a term of 125 years from 1 December 1984 at a yearly ground rent of £50 payable “subject to review on each 21st anniversary of the grant hereof”. The landlord can appoint a surveyor to determine a new rent every 21 years. A rent review should have been carried out in 2005. However, the landlord did not appoint an expert to review the rent until 3 March 2016 (after the claim notice was given). This was more than six years after the respondent had written to the appellant setting a deadline for implementation of the rent review (the 2010 letters). A new rent was not determined by a surveyor until 29 September 2016. It was fixed at £192.70 pa. Had time become of the essence? What was the legal effect of Spencer’s 2010 letters? Did they, as he contended, have the effect of making time of the essence of the rent review? If this was correct, the landlord’s later appointment of the expert and the rents determined by him would be invalid. This would have the practical effect of lowering the ground rent element of the valuation, leading to a lower premium being paid to the landlord. The FTT found in favour of the leaseholder. It relied on a decision of the Court of Appeal in Barclays Bank plc v Savile Estates Ltd [2002] EWCA Civ 589; [2002] 2 EGLR 16 as authority for the proposition that tenants can make time of the essence of a rent review if the court could imply a term into the lease that the landlord would trigger the review within a reasonable time. This was a commercial lease case but the FTT concluded that the same principle applied here. The parties’ expert valuers had agreed two alternative valuations. If the ground rent had been properly reviewed and determined with effect from 1 December 2005 at a new rent of £192.70 pa, it was agreed that the appropriate premium payable for each new lease claim was £7,900. If (as a result of letters sent by Spencer to make time of the essence) the December 2005 rent review was time-barred, so that the ground rent remained at £50 pa, it was agreed that the appropriate premium payable in respect of each new lease claim was £6,800. The FTT decided that the ground rent had not been properly reviewed and the appropriate premium was the lesser figure of £6,800. The appeal The landlord appealed to the Upper Tribunal (Lands Chamber) (UT). The main issue was whether the letters making time of the essence were valid; but there were two other issues: were they actually received by or on behalf of the landlord, and were the letters invalid as they failed to state the consequences of non-compliance? On the main issue, the UT decided that the Barclays Bank principle did not apply to this case as here the leases allowed the landlord to appoint an expert to review the rents at any time after the end of the 20th year of the term. An implied term should not be implied where there is a clear express term in the agreement. As a result, the letters had not made time of the essence and the rent review was valid and binding on the parties. The landlord’s appeal was allowed and the premiums payable for each of the three leases were the higher amounts agreed by the experts. This left the other two issues, which did not, strictly speaking, have to be decided. On the service issue the UT would have dismissed the landlord’s submission if it had been necessary: Mr Spencer had proved that he posted the letters and it was for the landlord to show that the letters had not been received. On the “consequences point” the UT would have also dismissed the appeal – a notice that states that time is now of the essence and specifies a timescale for completion is valid. James Driscoll is a solicitor, a writer and a consulting editor to the Handbook of Residential Tenancies