England and Wales Lands Tribunal

[2000] EWLands LRA_27_1999 (27 March 2000)

LRA/27/1999

LEASEHOLD ENFRANCHISEMENT - effect of Law of Property Act 1925 section 149(6) in lease for lives - lease terminable on death of leaseholder - leaseholder not responding to appeal - life expectancy of leaseholder taken for purposes of capitalisation of ground rent and valuation of reversion - value of leaseholder's interest prior to enfranchisement taken to be nil - marriage value payable to freeholder taken to be 75%

LANDS TRIBUNAL ACT 1949

IN THE MATTER of an APPEAL AGAINST A DECISION OF THE

SOUTHERN & SOUTH EASTERN RENT ASSESSMENT PANEL

BY

BISTERN ESTATE TRUST Appellant

Re: Yarrows, Crow Hill, Ringwood, Hants

Before: The President

Sitting at 48/49 Chancery Lane, London WC2A 1JR

on Thursday 23 March 2000

Anthony Radevsky instructed by Lee Bolton and Lee for the appellant.


 


DECISION

1. This is an appeal by the freeholder against a decision of the Southern and South Eastern Leasehold Valuation Tribunal on an application under section 21 of the Leasehold Reform Act 1967 for the determination of the price payable for the freehold reversion of a house known as Yarrows, Crow Hill, Ringwood, Hampshire. The leaseholder, Mrs Patricia Lowndes, does not respond to the appeal.
2. Mrs Lowndes holds under a building lease of 28 June 1962, under which John Micklethwait Mills granted to Thomas Hestre Lowndes at a fixed yearly rent of £10 a term of 70 years from the date of the lease determinable in accordance with clause 2. Clause 2 provided:

"PROVIDED and it is hereby AGREED AND DECLARED that the said term of Seventy years shall determine forthwith on the death of the survivor of the Tenant and his wife and on such death everything herein shall cease and be void but without prejudice to the remedies of either party in respect of any antecedent claim or breach of covenant."

Mr Lowndes died, it is believed, in 1995. Mrs Lowndes is his widow. At the valuation date she was 76 years old.

3. The parties agreed for the purposes of the LVT hearing that the unencumbered freehold value of the property as at the valuation date was £180,000; that the appropriate yield to apply to the ground rental income was 6.5%; and the appropriate discount rate to calculate the present value of the freehold reversion was 6.5%. The LVT adopted these figures, and the appellants adhere to them in this appeal. The LVT held that the price fell to be assessed under section 9(1C) of the Act (rather than section 9(1), as the applicant had contended). No issue arises on this. Under section 149(6) of the Law of Property Act 1925 the 70 year term of the lease takes effect as a term of 90 years.
4. The LVT determined the price payable at £47,684. Its valuation is set out at Appendix A to this decision. In it, the LVT took 56 years purchase in capitalising the ground rent and a 56 years deferment in present-valuing the reversion - 56 years being the residue, as at the valuation date, of the 90 years imported by section 149(6). It took £90,000 as the value of the leasehold before enfranchisement and 50% as the landlord's share of the marriage value.
5. The appellant asks that I should determine the price at £180,000 or alternatively £159,000. The higher value would apply if, as is submitted, section 149(6) operates so as to enable the landlords, now that the tenant Mr Lowndes is no longer alive, to terminate the lease on giving one month's notice in writing, so that the leasehold interest is effectively valueless. The lower value would apply if, contrary to that submission, the lease will not terminate until Mrs Lowndes's death. It is reached by taking 10 years purchase in capitalising the ground rent and 10 years deferment in present-valuing the reversion (instead of the 56 years taken by the LVT) on the basis that such a period reflects the average life expectancy of a woman of Mrs Lowndes's age. The lower value is reached, also, by taking 75% as the marriage value payable to the landlord, rather than the 50% taken by the LVT. In each case the value of the leasehold before enfranchisement is taken as nil.
6. Four issues thus arise in this appeal:

(a) Whether section 149(6) of the Law of Property Act 1925 operates so as to enable the landlord to terminate the lease on giving one month's notice. If not -

(b) Whether 10 years purchase and 10 years deferment should be taken;

(c) Whether the value of the leasehold before enfranchisement is nil; and

(d) Whether 75% should be taken as the marriage value payable to the landlord.

7. The first issue is one of law. Section 149(6), so far as material, provides:

"Any lease ..., at a rent, for life or lives or for any term of years determinable with life or lives ... made before or after the commencement of this Act ... shall take effect as a lease ... for a term of ninety years determinable after the death ... of the original lessee, or of the survivor of the original lessees, by at least one month's notice in writing given to determine the same on one of the quarter days applicable to the tenancy, either by the lessor or the persons deriving title under him, to the person entitled to the leasehold interest ...

Provided that -

...

(c) if the lease ... is made determinable on the dropping of the lives of persons other than or besides the lessees, then the notice shall be capable of being served after the death of any person or of the survivor of any persons (whether or not including the lessees) on the cesser of whose life or lives the lease ... is made determinable, instead of after the death of the original lessee or of the survivor of the original lessees ...".

8. Mr Anthony Radevsky, for the appellant, submits that, on a proper construction, proviso (c) operates so as to add to, and not to limit, the circumstances (as set out in the principal part of the subsection) under which a lease to which the subsection applies may be determined. The subsection provides that the lease shall take effect as a lease for a term of 90 years determinable after the death of the original lessee. The original lessee, Mr Lowndes, is dead and, therefore, says Mr Radevsky, the lease can now be terminated at any time by the landlord giving the requisite notice. Proviso (c) applies, he says, where the lease is made determinable on the life or lives of persons other than the lessee. In such a case the termination may be served on the death of that other person instead of on the death of the lessee. Mr Radevsky points out that the words used are permissive - "capable of being served" - and include no prohibition. Applying the rule so stated to this lease, had Mrs Lowndes died before her husband, a termination notice could have been served upon her death. Since, however, the lessee died before she did, proviso (c) has no application in this case.
9. In making this submission on the effect of section 149(6) Mr Radevsky seeks to derive assistance from Megarry and Wade, The Law of Real Property (6th edition, 2000) p 797 where, in relation to this provision, the following is said:

"... the drafting of the statute seems ill-adapted for leases such as 'to A during B's life' ... for it seems that a notice could be served after the death of A even if B is still living."

10. Mr Radevsky's argument is thus that, despite the express provision of the lease that it should determine on the death of the survivor of the tenant and his wife, the effect of subsection (6) is to make it terminable on the death of the first one of them to die - the lessee under the principal part of the subsection, the wife under the proviso. I cannot accept that section 149(6) operates so as to effect such a remarkable inversion of the intentions of the parties to the lease. So far as material to the present case, and with the substitution of the singular for the plural where appropriate, proviso (c) provides as follows:

"If the lease ... is made determinable on the dropping of the life of a person ... besides the lessee, then the notice shall be capable of being served after the death ... of the survivor of any persons (...including the lessee) on the cesser of whose ... lives the lease is made determinable, instead of after the death of the original lessee..."

11. It is to be noted that "besides" in this context is clearly used to mean "in addition to" rather than "other than", which would be tautologous. The lease in the present case is determinable upon the dropping of a life, the wife's, besides that of the lessee. If Mr Radevsky is correct, so that the purpose of the proviso is to add to but not to cut down the circumstances (as set out in the principal part of the subsection) under which the lease may be terminated, there would be no need for the words "including the lessee". The right to terminate on the death of the lessee is given by the principal part of the subsection, so that, if Mr Radevsky is correct, there would accordingly be no need to provide for it again in the proviso. Moreover (and, conclusively, it seems to me) there is the inclusion of the words "instead of after the death of the original lessee". These can only be explained, in my judgment, on the basis that the proviso is replacing the right, in the principal part, to terminate on the death of the original lessee with the right to terminate only after the death of the survivor of the persons on the cesser of whose lives the lease is terminable. The proviso thus operates so as to enable a lease such as the present to take effect as it was intended to rather than to invert the purposes of the survivorship provision which the parties deliberately made. Subsection (6) is not, in my judgment, the topsy-turvy provision for which Mr Radevsky contends. The lease cannot be terminated until Mrs Lowndes's death.
12. The other questions are matters of valuation. Mr Radevsky called Geoffrey David Bevans FRICS, ACIArb, CDipAF, MEWI, a partner in Cowling and West, chartered surveyors of Bournemouth, to give valuation evidence. Mr Bevans has 32 years post-qualification experience. Since 1981 his work has predominantly been in Bournemouth and the immediately surrounding area. He has acted regularly in Leasehold Reform Act matters, on behalf both of landlords and tenants. His two alternative valuations form Appendices B and C to this decision. The higher valuation (Appendix B) is based on the contention of law which I have decided against the appellant and is accordingly to be rejected. Had I decided the point of law in the appellant's favour I should, however, have accepted that valuation.
13. Mr Bevans said that both the capitalisation of the ground rent and the deferment of the reversion must reflect the life expectancy of Mrs Lowndes and not the residue of the 90 year term. In order to ascertain that life expectancy he relied on Parry's Valuation Tables (11th edition 1989). As at the date of valuation, 8 November 1996, he understood that Mrs Lowndes would have been aged 76. The life expectancy tables showed that for a woman of that age the average expectancy of life was 9.622 years. He thought it reasonable to adopt that figure, which, for convenience, he rounded to 10 years.
14. I accept Mr Bevans's evidence on this. It is clearly right as a matter of principle where the lease is terminable on the death of a person to value the right to receive the ground rent and the reversion by reference to that person's life expectancy if this is less than the residue of the 90 years provided for by section 149(6). I accept the appropriateness in the present case of using the life expectancy tables, and I can see no reason not to accept Mr Bevans's adoption of 10 years.
15. The third issue is the value of the leasehold before enfranchisement. Mr Bevans said that he had considered carefully whether the leasehold interest could be sold for a consideration and he had formed the opinion that it could not. While he had adopted a life expectancy of 10 years for the leaseholder and had applied this in the valuation, he believed that a prospective purchaser of the leasehold interest would view the matter from the opposite perspective. A purchaser of the freehold would allow for the risk that the occupier might live and thus defer the ability to realise full value. A purchaser of the leasehold interest, on the other hand, would be aware of the risk that death could occur tomorrow and the possession could then be required. This would leave the purchaser of that interest with nothing. A purchase of the leasehold would, in his view, be nothing more than a gamble. To assume such a purchase would be to ignore the valuation principle of assuming that each party would act knowledgeably and prudently. He had therefore formed the opinion that the leasehold interest was unsaleable and had no value. The marriage value thus became the value of the freehold in possession less the value of the freehold subject to the lease. That gave a figure of £84,037.
16. The view which Mr Bevans expresses on the value of the leasehold interest does not seem to me to be implausible. In the absence of any other expert evidence, I accept it.
17. The final issue is marriage value. Mr Bevans said that he needed to consider the percentage of marriage value which would be payable to the freeholder in a freely struck bargain between the freeholder and leaseholder if the combined interests were to be sold. Both parties would be aware that, under such circumstances, the only interest of value attributable to the lessee was being able to frustrate a sale of the freehold at vacant possession value but that, in the open market, that ability would have no value. If no agreement were reached the lessee would get nothing. He had therefore formed the opinion that the prudent tenant would prefer to have something rather than nothing and, although he could offer no definitive evidence to support it, he had reached the conclusion that an appropriate division would be 75% to the freeholder and 25% to the leaseholder.
18. In the particular circumstances of this case, and in the absence of any other expert evidence, I accept, for the reasons that he gives, Mr Bevans's assessment of the appropriate division as being 75% to the freeholder and 25% to the leaseholder.
19. Accordingly I adopt Mr Bevans's valuation at Appendix C. The appeal is allowed and the price payable is determined as £159,000. Had I found in the appellant's favour on the construction of section 149(6), I should have determined the price as £180,000.
20. I make no order as to costs.

DATED 27 March 2000

(Signed) George Bartlett QC, President

Appendix A

LEASEHOLD VALUATION TRIBUNAL'S VALUATION

£.p £.p

Rent passing 10.00

Years purchase 56 years @ 6.5% x 14.93 149.00

Reversion to vacant possession 180,000.00

P.V. £1 58 years @ 6.5% x 029 5220.00

5,36.00

Marriage value

Freehold value (no improvements) 180,000.00

Less - Value of existing leasehold 90,000.00

90,000.00

Less: Freehold, as above 5,369.00

84,631.00

50% 42,315,00

Total £47,684.00

Appendix B

MR BEVANS'S PRINCIPAL VALUATION

ASSUMPTIONS

Existing leasehold unit value nil

Freehold value in possession £180,000 (agreed)

Yield on freehold term 6.50% (agreed)

PV £1 Discount rate 6.50% (agreed)

Percentage of marriage value to freeholder n/a

VALUES PRIOR TO ENFRANCHISEMENT

FREEHOLD Years Yield

Ground rent reserved 10

Years purchase 0 6.50% 0.0000 £ -

Reversion to capital value £180,000

Present value £ 0 6.50% £180,000

FREEHOLD TOTAL £180,000

LEASEHOLD nil

MARRIAGE VALUE

Freehold value in possession £180,000

Less Freehold before plus Leasehold £180,000

Plus Leasehold 0 £180,000 nil

Marriage value payable to Landlord @ n/a nil

CONSIDERATION

Freehold £180,000

Freeholders share of marriage value nil

Compensation nil

TOTAL £180,000

Appendix C

MR BEVANS'S ALTERNATIVE VALUATION

ASSUMPTIONS

Existing leasehold unit value nil

Freehold value in possession £180,000 (agreed)

Yield on freehold term 6.50% (agreed)

PV £1 Discount rate 6.50% (agreed)

Percentage of marriage value to freeholder 75.00%

VALUES PRIOR TO ENFRANCHISEMENT

FREEHOLD Years Yield

Ground rent reserved 10

Years purchase 10 6.50% 7.1888 £ 72

Reversion to capital value £180,000

Present value £ 10 6.50% 0.532726 £ 95,891

FREEHOLD TOTAL £ 95,963

LEASEHOLD nil

MARRIAGE VALUE

Freehold value in possession £180,000

Less Freehold before plus Leasehold £ 95,963

Plus Leasehold 0 £ 95,963 £ 84,037

Marriage value payable to Landlord @ 75.00% £ 63,028

CONSIDERATION

Freehold £ 95,963

Freeholders share of marriage value £ 63,028

Compensation nil

TOTAL £158,991 say £159,000