England and Wales Lands Tribunal

[2001] EWLands LRA_11_2000 (18 May 2001)

LRA/11/2000

LANDS TRIBUNAL ACT 1949

LEASEHOLD ENFRANCHISEMENT – house – land value and increased ground rent – freehold value at end of lease – appeal allowed – price £625,750 – Leasehold Reform Act 1967, s9(1C)

IN THE MATTER of an APPEAL against a DECISION of a LEASEHOLD VALUATION TRIBUNAL of the LONDON RENT ASSESSMENT PANEL

BETWEEN JONATHAN STEIN Appellants

and

SALLY ANNE STEIN

and

TRUSTEES OF THE EYRE ESTATE Respondents

Re: 27 Norfolk Road,

London NW8

Before: P H Clarke FRICS

Sitting at 48/9 Chancery Lane, London WC2

on 13 and 14 March 2001

The following cases are referred to in this decision:

Land Securities plc v Westminster City Council [1992] 44 EG 153

Hollington v Hewthorn & Co Ltd [1943] 1 KB 587

Cadogan Estates Ltd v Hows [1989] 2 EGLR 216

Edwin Johnson instructed by David Conway & Co, solicitors of London W1, for the appellants

Jonathan Small instructed by Pemberton Greenish, solicitors of London SW1, for the respondents


 


DECISION OF THE LANDS TRIBUNAL

1. This is an appeal by the tenants of a long leasehold house in St John's Wood against the decision of a leasehold valuation tribunal determining the enfranchisement price under section 9(1C) of the Leasehold Reform Act 1967.
2. Edwin Johnson of counsel appeared for the appellants and called Jonathan Stein, Richard Bernstone and Kenneth Gavin Buchanan BSc MRICS. Jonathan Small of counsel appeared for the respondents and called Julian Edward Christian Briant BA MRICS.

FACTS

3. The parties have prepared a statement of agreed facts and from this statement and the evidence I find the following facts.
4. The house which is the subject of this appeal, 27 Norfolk Road, is on the Eyre Estate, St John's Wood, to the east of Finchley Road. The surrounding area is residential and comprises mainly detached and semi-detached period houses with more modern properties and some flats.
5. 27 Norfolk Road ("the appeal property") is situated on the corner of Norfolk Road and Woronzow Road. It is a large detached house, originally built about 1840, of brick and stucco construction with a slate roof. It is situated in an attractive garden bounded by brick walls. The site area is 9,042 square feet (840 square metres) or 0.21 acre. At the date of valuation, 28 May 1997, the house comprised an entrance hall, library, sitting room, dining room, study, kitchen, utility room, garden room, cloakroom and boiler room on the ground floor; and on the first floor a master bedroom (with dressing area and en-suite bathroom), three other bedrooms (one en-suite), a bedroom/study (with en-suite shower room) and bathroom. The total effective floor area was 2,227 square feet (206.88 square metres). There was a single garage and one off-street parking space.
6. Improvements to the original house were carried out by former tenants under licences granted in July 1983 and November 1990. The agreed value of these improvements at the valuation date is £200,000. The appellants carried out substantial alterations, following their purchase of the leasehold interest, under a planning permission and listed building consent granted on 13 October 1998 for "replacement of two-storey extension, enlargement and alterations to existing garage and internal alterations to the building including the introduction of French doors to the side elevation."
7. The freehold of 27 Norfolk Road is held by the Trustees of the Eyre Estate, the respondents in this appeal. By a lease dated 21 September 1981 the property is let on full repairing and insuring terms for 82 years from 24 June 1980 at a rent of £400 per annum. This lease terminates on 24 June 2062 and had approximately 65 years unexpired on the agreed date of valuation, 28 May 1997. The rent is subject to increase at the 21^st, 42^nd and 63^rd years of the term to 1/30^th of the "land value", defined as:-

"… the amount which the said premises if sold in the open market on the relevant Rent Increase Date by a willing seller might be expected to realise assuming:-

(a) that the said premises comprises a site cleared of all buildings

(b) that the sale is with vacant possession

(c) that the said premises are not subject to a Lease (including this Lease) or to any tenancy charge or other encumbrance whatsoever

(d) that the said premises are sold with the benefit of any planning permission which had been or might be obtained at the relevant Rent Increase Date for use of the said premises for residential purposes or for any other purpose or purposes as shall at the relevant Rent Increase Date be permitted by the terms of this Lease or by any modification thereof or Licence given thereunder or for any other purpose or purposes for which the Lessee shall be using the said premises at that date or in respect of which there shall exist at that date a planning permission which shall have been obtained by or on behalf of the Lessee"

On 24 June 1998 the appellants exchanged contracts to purchase this leasehold interest (with notice to enfranchise) for £2,475,000. Completion was in October 1998.

8. On 28 May 1997 the former tenants, Mr and Mrs Green, gave written notice under the Leasehold Reform Act 1967 ("the 1967 Act") of their desire to have the freehold of 27 Norfolk Road. This was assigned to the appellants. Application was made on 6 April 1998 to a leasehold valuation tribunal for the London Rent Assessment Panel for the determination of the price. Following a hearing on 23 November 1999 the tribunal issued a decision on 14 February 2000 fixing the price at £632,300. On 13 March 2000 Mr and Mrs Stein appealed to this Tribunal on the grounds that the price determined by the leasehold valuation tribunal was incorrect and should be £497,544.

AGREEMENTS AND ISSUES

9. The parties have agreed the following matters:-

(i) The price payable for the enfranchisement of the freehold of the appeal property is to be determined in accordance with section 9(1C) of the 1967 Act.

(ii) The date of valuation is 28 May 1997.

(iii) The price under section 9(1C) of the 1997 Act does not include any marriage value.

(iv) In determining the price under section 9(1C) of the 1967 Act the appropriate capitalisation and discount rate is 6%.

(v) The value of tenants' improvements carried out under the licences dated 8 July 1983 and 14 November 1990 is £200,000.

(vi) The value of the leasehold interest (unimproved) is not agreed but, in the absence of marriage value, this value is not included in the calculation of the price under section 9(1C) of the 1967 Act.

10. The outstanding issues are:-

(i) The amount of the increased ground rent under the lease, that is to say 1/30^th of the land value (as defined).

(ii) The value of the freehold interest with vacant possession on the end of the lease disregarding improvements.

EVIDENCE

Appellants

11. Mr Stein said that they were introduced to the possibility of buying the lease of 27 Norfolk Road by local estate agents. The house was not for sale. It was let but the right offer might persuade the owners to sell. The property had a particular appeal to Mr and Mrs Stein and they were prepared to pay a premium price. They then lived nearby at 45 Queens Grove. They were advised to make an offer of £2,475,000. This was their second offer. In cross-examination Mr Stein conceded that 27 Norfolk Road had been on the market 6-12 months before they bought the property.
12. The house was structurally sound but in poor decorative condition with an outdated kitchen and bathroom. They intended to demolish and rebuild the rear extension, redecorate and install a new kitchen and bathroom. In May 1998 they met their architect at the house to discuss their proposals. He prepared a sketch plan. In July 1998, following exchange of contracts, application was made for planning permission and listed building consent and the proposed alterations were discussed with the surveyor to the Eyre Estate. The cost of the works carried out was £330,000 and a further £30,000 to £40,000 was spent on carpets and lights and in landscaping the garden. The works commenced in November 1998 and were completed in October 1999.
13. It is incorrect to say that the price paid for the lease represented site value only. As a property developer, Mr Stein said that he is aware of the constraints on the development of a listed building in a conservation area. There was no radical departure from the works originally planned.
14. Mr Bernstone is a director of Aston Chase Estate Agency of Park Road NW1 and has been involved in the sale of residential properties in Central London for 23 years. Aston Chase was established in 1985. Mr Bernstone said that it is one of the two leading agencies for properties in St John's Wood with values in excess of £1,500,000.
15. Mr Bernstone said that the price paid for the leasehold interest by the appellants in June 1998 was significantly above market value. This latter was £2,200,000 and the price paid was therefore £275,000 above market value, reflecting the off-market nature of the transaction. In support he referred to the sale of the 66 year lease of 29 Norfolk Road in February 1997 for £1,900,000 with the benefit of notice to enfranchise. There was probably a 10% market movement between the sales of 29 and 27 Norfolk Road.
16. Mr Bernstone said that he has considered Mr Buchanan's evidence regarding the freehold value of the appeal property in May 1997. His analysis of comparables generally accords with the evidence given by Mr Bernstone to the leasehold valuation tribunal. This supports an improved freehold value of £2,300,000.
17. It is necessary to establish the site value of 27 Norfolk Road to find the increased ground rent. Mr Bernstone assumed a development comprising a detached house the same size as 27 Norfolk Road (as improved by the appellants) in a style compatible with numbers 2, 3, 4/4A, 28 and 29 Norfolk Road. The gross development value at the date of valuation was £2,650,000, i.e. £2,300,000 improved freehold value plus £350,000 for the new enlarged property. The best comparable is 39 Queens Grove. The determination by the leasehold valuation tribunal of a review ground rent of £45,000 per annum with 40% of gross development value representing site value, suggests a site value of £1,350,000 and a gross development value of £3,375,000. There is no basis for a gross development value of such a high figure. Site value and size when considering comparables are not directly related.
18. In cross-examination Mr Bernstone was questioned regarding the purchase of 27 Norfolk Road by Mr and Mrs Stein. He agreed that the house was on the market a year before the sale to the appellants and that it was let at the time of their purchase. The original asking price was £2,250,000. The house did not sell because the price was too high, the lease contained an onerous rent review and there were fewer enfranchisements at that time. The owners had resigned themselves to not being able to sell and had taken the house off the market and let it. They were persuaded to sell by the higher offer made by Mr and Mrs Stein.
19. Mr Buchanan is a director of Colliers Conrad Ritblat Erdman of London W1 and elsewhere, responsible for a specialist residential consultancy department established six years ago.
20. Mr Buchanan's valuation is £497,544 comprising the capitalisation of the existing rent of £400 per annum and the estimated increased rent of £35,000 per annum at 6% plus the freehold vacant possession value (disregarding improvements) at the end of the lease, £2,100,000, deferred at 6%.
21. With regard to the increased rent, Mr Buchanan accepted that this figure can be found by reference to site sales, sales of houses which were subsequently demolished or substantially rebuilt, by taking a proportion of the gross development value and by reference to enfranchisement settlements and decisions. He said that there was a lack of open market evidence except the sale of 67A Marlborough Place in November 1996 for £500,000. The site value of the appeal property would be 1½ to 2 times the site value of this comparable. Upward adjustments would have to be made for market movement between November 1996 and May 1997 and for the better location of the appeal property. Mr Buchanan put this uplift at 15% in total, indicating a site value of £1,025,000 for 27 Norfolk Road.
22. Within the last six months to one year there have been other site sales, particularly 32 Elm Tree Road. However, these transactions were three years after the valuation date and are not good evidence due to the adjustments needed to relate them to 27 Norfolk Road in May 1997.
23. There have also been determinations by the Lands Tribunal and leasehold valuation tribunals and settlements in enfranchisement cases. These should not be ignored but greater weight should be given to market transactions. Settlements are likely to be more conservative than market sales. In cross-examination Mr Buchanan conceded that settlements may be taken into account where market evidence is not good, but generally the latter is to be preferred. Mr Buchanan put in evidence a schedule of cases where site value formed a component part of the enfranchisement price and where the ground rent was subject to review to a percentage of site value. That value equated to 40% of gross development value. This percentage can be derived from a residual valuation although an artificial apportionment of 60% and 40% is used by valuers and accepted by tribunals. Mr Buchanan particularly referred to 26 Marlborough Place, 34 Elm Tree Road, 22 Carlton Hill and 18 and 21 Norfolk Road where site values were in the range of £840,000 to £1,200,000. Mr Buchanan believed that these settlements (particularly 18 and 21 Norfolk Road) supported a site value for the appeal property in the region of £1,000,000. Mr Buchanan also referred to settlements in respect of 3, 28 and 4/4A Norfolk Road. For nos.3 and 28 the landlords' analyses indicated a site value of £1,350,000 for each property. The most recent settlement is 4/4A Norfolk Road which produced a site value of £1,125,000 on the landlords' analysis and £1,050,000 on the tenants' figures. This is the better evidence. Negotiations continued until a few days before the leasehold valuation tribunal hearing. The tribunal would have been expected to determine a price below the final settlement.
24. These transactions and other settlements support the view that there is no direct correlation between site area and site value. The market does not assess site value in direct proportion to site area. There have been sales of houses in St John's Wood where demolition took place after purchase, particular the appeal property, 30 Marlborough Place and 26 Carlton Hill. These do not provide the best evidence of site value.
25. Mr Buchanan said that an alternative approach to site value is the residual approach, a percentage of gross development value. The correct percentage is 40%, see the decision of a leasehold valuation tribunal for 43 Queens Grove, the decisions of a leasehold valuation tribunal and the Lands Tribunal for 26 Marlborough Place and, more recently, for 18 Norfolk Road. Mr Buchanan also considered the sale of 39 Queens Grove, a virtually reconstructed house.
26. For the appeal property both valuers at the hearing before the leasehold valuation tribunal agreed a site value of 40% of gross development value. The tribunal determined a site value of £1,350,000. This would result in a gross development value of £3,375,000 compared to the unimproved freehold value determined by the tribunal at £2,400,000, indicating that the gross development value is approximately 40% higher than the improved freehold value, which cannot be correct.
27. In Mr Buchanan's experience the difference between an unimproved freehold value (the unimproved existing house) and gross development value (a new house built to modern standards) would be about 25% to reflect development potential and a new building. On the basis of an unimproved freehold value of £2,100,000 an increase of 25% supports a gross development value of £2,650,000. On the above evidence the site value of the appeal property was £1,050,000 producing a ground rent on review in June 2001 of £35,000 per annum.
28. To find the unimproved freehold value Mr Buchanan had regard to comparables at 29 Acacia Avenue, 23 Avenue Road, 25 and 41 Queens Grove. These indicate a freehold value for 27 Norfolk Road of £2,300,000. Tenants' improvements are agreed at £200,000 producing an unimproved value of £2,100,000.

Respondents

29. Mr Briant is a partner in Cluttons and The Assistant Agent of the Eyre Estate. He is also Estate Surveyor on the neighbouring John Lyon's Charity Estate.
30. Mr Briant's valuation is £632,300 comprising the capitalisation of the existing rent of £400 per annum and the estimated increased rent of £45,000 per annum at 6% plus the freehold vacant possession value at the end of the lease, £2,400,000, deferred at 6%. Mr Briant defended the price fixed by the leasehold valuation tribunal.
31. In assessing the review rent at £45,000 per annum Mr Briant relied on the appellants' purchase of the leasehold interest in the appeal property and the sale prices of 30 and 67A Marlborough Place and 26 Carlton Hill. These transactions support a site value for 27 Norfolk Road in excess of £1,350,000. Mr Briant also referred to settlement evidence relating to 4/4A and 28 Norfolk Road. The agreed site value for 4/4A was £1,125,000 and for no.28, £1,350,000. Mr Briant said that as a rule of thumb site value is in direct proportion to the site area, although there can be greater site cover on smaller sites and the characteristics of a property will temper site value calculated on a pro-rata basis. Mr Briant defended his reduction in site value from £1,500,000, given in evidence before the leasehold valuation tribunal, to his present figure of £1,350,000, on the grounds that he has modified his opinion in the light of the decision of the leasehold valuation tribunal.
32. With regard to the value of the freehold interest in the appeal property (£2,400,000) Mr Briant relied on enfranchisement settlements in respect of 4/4A and 28 Norfolk Road and on leasehold or freehold sales in respect of 25 Queens Grove, 9 Cavendish Avenue and 23 Avenue Road. For 4/4A Norfolk Road the enfranchisement price of £345,000 as at April 1997 included a freehold value of £2,300,000 and for 28 Norfolk Road the price of £557,500 as at July 1997 included a freehold value of £2,525,000. In both cases Mr Briant agreed these figures with the tenants' surveyor, Mr Marr-Johnson 25 Queens Grove was sold leasehold in April 1997 for £2,200,000 with the benefit of notice to enfranchise. An enfranchisement price of £450,000 was subsequently agreed, giving a total price for the freehold of £2,650,000 in April 1997. 9 Cavendish Avenue was sold freehold in August 1994 for £2,250,000 and subsequently sold in April 1997 after refurbishment for £4,125,000. These figures indicate, said Mr Briant, an improved freehold value of £2,600,000 for the appeal property in April 1997. 23 Avenue Road was sold freehold in August 1997 for £2,500,000. This figure supports a freehold value of £2,600,000 in August 1997.
33. Mr Briant also put in evidence settlements and tribunal decisions in the form of a graph showing that there is a differential of 78.85% between the value of a long leasehold interest with about 65 years unexpired and the freehold. He supported the use of settlements as evidence of value. Most tenants in St John's Wood are represented by surveyors. His schedule of settlements is of assistance in enabling the parties to see the variables in the agreed price.

DECISION

34. The price on enfranchisement in this appeal is to be calculated under section 9(1C) of the 1967 Act, which provides that it shall be determined in accordance with subsection (1A) of section 9 as amended by subsection (1C). The effect of these provisions is that the price payable for 27 Norfolk Road "shall be the amount which at the relevant time the house and premises, if sold in the open market by a willing seller, might be expected to realise on the following assumptions":-

(i) that the vendor is selling for an estate in fee simple, subject to the tenancy, but on the assumption that the 1967 Act conferred no right to acquire the freehold;

(ii) that the tenant has no liability for repairs, maintenance and redecorations under the tenancy or Part I of the Landlord and Tenant Act 1954;

(iii) that the price be diminished by the value of improvements carried out by the tenant or his predecessors in title at their own expense;

(iv) that the vendor is selling subject to certain rentcharges (where applicable) but that the purchaser would otherwise be exonerated until the end of the tenancy from tenant's encumbrances;

(v) that the vendor is selling with, and subject to, the rights and burdens in the conveyance;

(vi) that, if in determining the price, marriage value arising out of the coalescence of the freehold and leasehold interests falls to be taken into account, then the tenant's share of such value shall not exceed one-half.

The relevant time for the calculation of price (the valuation date) is 28 May 1997. At that time the tenancy in (i) above had an unexpired term of 65 years with a rent review in four years. The parties have agreed that the price does not include marriage value, that the capitalisation and discount rate is 6% and that the value of tenants' improvements to be disregarded is £200,000. I am required to determine the increased ground rent at the next review and the freehold value disregarding improvements.

Increased ground rent

35. The increased rent at the next review on 24 June 2001 is 1/30^th of the land value, that is to say the open market value of 27 Norfolk Road as a site cleared of all buildings, with vacant possession, not subject to a lease and with the benefit of planning permission which might be obtained for residential or other purposes under the lease. Both valuers considered the site for development with a single house. Mr Buchanan's land value is £1,025,000 giving a rent (rounded up) of £35,000 per annum; Mr Briant's figure is £1,350,000 giving a rent of £45,000 per annum. The agreed site area is 840 square metres or 9,042 square feet.
36. The comparables relied upon by the valuers fall into three categories: sales of a house and land where the house was subsequently demolished and rebuilt or substantially altered; sales of a house and land where the land value has been found by taking 40% of the gross development value; and settlements and tribunal decisions under the 1967 Act. I now consider each of these categories.
37. I look first at four sales of a house and land followed by rebuilding or substantial alteration, so that it could be said that the price paid wholly or substantially related to site value. All the comparables in this category were considered by both valuers.
38. The leasehold interest in 27 Norfolk Road (the appeal property) was purchased by Mr and Mrs Stein in June 1998 for £2,475,000. They subsequently spent £330,000 on improvements and alterations, including some demolition and rebuilding. Mr Stein's evidence was that he paid above market value to obtain the property. Mr Bernstone put the additional price at £275,000.
39. Mr Buchanan rejected this transaction as a good comparable. Mr Briant converted the purchase price into a site value of £1,477,496 by making four adjustments: for market movement between May 1997 and October 1998 (completion) (less 10%), for the benefit of the 1967 Act (less 15%), for the greater value of the freehold interest (multiplied by 1/0.78) and for the existing buildings (less £950,000).
40. I do not consider this transaction to be reliable evidence of site value due the adjustments needed to convert the purchase of the leasehold interest in a house and land to the freehold interest in bare land. The material dates are May 1997, when the notice to enfranchise was served, and June 1998, when contracts were exchanged, and I have no reliable evidence of the change in site values (as opposed to house values) between these dates. Mr and Mrs Stein purchased a 64 year leasehold term with a notice to enfranchise and adjustments need to be made for this benefit and for the relative value of a 64 year lease compared to the freehold. The former adjustment is wholly conjecture, the latter has some supporting evidence (Mr Briant's graph of the general relationship between leasehold and freehold values). Finally, a deduction must be made for the value of the existing buildings on purchase. Mr Briant put this figure at £950,000 but in cross-examination explained that it was largely based on the cost of rebuilding the house as purchased. It was solely an opinion figure not a calculated amount. He said that he tried to make sense of the relationship between gross development value and site value in the price paid. These adjustments, in my view, are not soundly based and make the use of this comparable unreliable.
41. The next comparable is the sale of the freehold interest in 67A Marlborough Place for £500,000 in November 1996. This property comprised a site of 320 square metres with a dilapidated house. This was subsequently demolished, a new house built and the completed development sold in May 1999 for £1,300,000.
42. Mr Buchanan took the price of £500,000 in November 1996, added £50,000 for market movement between this date and May 1997 (10%), added £100,000 for the better location of the appeal property and £375,000 for the larger size of the site of the appeal property on the grounds that a pro-rata increase should not be made relative to site area but that a multiplier of 1.5 to 2 should be used to convert the price for the smaller comparable to relate it to 27 Norfolk Road. These adjustments produced a site value for the appeal property of £1,025,000 in May 1997. Mr Briant's adjusted figure of site value for the appeal property was much higher, £1,578,125. He made three adjustments: a 5% addition (£25,000) for market movement, a pro-rata increase for the larger site area of the appeal property (840/320 square metres or a multiplier of 2.6) and an addition of £200,000 for location.
43. I agree that this is a useful comparable but adjustments need to be made for time, size and location to relate it to 27 Norfolk Road. As to time, or market movement, both Mr Buchanan and Mr Briant agree that values increased between November 1996 and May 1997 and both gave unsupported opinions, Mr Buchanan 5%, Mr Briant 10%. The best that I can do with this opinion evidence is to adopt 7.5%. This produces a figure of £537,500 as at May 1997. For size, I agree with Mr Buchanan that the value of a larger site is not necessarily pro-rata to the value of a smaller site. A pro-rata multiplier in this case would be 2.6, which is, I think, too high. I put the multiplier at 2 giving a value of £1,075,000 for 27 Norfolk Road in May 1997 before adjustment for the location of this property compared to 67A Marlborough Place. From my inspection I conclude that this is an inferior location and an upward adjustment is needed. This is a matter of judgment. I increase the price to £1,345,000 to relate it to 27 Norfolk Road.
44. The next comparable in this category is 30 Marlborough Place. In March 1998 the freehold of this period semi-detached house and land was sold for £2,050,000. The house was subsequently demolished and rebuilt. The site area is 858 square metres.
45. Mr Buchanan rejected this comparable on the grounds that the house was in excellent condition on sale. The reason for the demolition (other than the front façade) was to enable a swimming pool to be built in the basement. The price reflected the house and land. Mr Briant disagreed: the purchaser bought the property for redevelopment. He adjusted the price of £2,050,000 to produce a site value of £1,466,400 for the appeal property by deducting 10% for market movement between May 1997 and March 1998, increasing the value pro-rata to the site areas (I note that Mr Briant has used a site area of 750 square metres for 30 Marlborough Place although the area in the statement of agreed facts is 858 square metres), adding £200,000 for the better location of the appeal property and deducting £800,000 for the value of the house on purchase.
46. I agree with Mr Buchanan that this is not a reliable comparable. By deducting £800,000 for the existing house in his analysis Mr Briant has accepted that the purchase price related to land and buildings and I am doubtful if the amount which Mr Briant has attributed to the buildings is a realistic figure.
47. The final comparable in this category is 26 Carlton Hill. The freehold of this detached house divided into flats was sold in April 1998 for £1,400,000. The property was subsequently refurbished to provide a house with seven bedrooms, five bathrooms, three reception rooms, kitchen/breakfast room and study. The site area is 585 square metres.
48. Mr Buchanan rejected this comparable on the grounds that the price reflected the existing entirety value of the house and land. Mr Briant disagreed: the price paid was for little more than the site. He adjusted the price of £1,400,000 to produce a site value for the appeal property of £1,414,400 in May 1997. He deducted 10% for market movement between May 1997 and April 1998, increased the price for the smaller site area pro-rata, added £100,000 for the better location of the appeal property and deducted £500,000 for the existing buildings. I agree with Mr Buchanan that this is not a reliable comparable for site value. The objections to 30 Marlborough Place above also apply to 26 Carlton Vale.
49. In the first category of comparables for site value therefore only 67A Marlborough Place is reliable and this indicates a site value of £1,345,000 for 27 Norfolk Road in May 1997.
50. The second category of site value comparables comprises sales of houses and sites, which are used to calculate a gross development value (a new house of optimum development) to which 40% is applied to produce a site value. This is often referred to as the standing house approach. Mr Buchanan has used this method of valuation by reference to decisions of the leasehold valuation tribunal in respect of 43 Queens Grove, 26 Marlborough Place (and also of the Lands Tribunal) and 18 Norfolk Road and the sale of 39 Queens Grove. His unimproved freehold value for 27 Norfolk Road is £2,100,000 and in his opinion the gross development value of a property is likely to be about 25% above the value of the existing house to reflect a new building, giving a gross development value of £2,650,000 for the appeal property and a 40% site value (rounded down) of £1,050,000. Mr Briant did not refer to this method of arriving at site value in his proof of evidence.
51. In my view the apportionment of the price paid for house and land as a single entity by using a 40% proportion for the land is artificial and unreliable. It should only be used as a method of last resort, ranking below open market transactions and reliable settlement evidence. It should only be used in the absence of other reliable evidence. Furthermore, in this appeal it is rendered even more unreliable in Mr Buchanan's evidence by his reliance on decisions of the leasehold valuation tribunal and this Tribunal in three out of his four comparables in this category.
52. Leasehold valuation tribunal decisions on questions of fact or opinion are indirect or secondary evidence and can be given little or no weight in proceedings in this Tribunal, even if they are admissible. In Land Securities Plc v Westminster City Council the issue was whether an arbitrator's award determining the market rent of an office building on review was admissible evidence in another rent review relating to adjoining offices. Hoffman J, after referring to the admissibility of evidence of rents in the market and on review, said (page 155):-

"An arbitration award on the other hand is an arbitrator's opinion, after hearing the evidence before him of the rent at which the premises could reasonably have been let. The letting is hypothetical, not real. It is therefore not direct evidence of what was happening in the market. It is the arbitrator's opinion of what would have happened.

In principle the judgement, verdict or award of another tribunal is not admissible evidence to prove a fact in issue or a fact relevant to the issue in other proceedings between different parties. The leading authority for that proposition is Hollington v Hewthorn and Co Ltd …"

He concluded that the award was inadmissible and said (page 158):-

"This is not in my view a technical decision on outdated rules of evidence. Properly analysed I think that the arbitrator's award has in itself insufficient weight to justify the exploration of otherwise irrelevant issues which its admissibility would require."

53. In my view the same principles apply to decisions on matters of fact or opinion by leasehold valuation tribunals and this Tribunal (see eg Cadogan Estates Ltd v Hows where earlier decisions of leasehold valuation tribunals and this Tribunal on yield were rejected in favour of settlement evidence).
54. I look now at the settlement evidence. Five of the settlements relate to properties in Norfolk Road and I need look no further than this evidence.
55. 21 Norfolk Road is relied upon by Mr Buchanan but not by Mr Briant. Mr Buchanan acted for the tenants. The valuation date was 17 April 1997. There was no agreement on site value but the landlords' figure was £900,000 and the tenant's £850,000. The site area is 522 square metres. Mr Buchanan said that the figures in this settlement support a site value of about £1,000,000 for 27 Norfolk Road. The dates are close and the adjustments relate only to site area and location. In my judgment the site value figures for this comparable indicate a value in the range of £1,300,000 to £1,400,000 for the appeal property.
56. 18 Norfolk Road is also relied upon by Mr Buchanan but not by Mr Briant. Mr Buchanan acted for the tenants. This was not a settlement but a decision of a leasehold valuation tribunal and I give it no weight for the reasons set out above.
57. 3 Norfolk Road is a settlement referred to by Mr Buchanan but not by Mr Briant. Mr Buchanan said that the landlords' analysis of the enfranchisement price indicates a site value of £1,350,000. The site area is 602 square metres and the valuation date was 12 May 1997. This is a corner property like no.27 and is directly opposite. In my judgment a site value of £1,350,000 for no.3 is indicative of at least this figure for the appeal property and probably up to £1,600,000.
58. The settlement in respect of 4/4A Norfolk Road is relied upon by both valuers. This property is a house and coach house on a corner plot diagonally opposite the appeal property and also opposite 3 Norfolk Road. The valuation date is 15 April 1997. Mr Buchanan said that the site value is £1,125,000 on the landlords' analysis of the settlement or £1,050,000 on the tenant's analysis. A letter dated 17 September 1999 from the tenant's surveyor to Mr Briant suggests that agreement might be reached at a site value of £1,010,000. Mr Briant's figure is £1,125,000. Unfortunately, the site area is not agreed: Mr Buchanan's figure is 680 square metres, Mr Briant's figure is 645 square metres. Owing to the lack of certainty regarding the agreed site value and the site area this comparable can be given little weight. It indicates that the site value for 27 Norfolk Road is in the region of £1,110,000 to £1,240,000.
59. The last settlement I consider is 28 Norfolk Road, next door to the appeal property. Both valuers refer to this settlement and both put the site value at £1,350,000. Unfortunately, the site area is not agreed; Mr Buchanan's figure is 833 square metres but he commented in his proof that no.28 comprises a larger site than the appeal property; Mr Briant's site area is 924 square metres. The agreed valuation date is 7 July 1997. In my judgment this comparable indicates that the site value of the appeal property is slightly higher than £1,350,000, to reflect the corner position, say £1,375,000.
60. In summary, the open market sale of 67A Marlborough Place indicates a site value of £1,345,000 for the appeal property in May 1997. The settlements indicate a range of site values from about £1,110,000 to £1,600,000 but three of them, nos.21, 3 and 28 Norfolk Road, produce figures around £1,350,000 for the appeal property. Overall, I am satisfied that Mr Briant's figure of £1,350,000 (also determined by the leasehold valuation tribunal) is correct. This produces an increased ground rent (1/30^th) of £45,000 per annum.

Freehold vacant possession value (disregarding improvements)

61. This is the value of the freehold interest in the appeal property on the termination of the existing lease, with vacant possession and disregarding the value of tenants' improvements. This value was agreed to be £200,000 for the improvements carried out under the licences in 1983 and 1990. By valuing the property in the condition as at 28 May 1997 the value of the extensive improvements later executed by Mr and Mr Stein are also excluded from consideration. The difference between the valuers is relatively small: Mr Buchanan's figure is £2,100,000, Mr Briant's is £2,400,000. The comparables relied on fall into two categories, market sales and settlements.
62. I look first at the open market sales. Sale prices require several adjustments to relate them to the unimproved value of 27 Norfolk Road in May 1997. Adjustments must be made for differences in location and quality and condition of accommodation. Both valuers made specific adjustments to relate each comparable to 27 Norfolk Road. In my view, however, valuation by reference to comparables is essentially a question of overall judgment based on experience and it is impossible to base this judgment on percentages or amounts for specific factors, other than for size or changes in value between two dates. My comparison between each comparable and 27 Norfolk Road in terms of location and quality and condition of accommodation will be a matter of overall judgment. Adjustments for changes in levels of value can be made by reference to indices of capital values. In the absence of other evidence I adopt the FPD Savills Prime Central London Residential Capital Value Index (PCL North) referred to by the respondents. This will be used to relate the comparable sale price to the level of values at May 1997.
63. I look now at the five sale comparables. I reject two of them as unreliable. 23 Avenue Road was sold in August 1997. This is a Tudor style house then converted into three flats. There is a lack of information regarding accommodation and my inspection showed it to be dissimilar to 27 Norfolk Road. I also reject 9 Cavendish Avenue. This is relied upon by Mr Briant but not by Mr Buchanan. This is a detached four-storey house in the residential area to the west of Finchley Road some way to the south of the appeal property. The freehold was sold in November 1994 in tired condition for £2,250,000 and then sold again in excellent condition in March 1997 for £4,125,000. In my view this is not a good comparable due to the substantial differences in location, size and condition compared to the appeal property. The 1997 price is substantially higher than the other comparables and both valuers' figures for 27 Norfolk Road.
64. I derive assistance from the following comparables. The first is 29 Acacia Road. This is relied upon by Mr Buchanan but not by Mr Briant. This was the sale of the freehold in June 1998 for £1,760,000. This is a detached period house agreed to have been in need of internal modernisation. Accommodation was on four floors and comprised hall, cloakroom, two living rooms, kitchen, eight bedrooms, two bathrooms and a self-contained flat on the lower ground floor with five rooms. The effective floor area was 2,293 square feet. There was a garage and off-street parking for three cars. Acacia Road is to the east of Finchley Road, close to Norfolk Road.
65. Mr Buchanan made upward adjustments to the price for market movement, accommodation on two floors at the appeal property, the better condition of the appeal property and the larger site area. These adjustments produced a value for 27 Norfolk Road in May 1997 of £2,660,000. I believe that his addition of £150,000 for market movement is an error: values rose between May 1997 and June 1998 and there should be a deduction to relate the price back to the earlier valuation date. Making this adjustment reduces Mr Buchanan's figure of £2,360,000 to £2,060,000. My adjustments to this sale price to relate it to the appeal property in May 1997 produce a figure in the region of £1,900,000.
66. The next comparable sale is 41 Queens Grove. This is relied upon by Mr Buchanan but not by Mr Briant. This is a detached 1930s house on four floors sold freehold in March 1998 for £2,250,000. The effective floor area is 3,038 square feet and the accommodation comprised five living rooms, five bedrooms, two dressing rooms, five en-suite bathrooms, staff bedroom, bathroom and kitchenette, kitchen/breakfast room and an additional cloakroom. Queens Grove is on the eastern side of Finchley Road close to Norfolk Road.
67. Mr Buchanan made deductions of £300,000 for market movement and site area and additions totalling £350,000 for accommodation and lack of overlooking to give a value of £2,300,000 for the appeal property in May 1997. My adjustments to this sale price to relate it to the appeal property in May 1997 produce a figure in the region of £2,000,000.
68. The third comparable sale is 25 Queens Grove, a detached 1930s house in a corner position. The leasehold interest with 99 years unexpired at a fixed ground rent of £90 per annum was sold in April 1997 for £2,200,000 and the freehold was acquired a few months later for £450,000, giving a total consideration for the freehold in possession of £2,650,000. The accommodation comprised four living rooms, seven bedrooms, two bathrooms, kitchen, pantry and boiler room with a floor area of 2,691 square feet and a new top floor. Mr Briant estimated the total floor area to be 3,854 square feet.
69. Mr Buchanan made a deduction of £650,000 for size and additions totalling £350,000 for location, larger garden and condition, to produce a value of £2,350,000 for the appeal property in May 1997. In cross-examination he conceded that one-third of the accommodation is in the roof space and that a further £50,000 adjustment should be made for this. Mr Briant also relied on this comparable but analysed it to produce a figure of £2,650,000 for the appeal property, by making a deduction of £350,000 for size and additions totalling £350,000 for location and condition. My adjustments to the total sale price to relate it to the appeal property in May 1997 produce a figure in the region of £2,350,000.
70. I turn now to the settlements. Two settlements (4/4A and 28 Norfolk Road) were relied upon by Mr Briant but not by Mr Buchanan. In both cases Mr Briant acted for the landlords and the same surveyor, Mr Marr-Johnson, acted for the tenants. Mr Briant said that he recalled agreeing his breakdowns of the agreed prices with Mr Marr-Johnson. A letter dated 17 September 1999 from Mr Marr-Johnson to Mr Briant was put in evidence. Although it does not include an agreed breakdown of the prices, it suggests that Mr Marr-Johnson had similar figures in mind for the freehold vacant possession values, £2,200,000 for 4/4A Norfolk Road (perhaps later agreed at £2,300,000 as stated by Mr Briant) and £2,500,000 for 28 Norfolk Road (Mr Briant's figure is £2,525,000). For 4/4A the valuation date was April 1997 and the property comprised a house of 227 square metres and a coach house of 44 square metres, both on a smaller site of 645 square metres. Mr Briant suggested that an upward adjustment of £200,000 should be made to reflect the smaller plot, giving a value of £2,500,000, to support his value of £2,400,000 for the appeal property. For 28 Norfolk Road the valuation date was July 1997 and the property comprised a house of 220 square metres on a corner plot. Mr Briant made no adjustments to his freehold value of £2,525,000 to relate it to 27 Norfolk Road, which is therefore in excess of his figure of £2,400,000 for this property. These settlements were not relied upon by Mr Buchanan and were specifically criticised as being based on an earlier settlement, 3 Norfolk Road, where the tenants suffered a burglary, were anxious to leave the property and agreed a higher price that would otherwise have been the case.
71. Although Mr Briant referred to the price paid by Mr and Mrs Stein for the leasehold interest in the appeal property to support his land value, neither valuer referred to it in connection with the freehold value. I have rejected this price as reliable evidence of site value, mainly due to the uncertainty as to the value of the buildings to be deducted in arriving at that value. I am of the opinion, however, that this price should be looked at when considering the freehold value. Adjustments have to be made to convert the leasehold price in June 1998 into an equivalent freehold value in May 1997; these adjustments can be made by the indices referred to earlier in this decision. More difficult adjustments have to be made to remove any value attributable to the notice to enfranchise and any part of the price in excess of market value. I deal with this first.
72. Mr and Mrs Stein contracted to buy the leasehold interest in 27 Norfolk Road in June 1998 for £2,475,000 The lease then had 64 years unexpired. The evidence of Mr Stein, supported by the opinion of Mr Bernstone, was that this price was in excess of market value. The house was not on the market, it had been let and the vendors had to be persuaded to sell by an offer above the market price. Mr Bernstone put this latter figure at £2,200,000 supported by the sale of the leasehold interest (66 years unexpired) in 29 Norfolk Road in February 1997 for £1,900,000 (with the benefit of notice to enfranchise). This house is similar to no.27 in appearance but slightly larger and on a larger plot. In terms of values at June 1998 this price (using the FPD Savills index) represented £2,394,000 at that time. This value evidence plus the evidence of Mr Stein and Mr Bernstone indicate that the price paid by the appellants for 27 Norfolk Road was above the market value. In my view, however, Mr Bernstone's figure of £2,200,000 for that value is too low: I put it at £2,300,000.
73. Adjustments must now be made to remove the value of the notice to enfranchise and convert the price to a freehold value in May 1997. The deduction to exclude the value of the notice to enfranchise is a matter for speculation. Mr Briant used 15% when he analysed the price to find site value. In the absence of other evidence I adopt this figure. The adjustments to relate the June 1998 leasehold price to the freehold value in May 1997 can be found in the FPD Savills index and Mr Briant's graph showing the relationship between the values of freehold and leasehold interests of varying duration. The effect of these adjustments is to convert the adjusted leasehold value of £2,300,000 in June 1998 to a freehold value of £2,170,000 as at May 1997. If the price paid by Mr and Mrs Stein of £2,475,000 was the market price then the equivalent freehold value in May 1997 was £2,340,000.
74. The evidence relating to the freehold value of the appeal property shows that the three sale comparables indicate values of £1,900,000, £2,000,000 and £2,350,000 for this property in May 1997. The two settlements, 4/4A and 28 Norfolk Road, probably include freehold values of £2,300,000 and £2,500,000 within the agreed enfranchisement prices. The purchase of the leasehold interest in 27 Norfolk Road by the appellants indicates a freehold value in May 1997 of £2,170,000 or, at most, £2,340,000. I give little weight to the settlements in the light of the better market evidence. This indicates that the unimproved freehold value was below the figure of £2,400,000 (£2,600,000 before the deduction of improvements agreed at £200,000) adopted by Mr Briant. In my judgment, the freehold value as at 28 May 1997 was £2,300,000 giving an unimproved value of £2,100,000, the figure used by Mr Buchanan in his valuation.

Conclusion

75. My valuation is as follows:-

Rent   £400

YP 4 years @ 6%   3.46 £ 1,384

Increased rent £45,000

YP 61 years deferred 4 years @ 6%      12.82 £576,900

Freehold value (disregarding improvements) £2,100,000

PV of £1 in 65 years @ 6%      0.0226 £47,460

£625,744

say £625,750

76. I determine the price payable for the freehold interest, disregarding tenants' improvements and subject to the lease dated 21 September 1981, in 27 Norfolk Road, calculated in accordance with section 9(1C) of the 1967 Act as at 28 May 1997 to be £625,750 (six hundred and twenty-five thousand and seven hundred and fifty pounds). The appeal is allowed to a limited extent.
77. This decision concludes my determination of the substantive issues in this case. It will take effect as a decision when the question of costs has been decided and at that point, but not before, the provisions relating to the right of appeal in section 3(4) of the Lands Tribunal Act 1949 and order 61 rule 1(1) of the Civil Procedure Rules will come into operation. The parties are invited to make submissions as to the costs of this appeal. A letter accompanying this decision sets out the procedure for submissions in writing.

DATED: 18 May 2001

(Signed: P H Clarke)

ADDENDUM

78. I have received written submissions on costs. My determination of price in this appeal was £625,750, slightly below the decision of the leasehold valuation tribunal (£632,300), which the respondents defended, and well above the appellants' figure of £497,544. Both parties have made offers to settle. On 1 February 2001 the respondents offered to accept a price of £600,000. On 2 March 2001 the appellants offered to pay £540,000. Both offers contained time limits for acceptance and provisions relating to costs.
79. The appellants ask for their costs on the grounds that their appeal has been successful, and that the respondents' offer was not effective because they did not offer to pay the appellants' costs up to the date of acceptance. The appellants' submissions do not refer to their offer to settle.
80. The respondents ask for their costs on the grounds that the price I determined is much closer to the figure fixed by the leasehold valuation tribunal than the appellants' figure and that my award is higher than both offers.
81. The respondents' offer is below my award; the appellants would have done better by acceptance than by proceeding to a hearing and determination at a higher figure. The appellants' offer is below my award and therefore the respondents were justified in refusing it and proceeding to a hearing and determination at a higher figure. In my judgment the appellants should pay the respondents' costs from the first of the dates when the respondents' offer was open for acceptance, 21 February 2001. The three week period between the date of offer and this date was adequate time for consideration and acceptance.
82. The respondents' offer was on the basis that each party should bear their own costs. The appellants say that they should receive their costs before the acceptance date by analogy with rule 36.14 of the Civil Procedure Rules. This provides that, where a claimant's offer is accepted, he will be entitled to his costs up to date of acceptance by the defendant. The Civil Procedure Rules do not apply to proceedings in this Tribunal and I do not think that rule 36.14 should be applied by analogy in this case. The offer was not accepted. On the facts I can find no reason why the appellants should receive their costs before the respondents' offer. It was open to them to protect their position by making an offer at an early date in the proceedings. The appellants achieved very limited success in the appeal, a reduction in the price of £6,550 or 1%, a reduction so minimal that it does not justify an award of costs in the appellants' favour. The respondents accepted the decision of the leasehold valuation tribunal and did not cross-appeal.
83. I have regard to the recent decision of the Court of Appeal in Phyllis Trading Limited v 86 Lordship Road Limited [2000] EWCA Civ 350. In this case the leasehold valuation tribunal fixed the enfranchisement price at £3,300; the landlords appealed, the Lands Tribunal allowed the appeal and increased the price marginally to £3,610. The tenants made an offer to settle at £4,000. This was refused by the landlords. They submitted that the offer contained no provision for costs or was on the basis that each party should bear its own costs and that the landlords were justified in rejecting the offer and did better because their costs of the appeal were greater than £400, the difference between the offer and the award. The member accepted the landlords' submissions and awarded them their costs. On appeal the Court of Appeal substituted an order that there should be no order for costs up to the date for acceptance of the offer and that the landlords should pay the tenants' costs after that date. Lady Justice Hale said (para 28):-

"It is particularly important in this context that the power to award costs should be exercised in such a way as to encourage rather than discourage settlements. The scheme envisages a first instance jurisdiction in the leasehold valuation tribunal where there is no power to award costs. This is a device frequently adopted by Parliament in cases where it is likely that there will be a disparity in the bargaining power between the parties. If the costs jurisdiction in the Lands Tribunal is exercised in such a way that the landlord can reject offers out of hand and then succeed by only a small margin in increasing the valuation of the property and get the whole of the costs of that exercise, this will be to frustrate the purpose of the scheme."

In this present appeal the reference to landlord can be to the tenant and "increasing the valuation" to a reduction in the valuation.

84. In my judgment the right decision in this appeal is that each party should bear their own costs up to the date for acceptance of the respondents' offer and that the appellants should pay the respondents' costs after that date. Accordingly, I make no order as to costs up to 21 February 2001 and I order the appellants to pay the respondents' costs of this appeal from that date, such costs, if not agreed, to be the subject of a detailed assessment on the standard basis by the Registrar of the Lands Tribunal.

DATED:

(Signed: P H Clarke)