England and Wales Lands Tribunal

[2001] EWLands LRA_53_2000 (22 February 2001)


 


LRA/53/2000

LANDS TRIBUNAL ACT 1949

LEASEHOLD ENFRANCHISEMENT – Price payable for acquisition of freehold – value attributable freeholder's opportunity to receive insurance commissions – Leasehold Reform Act 1967 section 9 – Appeal dismissed

IN THE MATTER of an APPEAL from a DECISION of a LEASEHOLD VALUATION TRIBUNAL for the NORTH WESTERN RENT ASSESSMENT PANEL

BETWEEN E B CAPLIN and AJ WEIDER Appellants

and

G S and J BRIDGE Respondents

Re: 22 Colinmander Gardens, Ormskirk,

Lancashire L39 4TF

Tribunal Member: P R Francis FRICS

Sitting at: Merseyside and Cheshire Rent Assessment Committee,

Port of Liverpool Building, Liverpool, L3 1BY

on

15 February 2001

The following case is referred to in this decision:

Delaforce v Evans [1970] 215 EG 31

E B Caplin, in person with leave for the appellants

G S Bridge, in person with leave for the respondents

DECISION

1. This is an appeal, heard under the Simplified Procedure (Rule 28, Lands Tribunal Rules 1996) by EB Caplin and A J Wieder ("the appellants"), freeholders of 22 Colinmander Gardens, Ormskirk, Lancs ("the subject property") against a decision of the Leasehold Valuation Tribunal of the North Western Rent Assessment Panel ("the LVT") under section 9 of the Leasehold Reform Act 1967 as amended ("the 1967 Act") which determined the price payable for the freehold by Mr. G S and Mrs J Bridge ("the respondents") at £90.
2. Mr. Edward Caplin represented the freeholders, and Mr. Geoffrey Bridge represented the respondents, both with leave of the Tribunal. The parties had not prepared a statement of agreed facts and issues, but from their written submissions and oral evidence, I find the following facts:

2.1 The subject property comprises a 1930's built semi-detached house, extended in the 1960's and 1970's and which is situated amongst generally similar houses having an aspect over a grassed area to the front. The centrally heated and double-glazed accommodation on two floors includes a through living room, conservatory, kitchen, 3 bedrooms, dressing room and bathroom. There are gardens to front and rear together with a shared drive and garage.

2.2 The property is subject to a lease for 999 years from 1938 between A Maxwell Caplin and Alfred George Liggins relating to 10-32 Colinmander Gardens (even), at a fixed ground rent of £4 per property. The lease is one of a number of similar leases granted on the Holborn Hill Estate, Ormskirk, and Knockers Green Estate in Warrington, covering about 300 properties.

2.3 The respondents insure the subject property and contents directly (rather than through the landlords' agency) under an "all risks" policy with the Royal Sun Alliance Insurance Company at an annual premium of £249.06 per annum, of which £125.06 relates to comprehensive buildings cover.

2.4 The landlords hold an agency with the Royal Sun Alliance Insurance Company, from which they earn 22.5 per cent commission on policies.

2.5 Notice of intention to enfranchise was served by the respondents on 22 June 2000, and accepted by the appellants on 3 July 2000. The valuation date is therefore 22 June 2000, and at that date there were approximately 937 years unexpired.

2.6 Following failure to agree a price for the freehold and the lessees' application for a determination, the LVT determined the price payable at £90. This was based upon the ground rent of £4 multiplied by 10 YP (£40), the remaining £50 to reflect the freeholders' other loss of income under the lease covenants.

ISSUE

3. The parties have accepted the LVT's valuation of the right to receive ground rent at £40, and the only issue relates to the value of the opportunity to receive insurance commission which arises from the lessees' obligation to insure through the landlords' nominated insurance agency under the terms of the lease.

APPELLANT'S CASE

4. Mr. Caplin pointed out that, under the terms of the lease, the lessees were obliged to insure the property against fire through the freeholder's insurance agency (which was now the Royal Sun Alliance). The respondents had for many years made their own insurance arrangements directly with an insurer in contravention of their lease terms. The freeholders had thus been deprived of their opportunity to receive insurance commission, which under the present arrangements amounted to 22.5 per cent of the premium. No issue was being taken with the respondents on this matter, as it was accepted that an administrative oversight by the freeholder had led to this going unnoticed for a number of years.
5. The respondents had advised the freeholders that they currently have an "All Risks" policy, as it happens, with the same insurance company. That policy covers contents as well as a total of thirteen buildings risks (including fire), and Mr. Bridge had established from the insurer that the proportion of the overall premium relating to buildings cover amounted to £125.06. Mr. Caplin said that the commission earned would therefore be £28.14 per annum. This information had enabled him to re-calculate the price to be paid for the freehold on the following basis:

Ground rent £4 @ 10 YP £40.00

Insurance commission £28.14 (index linked) @ 20 YP £562.80

£602.80

Less savings in administration £100.00

Balance £502.80

6. Mr Caplin said that the reason he had used 20 YP was to reflect the fact that unlike the ground rent that was fixed, as insurance policies were index-linked the premium would rise each year. The £100 reduction to take account of savings in administration was an arbitrary figure that took account of the fact that the freeholders now had a scheme manager who administered the insurance aspects at no cost to them.
7. As to comparable evidence, Mr. Caplin said that since the LVT hearing, at which no concluded settlement evidence was produced, he had checked his records and produced details of 19 completed sales of freeholds over the past 17 years which had been subject to similar leases, and where there were rights to insurance commissions:

Property Sale Price Date Ground rent

268 Dragon Lane, Whiston £165 Nov 1983 £4.50

6 Taunton Ave, Leigh £150 Mar 1984 £8.00

96 Puller Road, Barnet £299 Feb 1986 £6.30

89 Wightman Road, London N20 £300 Aug 1986 £5.00

20 Orwell Road, Liverpool 14 £215 Oct 1991 £4.70

147 Alexandra Rd South, M'cr £299 Nov 1994 £7.50

104 Breck Road, Wallasey £350 Mar 1995 £10.00

93 Mount Pleasant Road, N17 £335 Nov 1995 £10.00

11 Haydock Road, Wallasey £499 Apr 1996 £6.30

9 The Grove, Wallasey £350 Apr 1996 £4.20

6 Bebles Road, Ormskirk, Lancs £280 Apr 1997 £7.50

34 Kremlin Drive, Liverpool £480 May 1997 £5.00

4 Bebles Road, Ormskirk, Lancs £495 Dec 1997 £7.50

66 Trafalgar Road, Wallasey £499 Jul 1999 £5.96

21 Meadow Street, Wallasey £465 Aug 1999 £9.80

9 Munster Road, Liverpool L13 £460 Oct 1999 £4.00

1 Alexander Mount, Liverpool L21 £499 Nov 1999 £7.96

13 & 13a Sylvan Ave, London N22 £850 Feb 2000 £6.00

568 Liverpool Road, Warrington £499 Dec 2000 £4.00

8. Mr. Caplin also produced one comparable that was not subject to an insurance clause, that having sold for only £50 in 1992. He said that in all cases the purchasers, who were willing buyers, had been legally represented, and the freeholders, it could be seen, had applied a consistent valuation formula. Finally, as far as the subject property was concerned, he said that the lessees would have nothing to lose through insuring through the freeholders' agency, as the premiums would be the same.

RESPONDENTS' CASE

9. Mr. Bridge said that he disagreed with the appellants' calculation of the right to receive insurance commission as, under the terms of his lease, the only requirement was to arrange cover against fire. The policy he held covered no less than 13 risks, fire being but one of them. The premium for fire cover only would therefore be significantly less, this having a knock on effect on the commission receivable. Mr. Bridge admitted that, upon enquiring of his insurer, he was advised that they do not nowadays quote for fire only, and accepted that fire cover alone would be insufficient. This was why some 15 years ago he had taken out his own more comprehensive cover. In response to that point, Mr. Caplin said that he thought some insurers would quote for fire cover only, but he considered that even back in 1938 when the lease was drafted, the standard cover would have been wider. Certainly as far as the existing block policy that other lessees subscribed to was concerned, full buildings cover was provided.
10. Mr. Bridge stressed that his argument was based solely upon the wording of his lease. If the requirement had been for full buildings cover, he would not have objected to the appellants' proposals.
11. In response to a question from me, he said he thought that the wording of the lease was probably obsolete on this aspect, although he accepted that even in 1938, to insure against fire risks and nothing else would have been unwise.

DECISION

12. The lease states, in respect of insurance:

"…AND ALSO will insure in the joint names of the Lessor and Lessee and during the said term keep insured all buildings for the time being standing upon the said land from loss or injury by fire through the Agency of Messieurs Maxwells of Seabank Road Wallasey aforesaid in the Eagle Star Insurance Company Limited or such other Company as the Lessor shall require in a sum equal at least to three-fourths of the full value thereof….."

13. The wording of this clause is clear, the requirement being for fire cover only. Although Mr. Caplin submitted that it would have been unlikely that in reality the original insurance arrangements would have been restricted to fire only, the lessee is actually only obliged to cover that single risk. The £28.14 commission that the appellant says is the landlords' entitlement under the relevant lease clause is for full buildings cover, and that is not what is required.
14. Whilst Mr Bridge had been advised by his insurer that quotes for fire cover on its own were unobtainable, Mr Caplin thought that such cover was available in the market, but he had not made any enquiries or obtained quotes. If, in practice, it was not possible to insure for fire risks only it could then be argued that the commission that could be earned from the all-risks premium forms a correct basis for assessing value. However, as no evidence has been produced to show what the premium would be for fire only cover, I am unable to accept the general buildings cover figure as a basis upon which to apply a multiplier and therefore conclude that the appellants'case on this aspect is not made out.
15. I have also considered the settlement evidence that Mr. Caplin produced, and this would appear to indicate that not insignificant value might be attributable to the opportunity to receive insurance commissions. However it was disappointing that, in response to a question from me, he was unable to produce any analyses of the settlement figures whether agreed with the purchaser's representatives or not. There was no evidence to indicate the actual insurance commission that was being obtained in respect of any of the comparable properties, and all Mr. Caplin could do was submit that, in his opinion, the premium the respondents paid for the buildings element of their insurance was in line with premiums paid on other properties. Thus, he said, the commission received would be similar although on checking his submission to the LVT, he noted that he had said the average commission received, per property was £35.05. He was not, he said seeking to use that figure in this case.
16. None of the leases relating to any of the comparable properties were produced, and I heard no evidence regarding the insurance, or for that matter, any other obligations they may have contained. It is not possible for me to determine, just from the list of settlements that Mr Caplin did produce, whether the obligations were the same as in the instant case, or whether those leases may have contained covenants other than insurance that affected value. I therefore attach no weight to those comparables.
17. This Tribunal will always treat settlement evidence with some caution, especially where there are no agreed breakdowns of the negotiated figure, and may also take into account the Delaforce effect (Delaforce v Evans [1970] 215 EG 31) whereby the threat of the cost, delay and anxiety caused by proceeding to a tribunal might be reflected in the settlement figure.
18. Having found that the case relating to the insurance premium was not made out, and insufficient evidence was produced in respect of the comparables, I do not need to consider the questions of the appropriate YP, or the matter of the savings in administration costs. On the basis that there is nothing upon which I can conclude that the LVT's decision on this issue was wrong, I dismiss the appeal.
19. I make it clear that I am dismissing this appeal for the reason that I have no evidence upon which I could find for the lessors. It may be that such evidence was available, or could have been produced, but it was not.
20. This hearing was held under the Simplified Procedure, and there being in my view no exceptional circumstances to warrant doing otherwise, I make no award as to costs.

DATED 22 February 2001

Signed P R Francis FRICS