Decision Nº LRA 52 2012. Upper Tribunal (Lands Chamber), 25-07-2013
| Jurisdiction | UK Non-devolved |
| Judge | Mr Norman J Rose FRICS Sir Jeremy Sullivan, The Senior President |
| Date | 25 July 2013 |
| Court | Upper Tribunal (Lands Chamber) |
| Judgement Number | LRA 52 2012 |
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UPPER TRIBUNAL (LANDS CHAMBER)
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UT Neutral citation number: [2013] UKUT 0334 (LC)
UTLC Case Number: LRA/52/2012
TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007
LEASEHOLD ENFRANCHISEMENT – flat – deferment rate – whether Zuckerman addition for management applicable to a well-run block in prime central London – held Zuckerman addition not applicable to such a building or at all
IN THE MATTER OF AN APPEAL AGAINST A DECISION
OF THE LONDON LEASEHOLD VALUATION TRIBUNAL
and
(1) GROSVENOR WEST END PROPERTIES Respondents
(2) 32 GROSVENOR SQUARE LIMITED
Re: Flats 1, 2 and 12
33 Grosvenor Square
London W1 2HL
Before: Sir Jeremy Sullivan, Senior President and Mr N.J. Rose FRICS
Sitting at 43-45 Bedford Square, London WC1B 3AS
on 24 and 25 June 2013
Philip Rainey QC, instructed by Dorman Joseph Wachtel, solicitors for the appellant
Anthony Radevsky, instructed by Boodle Hatfield LLP, solicitors for the first respondent
Judith Jackson QC, instructed by Russell-Cooke LLP, solicitors for the second respondent
© CROWN COPYRIGHT 2013
The following cases are referred to in this decision:
Cadogan v Sportelli [2007] 1 EGLR 153
Cadogan v Sportelli [2008] 1WLR 2142
Zuckerman v Calthorpe Estate [2011] L&TR12(UT)
City and Country Properties Ltd v Yeats [2012] UKUT 227 (LC)
Daejan Investments Ltd v Benson [2011] L&TR14
Daejan Investments Ltd v Benson [2013] 1 WLR 854 (SC)
Garside v RFYC Ltd and Maunder Taylor [2011] UKUT 367 (LC)
London Borough of Camden and The Leaseholders of 37 flats at 30-40 Grafton Way LRX/185/2006) LT
Phillips v Francis [2013] 13 EG76 (Ch.D)
Sportelli [2008] 1WLR 2142
The following cases were also cited:
Sportelli [2007] EWCA Civ 1042
Re Lethaby [2011] UKUT 86 (LC)
Kutchukian v John Lyon [2013] 2 P & CR 3 (CA)
Culley v Daejan Properties Ltd [2009] UKUT 168 (LC)
Kleinwort Benson v Lincoln City Council [1999] 2 AC 349
DECISION
Introduction
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This is an appeal, by way of rehearing, against the decision of the London Leasehold Valuation Tribunal (the LVT) by which, under section 48 of the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act), it determined the terms of acquisition of a new lease of a flat known as Flats 1, 2 and 12, 33 Grosvenor Square, London, W1 (the appeal property). All the terms of the lease apart from the premium payable were agreed during the course of the LVT hearing. The LVT determined the premium payable as £4,641,650, of which £1,259,950 was payable to Grosvenor West End Properties, the competent landlord (GWEP) and £3,381,700 to 32 Grosvenor Square Limited, the intermediate landlord (32GSL).
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The appeal, for which permission was granted by the former President, George Bartlett QC, is concerned with only one aspect of the LVT’s decision. The appellant leaseholder, Mr Alexander Voyvoda, contends that the LVT was wrong to find that, when valuing 32GSL’s reversion in what is agreed to be a well run block of flats in prime central London, the 0.25% uplift for flats to the generic deferment rate of 4.75%, made by the Lands Tribunal in Cadogan v Sportelli [2007] 1 EGLR 153, should not be increased by a further 0.25% to reflect management risks in addition to those considered in Sportelli.
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It is agreed that the deferment rate of 5% used by the LVT to value GWEP’s long leasehold interest is correct. The parties also accept the LVT’s decision to add 0.5% to that rate to reflect the fact that 32GSL’s reversion is to a mid-term lease rather than a freehold or very long lease. The further uplift of 0.25% for additional management risks, which is proposed by the appellant and resisted by the respondents, was referred to throughout as the Zuckerman addition after the decision of the Upper Tribunal in Zuckerman v Calthorpe Estate [2011] L & TR12 (UT). We shall do the same.
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The appellant served the initial notice under section 42 of the 1993 Act on 30 April 2010, which is the valuation date.
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Mr Philip Rainey QC appeared for the appellant and called expert evidence from Mr Peter Beckett FRICS of Beckett and Kay. Counsel for GWEP, Mr Anthony Radevsky, called expert evidence from Mr Julian Clark BSc, MRICS of Gerald Eve LLP and factual evidence from Mr Simon Elmer, currently operations director and the location director for Eaton Square on the Grosvenor Estate. Ms Judith Jackson QC, appearing for 32GSL, called expert evidence from Mr Robert Orr-Ewing of Knight Frank LLP.
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It was not suggested that it would assist us to visit the appeal property and we have not done so.
The facts
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In the light of an agreed statement and the evidence we find the following facts.
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33 Grosvenor Square (the building) is situated in the south west corner of Grosvenor Square. It is fronted by Grosvenor Square on the short north side, South Audley Street on the long east side, Reeves Mews on the short south side and by neighbouring properties on the long west side. It is a purpose built block of flats dating from the 1950s, with car parking on the lower ground floor, two commercial units on the ground floor and residential units from the first to seventh floors. The property has a porter, four lifts and storerooms on the sixth floor. The main pedestrian access is from South Audley Street. The garage access is from Reeves Mews.
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The appeal property is arranged as one flat, but the entrance for each individual flat is marked with the flat number. The gross internal areas are as follows:
Flat 1 1,862 sq. ft.
Flat 2 1,208 sq. ft.
Flat 12 1,427 sq. ft.
4,497 sq. ft.
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The accommodation is currently arranged as four bedrooms, three bathrooms, four shower rooms, a WC, a kitchen, a kitchenette, a utility room, a staff bedroom, a staff room, two reception rooms, a dining room, a media room, a study, a gym and a library. There are three balconies (not demised) and three storerooms (Nos 11, 12 and 19) on the sixth floor.
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The flats were originally let as individual units, but have since been combined.
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The underlease of each flat grants the right to park one car in the basement garage.
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At the valuation date the unexpired terms of each of the three underleases were as follows:
Flat 1, box room No 11 – 15.09 years
Flat 2, box room No 19 – 13.83 years
Flat 12, box room No 15 – 16.06 years
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Each lease reserved a ground rent of £50 per annum.
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GWEP holds a lease of the building, and further land closer to Grosvenor Square, with an unexpired term at the valuation date of about 173.9 years. The ground rent reserved under this lease is nil.
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32GSL holds a lease of the building, and further land closer to Grosvenor Square, with an unexpired term at the valuation date of about 47.15 years. The rent payable is £7,500 per annum, fixed for the duration of the term.
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On 13 January 1977 a licence was granted permitting the three flats to be combined for the remaining terms of the underleases. Clause 3(iv) of the licence calls for the reinstatement of the original separate flats on expiry of the underlease of flat 2 unless the licensee is released from this obligation by 32GSL.
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There is a defect in the underleases. It has been agreed that the resultant service charge deficit should be capitalised at £35,592, which figure should be deducted from the value of 32GSL’s current interest.
Evidence of Mr Beckett
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In his expert report dated 31 October 2012, Mr Beckett observed that the LVT decision was given without the benefit of the decision in City and Country Properties Ltd v Yeats [2012] UKUT 227 (LC), in which the Upper Tribunal gave guidance on the matters to be taken into account when choosing the deferment rate in connection with the enfranchisement of flats. Yeats endorsed the Zuckerman addition of 0.25% to reflect the more onerous service charge regime which was not considered in Sportelli, subject to the following qualification (para 46(3)):
“However if there exists clear evidence showing that the purchaser of the freehold reversion would realise, upon the facts of the particular case, that it was extremely improbable that, as freeholder, it would ever become burdened with any responsibility of management, then this evidence may well be sufficient to displace this additional 0.25% (such that only the extra 0.25% as allowed in Sportelli should be added.)”
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Mr Beckett concluded that the “normal” upward adjustment to the Sportelli generic rate in the case of flats was now 0.5%, but there would be exceptions to that uplift as indicated in para 46(3) of Yeats. Such exceptions would only arise if special and unusual circumstances were identified.
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Mr Beckett said that his firm was reluctant to accept instructions to manage owner occupied blocks of flats. The reason was that in practice it was extremely difficult to...
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