[2004] EWLands LRA_13_2003 (30 March 2004)
	LRA/13/2003

LANDS TRIBUNAL ACT 1949

LEASEHOLD ENFRANCHISEMENT – collective enfranchisement – price – yield – relationship of existing lease value to virtual freehold value – whether price should reflect hope value in respect of non-participating tenants and, if so, how – appropriate treatment of agreed price payable for garden – appeal dismissed.

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE LEASEHOLD VALUATION TRIBUNAL FOR THE LONDON RENT ASSESSMENT PANEL

BETWEEN
GESSO PROPERTIES (BVI) LTD
Appellant
and

S.C.M.L.L.A  LTD
Respondent

Re: 
21-30 Cleveland Mansions and
41-50 Southwold Mansions
Widley Road
London, W9

Before: N J Rose FRICS

Sitting at 48/49 Chancery Lane, London WC2A 1JR
on 22 and 29 January 2004

The following case is referred to in this decision:

Shulem B.Association Ltd’s Appeal [2001] 11 EG 175

The following additional cases were cited in argument:

Becker Properties Ltd v Garden Court NW8 Property Co. Ltd. [1998] 2 EG 135
Donath v Second Duke of Westminster’s Trustees [1979]13 EG 120
Maryland Estates Ltd v 63 Perham Road [1997] 35 EG 94
Maryland Estates Ltd v Campana Court Ltd.  LRA/21/2000, unreported

Lisa Sinclair, instructed by Peacock and Co, solicitors, for the appellant
Timothy Harry, instructed by Pemberton Greenish, solicitors, for the respondent.

DECISION
1.	This is an appeal by Gesso Properties (BVI) Ltd (“the appellant”) the landlord of two blocks of flats known as 21-30 Cleveland Mansions and 41-50 Southwold Mansions, Widley Road, London, W9 (“the appeal properties”), against the decision of the Leasehold Valuation Tribunal for the London Rent Assessment Panel (“the LVT”), determining that the prices payable for the freehold interests in the appeal properties by the respondent nominee purchaser, S.C.M.L.L.A. Ltd, should be £92,238 for 21-30 Cleveland Mansions (“the Cleveland flats”) and £29,022 for 41-50 Southwold Mansions (“the Southwold flats”).  The LVT’s valuations are reproduced in Appendix 1.  The appellant contended that the correct valuation figures were £165,250 for the Cleveland flats and £54,850 for the Southwold flats (Appendix 2).
2.	Ms Lisa Sinclair of counsel appeared for the appellant and called expert evidence from Mr Ian Asbury, BSc(Hons), MRICS, a director of Stiles Harold Williams practising from 6 Babmaes Street, London, SW1Y 6HD.  She also called Mr David Wismayer, a director of the appellant, to give factual evidence about a number of lease extensions.
3.	Counsel for the respondent, Mr Timothy Harry, called expert evidence from Miss Jennifer Ellis, FRICS, a Member of Langley-Taylor LLP of 1 Kingsway, London, WC2B 6XF.
4.	By agreement with the parties I made an unaccompanied external inspection of the appeal properties and certain other properties that had been referred to in evidence on 10 February 2004.
5.	From the evidence I find the following facts.  The appeal properties comprise two mid terrace purpose built blocks of flats, constructed at or around the end of the 19th century.  They consist of  two out of fifteen similar blocks situated on either side of Widley Road.  The blocks on the north side of the road are called Cleveland Mansions and those on the south side are called Southwold Mansions.  The appellant owns fourteen of the fifteen blocks, the exception being 11-20 Southwold Mansions.  Widley Road is a residential street which runs on a roughly north west to south east axis from Essendine Road to Elgin Avenue.
6.	The blocks each contain ten flats and are on basement, ground and three upper floors, the top storey being located in the mansard roof.  Each block is entered by a single communal entrance hall with staircase access to the upper and basement levels.  There is no lift.  There are narrow strips of communal gardens to the front and rear of the blocks, although the Cleveland flats stand slightly further back from the road.  Externally, both buildings are in fairly poor repair and appear to have benefited from little more than essential maintenance and repair works over recent years.
7.	The flats are of a uniform floor plan and size, apart from those on the third floor which are marginally smaller than those below.  The internal arrangement of rooms has been altered in a limited number of cases.  Originally the flats each comprised an entrance hall, sitting room, two bedrooms, kitchen and bathroom/WC.  The second, smaller bedroom on each floor is located to the rear of and is only accessible via the kitchen.  The gross internal area of each flat is 61.96m2 (667sq ft), apart from those on the third floor which measure 60.94 m2 (656 sq ft).
8.	All the tenants of the Cleveland flats are participating in the freehold purchase except those of 24, 26 and 30.  The lease of 26 expires on 25 March 2979 and thus had 976.83 years unexpired on the agreed valuation date of 22 May 2002.  The lease of 30 expires on 25 March 2119 (116.83 years unexpired) and the remaining leases expire on 25 March 2079 (76.83 years unexpired).  The ground rents payable are listed on Appendix 3.
9.	The aggregate of the ground rents from the non participants’ flats are £325 per annum at the valuation date; £650 from 2013; £1300 from 2046;  £1000 from 2079 and £500 from 2119.
10.	The agreed values of the flats on a near freehold basis are £265,000 in the case of 21, 22, 27 and 28;  £270,000 in the case of 23, 24, 25 and 26 and £250,000 in the case of 29 and 30.
11.	All the tenants of the Southwold flats are participating except those of 43 and 48.  The leases of 42 and 43 expire on 25 March 2079 and thus had 76.65 years unexpired at the agreed valuation date of 8 August 2002.  The remaining leases expire on 25 March 2102 (99.65 years unexpired).  The ground rents payable are listed on Appendix 4.
12.	The aggregate of the ground rents from the non-participants’ flats are £175 at the valuation date; £225 from December 2002; £350 from 2013; £400 from 2027;  £650 from 2046;  £700 from 2052 and £250 from 2079.
13.	The agreed values of the flats on a near freehold basis are £265,000 for 41, 42, 47 and 48;  £270,000 for 43, 44, 45 and 46 and £250,000 in the case of 49 and 50.  It is agreed that the values of the 99.65 years leasehold interests are 99% of their virtual freehold values.
Issues
14.	There are four issues in this appeal:  firstly, the value of the participants’ existing leasehold interests as a percentage of their near freehold values – “relativity”;  secondly, the yield to be adopted in valuing the ground rent income and discounting the reversionary value;  thirdly, the correct method of calculating hope value in respect of the non-participating tenants and, fourthly, whether the agreed garden values of £500 should be payable in addition to the prices determined by the LVT.
Relativity
15.	The LVT decided that the values of the participants’ current leases with some 76 years unexpired were equivalent to 91% of their virtual freehold values.  Mr Asbury considered that the appropriate relativity was 85% and Miss Ellis adopted 95%.
16.	In arriving at 85% Mr Asbury had regard to a number of sales of flats in Southwold and Cleveland.  Not all those flats form the subject of this appeal, but they are all of virtually identical size and accommodation to those which do.  Mr Asbury said that the relativities suggested by the prices paid were as follows:
41 Cleveland and 2 Cleveland – 89.4%
21 Cleveland and 80 Southwold – 83.86%
78 Southwold and 10 Southwold – 75%
24 Southwold and 56 Southwold – 77%
17.	Mr Asbury also referred to ten extensions of leases to terms of 999 years that had been granted to existing flat owners in Cleveland and Southwold.  Nine of those transactions were subsequently proved in evidence by Mr Wismayer and I shall refer only to them.  Between February and August 2002 the appellant negotiated seven extensions to leases having some 77 years unexpired.  In three cases a premium of £15,000 was paid and £10,000 was paid for each of the other four.  The remaining two proved transactions related to the extension of leases with some 100 years unexpired, and here a premium of £1,500 was paid for each.
18.	The landlord continued to reserve the original ground rents for the duration of the new terms.  As no element of the premium related to extinguishment of the ground rent, Mr Asbury considered that the prices paid only reflected the 50% share of marriage value that any flat owner would know would have to be paid if the leases were extended under statute.  He concluded that each flat owner with an unexpired term of 77 years must have anticipated an increase in the value of his flat of between £20,000 and £30,000, if he was paying half of that uplift to attain the enhanced longer lease value.
19.	In the case of one of Mr Asbury’s lease extension comparables, 26 Cleveland, which is included in the current appeal, the flat owner purchased a new longer lease and sold it for £250,000 in August 2002.  He had paid £15,000 for the new lease in February 2002, suggesting an uplift in value of £30,000 at that date.  Mr Asbury adjusted the sale price of £250,000 to reflect changes in the market between February and August and arrived at a long lease value of £242,500 in February 2002.  From this figure he deducted the £30,000 uplift, arriving at a shorter lease value of £212,500, or 87.6% of the value of the longer lease.  Mr Asbury considered that this relativity was consistent with his analysis of the four pairs of transactions summarised in paragraph 16 above, which showed relativities ranging from 75% to 89%.  On the basis of that evidence he valued the 76 year leases at 85% of their virtual freehold value.  
20.	In the course of cross-examination, Mr Asbury accepted that the details he had given in respect of 21 Cleveland were incorrect and that he therefore could not rely on the relativity of 83.86% he had derived from that transaction.  Moreover, it emerged that the lease of 10 Southwold had only 78 years unexpired and was not a long lease as he had assumed.
21.	In the light of these serious deficiencies in two of Mr Asbury’s four sets of comparables, I obtain no assistance from his pairing exercise.  Nor do I consider that Mr Asbury was correct to conclude that the premium of £15,000 paid for an extended lease of 26 Cleveland in February 2002 demonstrates a difference in value of £30,000 between a 77 year lease and a 999 year lease at the date.  The reason for this conclusion is as follows.  The appellant granted seven extensions of leases with 77 years unexpired.  Three produced premiums of £15,000 each, namely 12 and 26 Cleveland and 25 Southwold.  In each case the landlord’s legal fees and disbursements were paid by the tenant on an indemnity basis.  The remaining four lease extensions related to 15 and 14 Cleveland and 21 and 24 Southwold.  Here the premium paid for each was only £10,000 and each party paid its own legal costs.
22.	Mr Asbury suggested that the considerable difference in the levels of premium achieved was due to the fact that the payments of £10,000 were agreed as part of a package deal comprising the extension of four 77 year leases and one 100 year lease, all held by connected parties.  In my judgment it is extremely unlikely that the appellant would have granted a discount of one third in the price payable, and agreed to pay his own legal costs, simply because a number of lease extensions were being granted together to connected parties.  A much more plausible explanation is that the transactions involving a premium of £15,000 were all completed on dates between 19 February and 1 July 2002, whereas those at £10,000 were all completed on 28 August 2002.  The significance of the dates results from the fact that all seven lease extensions were granted to non-resident tenants.  Although the Commonhold and Leasehold Reform Act 2002 abolished the residency qualification imposed by section 6 of the Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”), the statutory instrument bringing the change into effect was not signed until 17 July 2002.
23.	Mr Asbury may well be right to suggest that the tenants who agreed to pay £15,000 knew that the residency qualification would eventually disappear, but they could not have known when it would do so at the time the lease extensions were granted.  I therefore conclude that the lease extensions granted prior to 17 July 2002 reflected the price paid by tenants without a statutory right to extend.  Accordingly, accepting  Mr Asbury’s opinion that a tenant with such a right would be prepared to pay fifty per cent of the marriage value to the landlord, I consider that the premiums paid for the 77 year lease extensions, taken together, indicate that the marriage value was £20,000, not £30,000.  On that basis, Mr Asbury’s analysis of 26 Cleveland should have been:
		Long lease sale price August 2002			£250,000
		Long lease equivalent value February 2002		£242,500
		Short lease value £242,500 – 20,000			£222,500
Therefore, short lease is worth 91.75% of long lease value.  This analysis strongly suggests that the LVT’s decision on relativity was correct.
24.	Miss Ellis derived her suggested relativity of 95% from sales of flats in the various blocks comprising Cleveland and Southwold.  She adjusted the sale prices to reflect the value of 1993 Act rights, lease length, date differences and floor levels and arrived at a relativity of 95.28% for a 77 years lease, which she rounded down to 95%.  Although Miss Ellis approached this exercise with care, the large number of adjustments which she made to the various comparable transactions inevitably increases the scope for error.  It is, however, not necessary for me to reach a conclusion on Miss Ellis’s approach, since the respondent indicated that it was content to accept the LVT’s determination of 91%.  The onus is on the appellant to show that that determination was wrong and, for the reasons I have given in respect of Mr Asbury’s evidence, it has failed to discharge that onus.
Yield
25.	Mr Asbury capitalised the current ground rental income and the increases in ground rent receivable for the remainder of the lease term at 6%.  He produced a schedule of 19 sales by auction of ground rent investments between February 1999 and September 2001.  Each sale was of a block of flats subject to leases of not less than 80 years unexpired.  The sale price was divided by the current ground rental income to produce an initial yield, the average of which was 3.59%.
26.	As previously mentioned, Mr Asbury applied his yield of 6%, not only to the initial ground rents, but also to the future fixed increased ground rents.  Having done so, he analysed the capitalised figure at each stage of the calculation by reference to the current rent passing and arrived at initial yields of between 3.65% and 3.55%.  He considered that his chosen yield of 6% was supported, not only by the open market evidence of auction sales, but also by numerous LVT decisions over the last two years or so which had adopted a 6% capitalisation rate.
27.	Mr Asbury said that the freehold reversion dates were all relatively distant.  As such, he considered that the reversions formed a less attractive element of the ground rent investment, although they were likely to increase in value as the lease reduced in length and as residential property values increased.
28.	Mr Asbury deferred the freehold reversion at 6% in the case of those leases with some 77 years unexpired.  Thus, in the case of 24 Cleveland, where the freehold vacant possession values were £270,000, the present value of the reversion was £1,500.  He compared that figure with the prices of £1,500 achieved by the appellant for extending the 100 year leases of 2 Cleveland and 55 Southwold.  In the case of those flats where the unexpired lease terms were longer, he deferred the reversions at 7%.
29.	Miss Ellis said that she had historically relied on auction sale results to provide an indication of the appropriate yield, because open market evidence was normally the most reliable.  She no longer had regard to such evidence, however, in view of various LVT and Lands Tribunal decisions which had ruled that it could be misleading.  Since there was a complete dearth of open market comparables in Central London, she preferred to rely on an analysis of settlements in which her own practice had been involved, since she had all the relevant information in those cases.  
30.	Miss Ellis produced details of four local enfranchisement settlements where her firm had acted for the claimants.  Two of these had been concluded since the LVT hearing.  Details of the settlements were as follows:
(a)	In 1999 she acted for the lessees of 31 Fordingley Road, W9 in a claim under the 1993 Act.  At the time of the claim the lessees did not know the whereabouts of the freeholders and had not paid rent or had any management for many years.  However, during the course of pursuing the s.26 procedures the freeholders turned up, living in Spain and appointed a chartered surveyor to act for them.  Miss Ellis said that this was a converted terraced house and an “unexciting investment”, evidenced by the fact that the freeholders had abandoned it.  It produced rent of only £90 per annum and the leases had over 100 unexpired.  The respective surveyors agreed that the price payable should be £850.  Miss Ellis produced her analysis of that figure, showing the ground rents capitalised and discounted at 11.5%.  
(b)	In 2000 Miss Ellis acted for the lessees of Clifton Court, W9 in settling their claims under s.13 of the 1993 Act for the freehold of this block of 140 flats.  She negotiated the price with the surveyors acting for the freeholders.  This is a prestige block of flats, on the edge of the main area of St Johns Wood.  The agreed yield of 7% reflected the fact that the ground rents were modest (the freeholders received £7,000 per annum from the headlessee company) but the leases had only 43 years unexpired.
(c)	In October 2003 clients of Miss Ellis’s firm completed the purchase of the freehold interest in a block of flats known as 63/65 Hamilton Terrace, NW8.  The final settlement of the purchase price was reached following the publication of an LVT decision and an appeal and a cross-appeal by the parties.  The LVT’s determination – which was accepted by both parties - was that the yield for the freehold interest should be 6.5%.
(d)	Finally, clients of Miss Ellis’s firm had recently agreed terms for the purchase of the freehold interest in 149 Hamilton Terrace, a block of five flats.  The agreement was reached against the background of a determination by the LVT of the premium to be paid for 3 lease extensions and an appeal by the freeholder.  The LVT’s determination was that the yield for the freehold interest should be 6.5%.
31.	Miss Ellis considered that the yield appropriate to the appeal properties must lie somewhere between these yields, namely 11.5% and 6.5%.  Geographically, Widley Road was situated between the four comparables but, significantly in her view, it was closer to Maida Vale/Hamilton Terrace than to Fordingley Road.  The ground rents were somewhat greater than those at Fordingley Road (nevertheless the freeholder did not collect them) and some flats had leases with only 77 years unexpired.
32.	The rate of 6.5% determined by the LVT for the properties in Hamilton Terrace was in line with the range of 6.5% established by the principal land owners in the area.  Those lower rates, however, were for the best type of houses and houses converted to blocks of flats in a road known for its “ambassadorial residences” on the western edge of St Johns Wood, an area known as one of the best residential locations in London.  In her view, the St Johns Woods rates had no relevance to the appeal properties other than as a guide to one extreme end of the scale.  Balancing the various factors, Miss Ellis still considered 9% to be the appropriate rate, although it was “hard to fault” the LVT’s determination at 8.5%.
33.	Miss Ellis was critical of the manner in which Mr Asbury had used the auction evidence on which he relied.  She said that he had analysed the prices achieved in terms of initial yield, but he had not then valued on an initial yield basis.  She produced calculations applying the average initial yield of 3.6% drawn from Mr Asbury’s comparables to the appeal properties.  (Appendices 5 and 6).  They showed values of less than half those arrived at by Mr Asbury on the basis of the same comparable transactions.
34.	I agree with Miss Ellis that Mr Asbury’s valuation approach, on a different basis from that used to devalue the comparable evidence, is unsound in principle.  Moreover, the auction sales upon which Mr Asbury relied relate to properties with a wide geographical diversity and Mr Asbury has taken no steps to ascertain whether the properties were purchased by the tenants or other special purchasers.  I therefore obtain no assistance from Mr Asbury’s auction evidence.
35.	The yield evidence produced by Miss Ellis was not particularly convincing either, in my view.  It consisted of two LVT decisions, which are at best of limited evidential value in this Tribunal, and two settlements, in relation to one of which – analysed at 11.5% - she did not strongly disagree with my suggestion that it seemed out of line.  The limitations of Miss Ellis’s evidence on yield, however, are not material, since the respondent is prepared to accept the LVT’s yield of 8.5%.  In view of my conclusion on Mr Asbury’s approach, the appeal fails on this issue as well.
Hope Value
36.	In arriving at his valuation, Mr Asbury included a proportion of marriage value, or “hope value” in respect of 24 Cleveland and 43 Southwold, which are held on leases with approximately 76.75 years unexpired, but are owned by non-participating tenants.  The unexpired terms of the remaining non-participants are some 100 years or more.  Mr Asbury did not contend for hope value in those cases, because he considered there was only a remote prospect of the freeholder extracting a one-off premium for lease extensions there in the foreseeable future.
37.	Mr Asbury again referred to the lease extensions that had been negotiated by the appellant during the previous twelve months.  Of particular relevance, he said, was 26 Cleveland, in one of the appeal properties, where £15,000 was paid for a new 999 year lease in February 2002.  Mr Asbury said that the participating tenants were about to become investors in the three non-participating flats at Cleveland and the two at Southwold.  In the case of 24 Cleveland and 43 Southwold, despite the decision of the present tenants not to participate, there must be a reasonable prospect of extracting further value within the next decade or so, either by extending the lease or granting shares in the freeholding company.
38.	Mr Asbury accepted that it would be inappropriate to attribute as much value to a non-participating unit as to that shown for the participants.  He had decided to take one quarter of the tenant’s half share of marriage value as the amount an investor would be prepared to pay by way of hope value.  To this he added the capitalised value of the ground rent income.  This approach produced values of £7,115 and £8,498 for 24 Cleveland and 43 Southwold respectively.
39.	Miss Ellis agreed that the price payable for the freehold interest should reflect hope value, but she felt such value should relate to the participants’ flats as well as those of the non-participants.  She referred to my decision in Shulem B. Association Ltd’s Appeal [2001] 11 EG 175 and suggested that, since it only allowed for hope value in the one non-participant’s flat, it was flawed.  She added, however, that as the capitalisation approach decided in Shulem B was relatively high at 10 per cent, she did not disagree with the determined price.
40.	Although there were several possible methods of calculating hope value, Miss Ellis said that the most usual way was to adjust the all risks yield applied to the ground rent income.  This was also the most appropriate way when, as in this case, the unexpired term was so long that any hope value was minimal.  The all risks yield allowed for the fact that a majority of lessees – whether participating or not - were likely to want to extend their leases.
41.	If, on the other hand, hope value were to be identified separately, none of the yields adopted by Mr Asbury or the LVT would be appropriate, as they would no longer be all risks yields.  Furthermore, all the analyses of settlements and decisions, from which evidence for yields was drawn, would have to be re-calculated to include a specific allowance for hope value.
42.	As I have said, Miss Ellis was critical of the approach adopted in the Shulem B decision, which awarded hope value for the non-participating flats but not for those of the participants.  Since, however, the appellant in that case was not claiming hope value for the participating flats, it was not open to the Tribunal to award any such value.  There may be merit in Miss Ellis’s suggestion that, if a separate calculation of hope value is appropriate, it should apply to all the flats in the block.  I do not need to decide the point, however, because the appellant in this case is claiming hope value for the non-participants’ flats only and the respondent accepts that in principle the appellant is entitled to that value.
43.	Miss Ellis contended that the yield of 8.5 per cent determined by the LVT – which she was prepared to accept – incorporated an allowance for hope value.  I disagree.  Three of the four yield comparables on which she relied were on a large local estate where a range of yields between 6 and 7 per cent had been established.  In answer to questions from me, Miss Ellis said that the same yield would be adopted on that estate for leases with 30, 50 or 70 years unexpired.  Since she also agreed that hope value increases as the unexpired term diminishes it inevitably follows, in my view, that the yields adopted for her chosen comparables do not accurately reflect differing levels of hope value.  There is therefore no objection in principle to Mr Asbury’s method of calculating such value separately.
44.	The valuation date for the Cleveland flats was 22 May 2002.  At that date a properly advised vendor and purchaser would have known that lease extensions had been granted three months earlier in respect of two flats in neighbouring blocks at premiums of £15,000.  It is also possible that the tenant of 25 Southwold, who was to pay £15,000 for a lease extension on 1 July 2002, had by then made known its interest to the landlord.
45.	In the case of the Southwold flats the valuation date is 8 August 2002.  By that date the parties would have known of the three premiums that had been paid in February and July 2002.  In addition, it is quite likely that they would have been aware that the tenants of 15 and 44 Cleveland and 21 and 24 Southwold – who were each to pay £10,000 for a lease extension within the next three weeks - were also interested in such a transaction.
46.	The parties would therefore have known that there was the potential to secure premiums for lease extensions.  On the other hand, the nine flats where premiums were paid represented only 6.4 per cent of the appellant’s total ownership in Cleveland and Southwold.  Moreover, that percentage may have been unusually high, since five of the nine extensions were granted to lessees with a connection to the same investor.  Against that background, whilst Mr Asbury’s forecast that premiums might be negotiated for the two relevant non-participating flats within the next decade as so might prove to be accurate, there could be no guarantee that any such payment would be forthcoming within that time- frame or, indeed, at all in the foreseeable future.
47.	On the basis of the limited evidence available, I find that a prospective purchaser would not have been prepared to pay a significant figure by way of hope value for either of the two flats in question.  The third ground of appeal therefore fails.
Garden Value
48.	In their initial s.13 notices, the participating tenants proposed a figure of £500 for the garden land at the front and rear of the Cleveland flats and a similar sum in respect of the Southwold gardens.  These figures were accepted in the appellant’s counter-notices.  The LVT decided that, as the garden value was not a term remaining in dispute, it had no power to determine the matter under s.24 of the 1993 Act.  The appellant agreed with that decision.  It considered, however, that the LVT had not been unambiguous in stating that the price it fixed for each of the appeal properties should have added to it the sum of £500 and it asked this Tribunal to rule on the point.
49.	The respondent also considered that the proper interpretation of the LVT’s decision was that the values of £500 should be added to the respective prices payable for the appeal properties.  Miss Ellis, however, suggested that the LVT should have deducted the garden value from each of its valuations of the Cleveland flats and the Southwold flats, because those valuations themselves reflected the benefit of the garden land.  Mr Asbury did not agree with Miss Ellis on this point.  
50.	Mr Harry rightly accepted that I had no power to determine lower values than those fixed by the LVT, as the respondent had not cross appealed.  I have decided that the appeal must fail on the first three issues.  Consequently, I would not be able to reduce the LVT’s determined values, even if I were persuaded that they should be adjusted to reflect the benefit of the gardens.  I therefore need make no finding on this issue.
51.	The appeal is dismissed.  I determine that the prices payable by the respondent for the freehold interests in 21-30 Cleveland Mansions and 41-50 Southwold Mansions are £92,238 and £29,022 respectively.  For the avoidance of doubt I confirm that the agreed sums for the gardens are payable in addition.
52.	A letter on costs accompanies this decision which will take effect when, but not until, the question of costs is determined.
					Dated 1 March 2004

					(Signed): N J Rose FRICS

ADDENDUM
53.	I have received written submissions on costs.
54.	The appellant submits that the respondent should bear all the costs of the appeal.  It argues as follows.  The bases of the appeal were properly founded and in accordance with the advice of counsel with material experience of such matters.  The issues raised were substantive; the appellant was entitled to have the matters addressed as part of the process invoked by the respondent and is entitled to be awarded the resultant costs.  The Tribunal’s reasons for dismissing the appeal and its references to Mr Asbury’s evidence were not such as to make the appeal nugatory.  Two of the settlements referred to by Miss Ellis in connection with yield had been concluded since the LVT hearing, indicating that the respondent may still have had substantial doubt as to this central issue.  The appellant considered that the LVT had not been unambiguous with regard to the garden value and was therefore entitled to look to the Lands Tribunal to rule on this issue.  In the circumstances, in order to meet the general rule that a landlord’s reasonable costs are payable by the tenant applicant, the issues dealt with in the appeal were relevant to the process immediately referable to the application for enfranchisement and the costs should properly fall on the respondent as part of that process.
55.	The respondent says that the appellant has not in any respect substantiated the grounds of its appeal and has not discharged the burden of showing that the LVT went wrong in any regard.  The costs of the appeal should therefore follow the event and be awarded to the respondent.  
56.	I accept the respondent’s submission.  There is no general rule that costs incurred by a landlord in the Lands Tribunal are payable by the tenant.  Such costs are at the discretion of the Tribunal.  The appeal failed on the issues of relativity, yield and hope value.  As for the remaining issue, garden value, the respondent accepted that the agreed value of £500 was payable in addition to the price determined by the LVT and it was therefore not necessary for the appellant to pursue the matter to this Tribunal.
57.	There is in my judgment no good reason why the respondent should be deprived of any of the costs it incurred in responding to the appeal.  The appellant will pay the respondent’s costs of the appeal, such costs to be assessed in default of agreement by the Registrar of the Lands Tribunal in accordance with the Civil Procedure Rules.
					Dated 30 March 2004

					(Signed): N J Rose FRICS

Appendix 1

LVT Valuation
21-30 Cleveland Mansions, Widley Road, London W.9

Valuation of Freehold interest			
Participating flats 21, 22, 23, 25, 27, 28, 29			
Total current ground rent £485 per annum 
YP 10.38 years @ 8.5% 6.9078	
£3350		
Total ground rents from 2013 £970 per annum
YP 33 years 10.9678 def 10.83 years @ 8.5% 4.5275	
£4391		
Total ground rents from 2046 £1940 per annum
YP 33 years def 43.83 years @ 8.5% 0.3067	
£ 595		
Reversions to £1,850,000 in 2079
PV £1 76.83 years @ 8.5% 0.0018941	
£3504		
			£11840	
Valuation Freehold Interest
Non participating flats 24, 26, 30			
Total current ground rents £325 per annum
YP 10.83 years @ 8.5% 6.9078	
£2245		
Total ground rents from 2013 £650 per annum
YP 33 years 10.9678 def 10.83 years @ 8.5% 4.5275	
£2943		
Total ground rent flat 24 from 2046 £300 per annum
YP 33 years def 43.83 years @ 8.5% 0.3067	
£   92		
Total ground rent flat 26 from 2046 £500 per annum
YP 933 years def 43.83 years @ 8.5% 0.328988	
£ 164		
Total ground rent flat 30 from 2046 £500 per annum
YP 73 years def 43.83 years @ 8.5% 0.32135	
£ 164	
	£  5608	
Reversions to (flat 24) £270,000 in 2079
PV £1 76.83 years @ 8.5% 0.0018941	
£ 511		
Reversion to (flat 26) £270,000 in 2979
PV £1 977 years @ 8.5% 0.00	
£   00		
Reversion to (flat 30) £250,000 in 2119
PV £1 116.83 years @ 8.5% 0.000072	
£  18		
			£     529	
			£17,977	

Marriage Value			
7 participating flats with extended lease value 
of £1,850,000			
plus 3 non participating flats with current lease
value of £765,700		
	£2,615,700	
Improved value £2,615,700			
Less current interest of all flats	£2,449,200		
	£     17,977
£   148,523		
50% marriage value	£     74,261		
Plus freeholder’s interest	£     17977		£     92,238	

LVT Valuation
41-50 Southwold Mansions, Widley Road, London, W9

			
Valuation of Freehold interest			
Participating flats 41, 44, 45, 46, 47, 49, 50			
Total current ground rent £345 per annum 
YP 33 years @ 8.5% 0.308	
£106		
Total ground rents from 2002 £690 per annum
YP 25 years  def.0.33 years @ 8.5% 9.927
	
£6850		
Total ground rents from 2027 £1035 per annum
YP 25 years def 25.33 years @ 8.5% 1.2966	
£1342		
Total ground rents from 2052 £1380 per annum
YP 25 years def 50.33 years @ 8.5% 0.16868	
£  233		
Total ground rents from 2077 £1845 per annum
YP 25 years def 75.33 years @ 8.5% 0.01883	
£    35		
			£8566	
Participating flat 42			
Current ground rent £125 per annum
YP 10.63 years @ 8.5% 6.826	
£ 853		
Ground rent from 2013 £250 per annum
YP 33 years def 10.63 years @ 8.5% 4.5975	
£1149		
Ground rent from 2046 £500 per annum
YP 33 years def. 43.63 years @ 8.5%  0.31149	
£  156	
	£  2158	
			
Reversions to £1,840,000 in 2102
PV 99.5 years @ 8.5% 0.0002986	
£ 549		
Reversion to Flat 42 to £265,000 in 2079
PV £76.5 years @ 8.5% 0.0019498	
£  516	
	£  1066	
			
Non Participating flats
Flat 43			
Current ground rent £125 per annum
YP 10.63 years @ 8.5% 6.826	
£ 853		
Ground rent from 2013 £250 per annum
YP 33 years def. 10.63 years @ 8.5% 4.5975	
£1149			
Ground rent from 2046 £500 per annum
YP 33 years def. 43.63 years @ 8.5% 0.31149	
£ 156		
			
Reversion to £270,000 in 2079
PV £1 76.5 years @ 8.5% 0.0019498	
£ 526	
	£2684	

			
Flat 48			
Current ground rent £50 per annum
YP 0.33 years @ 8.5% 0.308	
£  15		
Ground rent from 2002 £100 per annum
YP 25 years def. 33 years @ 8.5% 9.927	
£ 993		
Ground rent from 2027 £150 per annum
YP 25 years def. 25.33 years @ 8.5% 1.2966	
£ 195		
Ground rent from 2052 £200 per annum
YP 25 years def.50.33 years @ 8.5% 0.16868	
£  34		
Ground rent from 2077 £250 per annum
YP 25 years def. 75.33 years @ 8.5% 0.01883	
£   5		
			
Reversion to £265,000 in 2102
PV 99.5 years @ 8.5% 0.0002986	
£  79	
	£ 1321	
			
	£15,795		
Marriage Value			
8 participating flats with extended lease value of £2,105,000			
Plus 2 non participating flats with current lease values of £508,050	
£2,613,050		
Improved value £2,613,050
Less current interest in all flats	
£2,570,800		
Less freeholder’s interest	£     15,795		
	£     26,455		
			
50% marriage value	£     13,227		
Plus freeholder’s interest	£     15,795		£29,022	

Appendix 2
21-30 Cleveland Mansions, Widley Road, London W.9
Mr Asbury’s Valuation

a	Valuation of ground rent from participating 76.83 yr leases (flats 21,22,23,25,27,28,29)			
	Current Rent Passing				£485				
	YP 10.83 yrs @ 6% 	7.799472288			£3,782.74			
	Rent from 2013 Review			£970				
	YP 33 yrs def	14.23022961					
	Def 10.83 yrs @ 6%	     0.53203   7.570932722			£7,343.80			
							
	Rent from 2046 Review			£1,940				
	YP 33 yrs def	14.23022961			£2,147.13			
	Def 43.83 yrs @ 6%	    0.07778  1.106766061				Initial rent	Initial yield	
					£13,273.67		£485		3.65%	
							
b	Valuation of ground rent from non-participating 76.83 yr lease (flat 24).			
	Current Rent Passing			£75				
	YP 10.83 yrs @ 6%	7.799472288			£   584.96			
							
	Rent from 2013 Review			£150				
	YP 33 yrs def	14.23022961						
	Def 10.83 yrs @ 6%	    0.53203    7.570932722			£1,135.64			
							
	Rent from 2046 Review			£300				
	YP 33 yrs def	14.23022961			£   332.03			
	Def 43.83 yrs @ 6%	    0.07778    1.106766061			Initial rent	Initial yield	
					£2,052.63		£75		3.65%	
							
c	Valuation of ground rent from non-participating 116.83 yr lease (flat 30)			
	Current Rent Passing			£125				
	YP 10.83 yrs @ 6%	7.799472288				£   974.93			
							
	Rent from 2013 Review			£250				
	YP 33 yrs def	14.23022961						
	Def 10.83 yrs @ 6%	    0.53203     7.570932722			£1,892.73			
							
	Rent from 2046 Review			£500				
	YP 73 yrs def	16.42979093			£   638.92			
	Def 43.835 yrs @ 6%	  0.07778   1.277838481		 	Initial rent	Initial yield	
					£3,506.59		£125		3.56%	
							
c	Valuation of ground rent from non-participating 976.83 yr lease (flat 26)			
	Current Rent Passing			£125				
	YP 10.83 yrs @ 6%	7.799472288			£   974.93			
							
	Rent from 2013 Review			£250				
	YP 33 yrs def	14.23022961					
	Def 10.83 yrs @ 6%	     0.53203   7.570932722			£1,892.73			
							
	Rent from 2046 Review			£500				
	YP 933 yrs def	16.66666667			£   648.13			
	Def 43.75 yrs @ 6%	   0.07778   1.296261657			Initial rent	Initial yield	
					£3,515.80		£125		3.56%	

							
d	Reversion for participating 76.83 yr leases £1,850,000				
	PV 76.83 yrs  @ 7%	  0.00553						
					£10,223.89			
e	Reversion for non-participating 76.83 yr lease (flat 24 £270,000)				
	PV 76.83 yrs @ 7%	  0.00553						
					£1,492.14			
							
f	Reversion for non-participating 116.75 yr lease (flat 30 £250,000)					
	PV 116.83 yr @ 7%	  0.00037			£92.26			
							
g	Reversion for non participating 996 yr lease (flat 26 £270,000				
	PV 976.83 yrs @ 7%	  0.00000		_______		£0.00			
	Value of Existing Freehold interest				£34,156.98		
							
	Marriage Value for all participating leases (flats 21, 22, 23, 25, 27, 28, 29)			
	Proposed FH value		£1,850,000					
	Less						
	Existing LH value		£1,572,500					
	Existing FH value 		£23,498					
	Marriage Value			£245,002				
	Split 50/50			£127,001			
	Plus existing FH value				£23,498			
					£150,499			
	Marriage Value for non-participating 76.75 yr lease (flat 24)			
	Proposed FH value			£270,000				
	Less existing LH value			£229,500				
	Uplift					£40,500			
	Split 50/50			£20,250				
	Investor’s bid/hope value @ 25% of 50% of uplift				£5,063			
	Plus value of right to receive ground rent from Flat 24				£2,053			
								£7,115		
	Value of ground rent and reversion for non-participating flats 26 & 30			
	Flat 26: Ground Rent				£3,515.80				
	Flat 26: Reversion				£0.00				
					£3,516			
	Flat 30: Ground Rent			£3,506.59				
	Flat 30: Reversion			£92.26				
					£3,599			
						£7,115		
	Collective Enfranchisement Price				£164,729		
	Plus Garden					£500		
						Total		£165,228.56		
						Say		£165,250		

41-50 Southwold Mansions, Widley Road, London W9
Mr Asbury’s Valuation

a	Valuation of ground rent from participating 100.33 yr leases (flats 41,44,45,46,47,49,50)			
	Current Rent Passing				£345				
	YP 0.33 yrs @ 6% 		0.317417446			£109.51			
	Rent from Dec 2002 Review			£690				
	YP 25 yrs def		12.78335616			£8,652.53			
	def 0.33 yrs @ 6%		0.98095		12.53989654				
								
	Rent from 2027 Review			£1,035				
	YP 25 yrs def		12.78335616						
	def 23.33 yrs @ 6%		0.22856		2.921778721		£3,024.04			
							
	Rent from 2052 Review			£1,380				
	YP 25 yrs def		12.78335616					
	Def 50.33 yrs @ 6%		0.05325		0.680770441		£939.46			
							
	Rent from 2077 Review			£1,845				
	YP 25 yrs def		12.78335616			Initial yield	Initial yield	
	def 75.33 yrs @ 6%		0.012410		15861858		£292.65	£345		
					£13,018.19		£13,018.19		2.6%	
							
b	Valuation of ground rent from non-participating 76.65 yr lease (flat 42).			
	Current Rent Passing			£125				
	YP 10.65 yrs @ 6%		7.705980141			£963.25			
							
	Rent from 2013 Review			£250				
	YP 33 yrs def		14.23022961					
	def 10.65 yrs @ 6%		0.53764	7.650757605		£1,912.69			
							
	Rent from 2046 Review			£500				
	YP 33 yrs def		14.23022961			Initial yield	Initial yield	
	def 43.65 yrs @ 6%		0.07860	1.118435359		£559.22			
					£3,435,15	£125		3.64%	
							
c	Valuation of ground rent from 				
	Current Rent Passing			£50				
	YP 0.33 yrs @ 6%		0.317417446				£15.87			
							
	Rent from 2002 Review			£100				
	YP 25 yrs def		12.78335616						
	def 0.33 yrs @ 6%		0.98095	12.53989654		£1,253.99			
							
	Rent from Dec 2027 Review			£150				
	YP 25 yrs def		12.78335616					
	def 25.33 yrs @ 6%		0.22856	2.921778721		£438.27			
							
	Rent from 2052 Review			£200				
	YP 25 yrs def		12.78335616						
	Def 50.33 yrs @ 6%		0.05325	0.680770441		£136.15			
							
	Rent from 2077Review			£250				
	YP 25 yrs def		12.78335616			Initial yield	Initial yield	
	def 77.83 yrs @ 6%		0.01241		0.15861858		£39.65	£50		2.65%	
								
					£1,883.94			
							
d	Valuation of ground rent from non-participating 76.65 yr lease (flat 43)				
	Current Rent Passing			£125				
	YP 10.65 yrs @ 6%		7.705980141			£963.25			
					
	Rent from 2013 Review			£250				
	YP 33 yrs def		14.23022961					
	def 10.65 yrs @ 6%		0.53764  		7.650757605		£1,912.69			
							
	Rent from 2046 Review			£500		Initial yield	Initial yield	
	YP 33 yrs def		14.23022961					
	Def 43.65 yrs @ 6%		0.07860		1.118435359		£559.22	£125		3.64%	
					£3,435.15			
							
e	Reversion for participating 100.33 yr leases £1,850,000				
	PV 76.65 yrs @ 7%		0.00559						
					£10,349.16			
f	Reversion for participating 76.65 yr lease (flat 42  £270,000				
	PV 76.75 yrs @ 7%		0.00559					
				£1,510.42			
						
g	Reversion for non-participating 76.65 yr lease (flat  £270,000				
	PV 76.75 yrs @ 7%		0.00559					
				£1,510.42			
						
h	Reversion for non participating 100.33 yr lease £270,000					
	PV 100.38 yrs @ 7%		0.00113					
						
				£304.29			
							
	Value of Existing Freehold interest				£33,936.31		
							
	Marriage Value for participating 100.38 & 76.75 yr leases (flats 41, 42, 44, 45, 46, 47, 49,50)			
	Proposed FH value		£2,120,000						
	Less						
	Existing LH value		£2,061,000						
	Existing FH value 		£28,313						
	Marriage Value			£30,687				
	Split 50/50				£15,344			
	Plus existing FH value				£28,313			
						£43,656		
	Hope/Marriage Value for non-participating 76.75 yrs lease (flat 43)			
	Proposed FH value		£270,000					
	Less existing LH value		£229,500					
	Uplift			£40,500					
	Split 50/50			£20,250				
	Investor’s bid/Hope Value @ 25% of 50%uplift				£5,063			
	Plus value of right to receive ground rent from Flat 43				£2,053			
								£8,498		
	Value of ground rent and reversion for non-participating flat 48			
	Flat 48: Ground Rent				£1,883,94				
	Flat 248: Reversion				£304.29				
					£2,188			
	Collective Enfranchisement Price 				£54,842		
	Plus Garden					£500		
							
						Total		£54,842.35		
					Say		£54,850		

Appendix 3

21-30 Cleveland Mansions, Widley Road, London W9
Ground rents

Flat	Current
rent	Rent from 3/2013	Rent from  2046	Rent from 2079	Rent from 2119	
	£ pa	£ pa	£ pa	£ pa	£ pa	
21	60	120	240	0	0	
22	60	120	240	0	0	
23	60	120	240	0	0	
24	75	150	300	0	0	
25	60	120	240	0	0	
26	125	250	500	500	0	
27	125	250	500	0	0	
28	60	120	240	0	0	
29	60	120	240	0	0	
30	125	250	500	500	500	
Aggregate	810	1620	3240	1000	500	

Appendix 4

41-50 Southwold Mansions, Widley Road, London W9
Ground rents

Flat	Current
rent
	Rent
from 
12/2002	Rent
from 
3/2013	Rent
from
12/2027	Rent
from
3/2046	Rent
from 
12/2052	Rent 
from
12/2077	Rent 
from 
3/2079	
		£ pa	£ pa	£ pa	£ pa	£ pa	£ pa	£ pa	£ pa	
41		75	150		150		225	225	300		375		375	
42		125		125		250		250		500	500		500	0	
43		125		125		250		250		500		500		500	0	
44		75		150		150		225		225		300		375		375	
45		30		60		60		90		90		125		180		180	
46		30		60		60		90		90		125		180		180	
47		30		60		60		90		90		125		180		180	
48		50		100		100		150		150		200		200		250	
49		75		150		150		225		225		300		375		375	
50		30		60		60		90		90		125		180		180	
Aggregate		645		1040		1290		1685		2185		2550		3095		2095	

Appendix  5

CALCULATION BY MISS ELLIS, APPLYING INITIAL YIELD OBTAINED FROM 
ANALYSIS OF MR ASBURY’S AUCTION COMPARABLES
 TO 21-30 CLEVELAND MANSIONS, WIDLEY ROAD, LONDON W9

Participants			
Flats nos	Unexp term	Current value	Near FH value	
21		76.83		£   251,750		£   265,000	
22		76.83		£   251,750		£   265,000	
23		76.83		£   256,500		£   270,000	
25		76.83		£   256,500		£   270,000	
27		76.83		£   251,750		£   265,000	
28		76.83		£   251,750		£   265,000	
29		76.83		£   237,500		£   250,000	
			£1,757,500		£1,850,000	
Non participants			
24		76.83			£   270,000	
26		976.83			£   270,000	
30		116.83			£   250,000	
				£   790,000	
Capitalisation and discount		3.6%		
Vendor’s share of marriage		50%		
Relativity at 77 years		95%		

A VALUE OF FREEHOLDER’S INTEREST (excluding prospects of marriage)	
Participants				
Term				
Rent receivable now			485		
YP perp @ 3.6%			27.778		
Value freeholder’s interest in participants’ flats		13,472	
Non participants				
Term				
Rent receivable now			325		
YP perp @ 3.6%			27.78		
Value freeholder’s interest in non-participants’ flats		9,028	
Value freeholder’s interest			22,500	
B VENDORS’ SHARE OF MARRIAGE VALUE	
in participants’ flats			
After marriage				
Participating lessees’ interest		1,850,000		
Before marriage				
Freeholder’s interest		13,472			
Participating lessees’ interest	1,757,500		1,770,972		
Gain on marriage of interest		79,028		
Vendor’s share @ 50%				39,514
	62,014	
Less agreed value of amenity land			500	
ENFRANCHISEMENT PRICE			61,514	

Appendix  6

CALCULATION BY MISS ELLIS, APPLYING INITIAL YIELD OBTAINED FROM 
ANALYSIS OF MR ASBURY’S AUCTION COMPARABLES
 TO 41-50 SOUTHWOLD MANSIONS, WIDLEY ROAD, LONDON W9

Participants			
Flats nos	Unexp term	Current value	Near FH value	
41		99.5		£   262,350		£   265,000	
42		76.5		£   251,750		£   265,000	
44		99.5		£   267,300		£   270,000	
45		99.5		£   267,300		£   270,000	
46		99.5		£   267,300		£   270,000	
47		99.5		£   262,350		£   265,000	
49		99.5		£   247,500		£   250,000	
50		99.5		£   247,500		£   250,000	
			£2,073,350		£2,105,000	
Non participants			
43		76.5			£   270,000	
48		99.5			£   265,000	
				£   535,000	
				
Capitalisation and discount rate		3.6%		
Vendor’s share of marriage value		50%		
Relativity at 77 years		95%		

A VALUE OF FREEHOLDER’S INTEREST (excluding prospects of marriage)	
Participants’ flats				
Term				
Rent receivable now			470		
YP perp @ 3.6%			27.7778		
Value freeholder’s interest in participants’ flats		13,056	
Non participants’ flats				
Rent receivable now			175		
YP perp @ 3.6%			27.778		
Value freeholder’s interest in non-participants’ flats		4,861	
Value freeholder’s interest			17,917	
B VENDORS’ SHARE OF MARRIAGE VALUE	
in participants’ lessee’s flats			
After marriage				
Participating lessees’ interest		2,105,000		
Before marriage				
Freeholder’s interest		13,056			
Participating lessees’ interest	2,073,350		2,086,406		
Gain on marriage of interests		18,594		
Vendor’s share @ 50%				9,297
	27,214	
Less agreed value of amenity land			500	
ENFRANCHISEMENT PRICE			26,714