The Leasehold Reform Act 1967 gives tenants of houses held on long leases at low rents the right to acquire the freehold interest. The right to buy the freehold, and any intermediate leasehold interest, without the landlord’s agreement is called enfranchisement.
Statutory Valuation and Sale of a Freehold House
We were recently instructed by our client, the owner of the Freehold interest in a mixed-use property in Cornwall, to provide advice on the premium payable in respect of the statutory sale. The freehold interest is subject to a 99 year lease from the 1920’s and while the property is mixed-use, comprising retail and residential accommodation, is reasonably considered a house for the purpose of the Act.
Having instructed a solicitor, who confirmed the correct valuation basis, we provided our client with valuation advice under Sections 9 (1A) and 9 (1C) of the Leasehold Reform Act 1967. This valuation basis assumes the landlord will gain possession of the property at lease expiry and, as there are less than 80 years left to run on the lease, recognises the leaseholder’s special interest in the purchase, which is applied as marriage value. Several calculations make up the premium payable under this valuation basis, which is subject to deferment and capitalisation rates. For this reason, it is important to employ a surveyor with experience in this area of valuation, as these rates have been discussed and some agreed in courts.
Following our initial advice and the case having escalated, we were subsequently instructed to represent at Tribunal. Following the Directions of the Tribunal, we exchanged valuations with the tenant’s representatives, prepared and issued our Expert report and attempted to narrow the issues in dispute, to reach agreement on the premium payable. This was a particularly interesting case, as the legal representatives were of different views on the valuation basis; which valuation basis is adopted is subject to qualification criteria, therefore, it is advisable to seek legal advice from a solicitor with experience in this field. Further, and in addition to providing valuations on two different bases, the property is of an age and construction likely to have been constructed from deleterious materials (mundic block), meaning we also provided advice assuming the property was of traditional and non-traditional construction/unsuitable for mortgage lending.
During conversations with the tenants’ representatives, we identified some errors with their valuations, which closed the gaps between our figures. The opposing firm were based in Brighton, with little knowledge of the Cornwall market and “mundic construction”; again, it is advisable to instruct a suitably experience surveyor with local knowledge of the area to best represent you. The legal advisors were also having conversations in the background regarding the valuation basis, to try and reach agreement in advance of the hearing.
Two weeks before the hearing, the tenant’s legal representatives conceded on the valuation basis and where the tenant had been expecting to pay £40,000, they were now looking at a minimum premium of £170,000. While the results of a Stage 2 mundic test remain outstanding, on the assumption the property is of non-traditional construction, the tenant eventually withdrew their application; our Expert report provided relevant comparable evidence which would have likely resulted in a premium above their reach, with a property they would be unlikely to raise finance against.
Naturally, our client is pleased with the outcome, retaining their freehold ownership.
Vickery Holman have an expert team of Chartered Surveyors and Registered Valuers who specialise in Leasehold Reform and represent both landlords and tenants, with the aim of achieving the best possible outcome for their client. If you require advice regarding the statutory sale or purchase of a property, please contact a member of our team to discuss.
