barcode1966

In a time of universal deceit – telling the truth is a revolutionary act

The launch of our new relativity graph

fullsizeoutput_82aI am very pleased to launch our new relativity graph for 2017. This is the first graph every produced working on behalf solely of leaseholders.

What follows is a technical examination of our graph and some of the issues we have to overcome when trying to establish a fair price for a lease extension or freehold acquisition.

1.1 What is Relativity?

According to the RICS, ‘leasehold relativity’ is the value of a dwelling held on an existing lease divided by the value of the same dwelling in possession to the freeholder, expressed as a percentage’.

Following the introduction of the Leasehold Reform, Housing and Urban Development Act 1993 (as amended), ‘the Act’, the declining lease of any flat (or dwelling that cannot be described as a ‘house’) subject to a statutory lease extension is likely to increase in value.

The value of a flat held on an existing lease is determined by the application of a ‘relativity’ percentage and this amount is deducted from the proposed extended lease value of the flat, together with the freeholder’s reversionary and ground rent interests. The result is known as ‘marriage value’ and when a lease has fallen below 80 years unexpired, 50% is payable to the freeholder (and/or any intermediate leaseholder). Typically, valuers use averages of established relativity graphs, together with their own experience, to ascertain what the relativity percentage should be at any given number of years remaining on a lease.

1.2 The Use of Relativity Graphs

It is worth considering the evolution of these graphs and why they are now partly used in determining how much leaseholders should pay.

Relativity graphs have been accepted for many years as a justifiable means of deciding relativity, but it is widely acknowledged that a high degree of scepticism and subjectivity surrounds these graphs. Some valuers choose to use one or two in isolation, whereas some use an average of graphs (a practice which has more recently become known as ‘Kosta averaging’ii). However, most of the graphs were created many years ago and predate the property market crash of 2007/8.

There is no regulating body overseeing the compilation of these graphs. Subsequently, various methods are used to create them – most commonly by freeholders or valuers representing them – and the variance in data means these graphs are largely incongruent. One could therefore argue that none of the graphs available to practitioners are entirely accurate.

It is fair to say that the vast majority of relativity graphs favour the interests of freeholders, as leaseholders’ valuers have never invested in the compilation of a graph that better represents their own perspective.

Also, the majority of these graphs use data from the Prime Central London (PCL) market, which is not suitable to be used for a Greater London demographic.

This was highlighted even further in a recent Upper Tribunal (Lands Chamber) decision following the case of Sloane Stanley Estate v Mundy (2016). In this decision, the most frequently used relativity graphs were examined by the judges and each received criticism.

In this decision the judges expressed an opinion that much of the evidence used to compile these graphs had been “altered subjectively” and achieved “favourable settlements” for their retained freeholder clients. It was suggested that many of these graphs, which have been used for decades, were out of date and no longer relevant.

In the Mundy decision, it was suggested that the Gerald Eve (1996) graph, which was compiled by valuers retained by freeholders and using data from PCL properties, may be the most likely ‘go-to’ graph when advising potential purchasers. However, this is not the only graph adopted by valuers. A more reliable graph is required in order to redress this balance.

 

1.3 Real World Evidence (RWE)

RWE can be established by looking at thefullsizeoutput_827.jpeg sale price of a property with either a long or short lease and using that evidence to project what the relativity should be. This has become the favoured method used by freeholders’ valuers since the Mundy decision was released.

In the Mundy decision, it was suggested that RWE could be the best method to calculate relativity, as follows: “In some (perhaps many) cases in the future, it is likely that there will have been a market transaction around the valuation date”; it was then stated, “If the price paid was a true reflection of the market value for that interest, then the market value would be a very useful starting point for determining the value of an existing lease.”

This one paragraph has added considerable uncertainty to the Greater London market with regards to calculating relativity.

Even though the Mundy decision says RWE would just be a “very useful starting point” , the majority of valuers representing freeholders have been quick to adopt this suggestion as a cast-iron direction from the Upper Tribunal to put forward anomalous ‘evidence’ of sales of flats held on short, unextended, leases. This has enabled them to ask for much higher premiums on behalf of their clients.

Leasehold Valuers is finding that freeholders’ valuers are increasingly asking for disproportionately low relativities (and consequently much higher premiums for their clients), disregarding any reference to the existing graphs whatsoever.

On the face of it, using RWE seems like a common-sense approach to establishing relativity. However, this method is as subjective – or possibly even more so – than using the graphs to determine the likely value of a flat held on a lease having a given number of years unexpired.

The best-case scenario for RWE may be to consider and compare the sale price of three flats held on unextended leases (having the relevant unexpired term) and the sale price of three flats held on extended, or ‘long’, leases, each being of the same condition and ‘flat type’ within the same block and having sold close to the valuation date.

Furthermore, it could be proved each sale took place as per the RICS’s definition of Market Value; i.e. that it was ‘between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.’

In our experience, it is very rare to find examples of two or more flats that have sold within the same block, one (or more) having sold on an unextended lease (of the required unexpired term) and the other(s) having sold on an extended, or ‘long’, lease, which match in terms of size (number of rooms and/or gross internal floor area), floor level, aspect, layout, general condition, and having the same proportion of outside space, and so on.

If these ingredients are not available, the valuer might search for ‘comparable’ flats nearby and/or in similar blocks. In our experience sales evidence that does not support a valuer’s position is then often omitted. Subjective adjustments are also made for flat size, location, date of sale, improvements, and so on. The result is often evidence that conveniently supports an often unrealistic position on relativity.

Furthermore, information about sales of flats held on unextended or ‘short’ leases is likely to be deeply flawed in the first place. Even though those working in the residential leasehold sector cannot agree upon a particular graph, dataset or method to determine the value of a lease of a particular length, it is assumed sellers and purchasers of flats have a real understanding of relativity and have made an informed decision on value based upon the unexpired term at the point of sale. This is not the case.

fullsizeoutput_82bReferring back to the definition of Market Value, where both parties were not advised and/or represented by a special- ist (enfranchisement) valuer when the sale price was agreed, it could be argued they did not act knowledgeably or prudently. Also, there may have been an element of compulsion on the part of the seller (perhaps influenced by their estate agent) to accept a lower price based on fear of losing the purchaser and/or the purchaser’s over-estimation of the likely costs of extending the lease, due to their own fear or manipulation.

Furthermore, it can also be difficult to be obtain enough information to be certain of the genuine circumstances behind each sale. For example:

Was the flat sold below Market Value to a connected party, such as an associated company or a family member?

Was the flat marketed properly with a realistic guide price?
Were the seller and/or purchaser poorly advised?
Did the seller accept a lower price because they were desperate to move or dispose of the flat?

Did they sell below Market Value because they were in financial difficulty or it was a distress sale?

Was the purchaser a non-UK national and therefore less likely to understand the leasehold system?

Did they become emotionally attached to the flat and were therefore willing to pay more for it?

Was the sale a cash purchase?

There are multiple scenarios that can affect the sale price of a property, let alone a flat held on a ‘short’ lease. These are unlikely to be obvious to an estate agent, let alone a valuer representing a third party in respect of a lease extension.

RWE evidence also highlights other potential anomalies regarding the relativity percentages being suggested by freeholders’ valuers. Leasehold Valuers has seen proposed relativities at particular lease lengths that differ significantly between neighbouring locations within the Greater London area, and even some that vary significantly in the same blocks or in blocks situated close to one another.

Leasehold Valuers questions whether each flat size, block, street or borough should really have a different relativity. The Act has now been in place since 1993 and tens of thousands of statutory lease extensions have been completed since then. Given the vast amount of data available, there is no justification for sporadically calculating relativity on a block-by-block or flat-by-flat basis.

The Mundy decision seems to have divided opinion on relativity like never before and generated an increase in variation and inconsistency between practitioners. This subjectivity is frequently being used by freeholders’ valuers as a means of demanding significantly higher premiums from leaseholders for lease extensions. This subjectivity also seems to have given freeholders the ability to ‘hold leaseholders to ransom’, using the threat of the costs of litigation to force them to agree to increasingly lower relativities and subsequently higher premiums.

There is, however, increasing evidence to suggest the First-tier Tribunal (Property Chamber), or the ‘FtT’, is rejecting the advice given in the Mundy decision to use RWE.

Two recent decisions, which have been released post-Mundy for flats in Greater London, indicate FtT judges do not blindly subscribe to the view that RWE is always the best method to use.

One of Leasehold Valuers’ FtT cases, which was in respect of 84 Morieux Road, London E10 (LON/OOBH/2016/1321), decided in favour of the leaseholder whereby the Kosta-averaging method was applied (using three graphs), over a proposed RWE method adopted by the intermediate leaseholder. In their decision, the judges wrote “we consider that the most appropriate method of establishing relativity in this case is to utilise the graphs.”

In a separate case, FtT judges came to a similar conclusion in favouring the averaging of five graphs to determine a fair relativity over flawed RWE. In this case, which was in respect of Flat 31 at Anerley Court, London SE20 (LON/00AF/ OLR/2016/0706), the judges concluded that they “agree with the reasoning put forward…for not abandoning the RICS research document, and the evidence of the graphs contained therein”.

Of course, those victories came with a price tag; namely the litigation costs of the litigation borne by the leaseholders.

The arbitrary use of RWE has another aspect to it, which also needs to be taken into account. Once the relativity percentage at the given unexpired term has been established, a further adjustment needs to be considered to account for a ‘no-Act world’.

 

1.4 ‘No-Act World’ Adjustment

The Act provides that the calculation fullsizeoutput_826of the lease extension premium must disregard the existence of the rights provided by the legislation itself. This is because granting flat owners the legal right to extend their leases in 1993 is said to have affected the Market Value of flats held on ‘short’ leases (in relative terms). Essentially, this stipulation requires a hypothetical adjustment to whichever existing lease value is determined. Therefore, to comply with the legislation, valuers are required to determine the Market Value of the existing lease in a ‘no-Act world’.

By the same virtue, it has also been suggested that a flat held on a lease with legal rights to a lease extension or to collective enfranchisement (known as ‘enfranchiseable leases’) should be worth more than the same flat held on a lease without such rights. This would mean when establishing the ‘value’ of the legal right of a lease extension (or collective enfranchisement), the valuer is required to research sales of properties held on ‘enfranchiseable leases’ and then compare them with sales prices of comparable properties held on ‘unenfranchiseable leases’ (of the same length).

This is a virtually impossible task, given there is an extremely small number of ‘unenfranchiseable’ leases in the real world, which change hands very rarely; therefore, there is no way such a difference in value may be determined. The Mundy decision suggests ‘a competent valuer should be able to make this [no-Act world] deduction based on their experience’.x Therefore, the ‘no-Act world’ deduction is an arbitrary one, which has no unopposed evidence whatsoever that can be used to help justify what this deduction should be.

A valuer representing a freeholder is likely to “make this deduction based on their experience” and propose the largest ‘no-Act world’ deduction to reduce the relativity percentage even further, whilst a valuer representing a leaseholder will do the opposite.

It has been suggested the amendment to the Act following the implementation of the Commonhold and Leasehold Reform Act 2002 may have decreased existing lease values. This legislation introduced the 80-year threshold for the addition of 50% marriage value as part of the lease extension premium. Prior to 2002, an 80-year lease was not widely considered a ‘short’ lease. However, since 2002 more and more buyers, estate agents and solicitors have begun to place an emphasis on the ‘risks’ of sub-80 year leases and lower prices have been paid for them, potentially having a domino effect on the cost of a lease extension. Prior to the implementation of the 1993 legislation, freeholders were granting brand new leases of 60 or 65 years, which buyers were seemingly unconcerned about. Accordingly, existing lease values may actually be higher in the minds of those in the ‘no-Act world’.

The use of RWE was not particularly commonplace prior to the Mundy decision. It has been suggested this may have been because the difference between sales prices of unextended leases and extended, or ‘long’, leases within some blocks used to be fairly narrow and freeholders’ valuers preferred the lower relativities represented by certain graphs. A gradual depression of unextended lease sale prices following the introduction of the 80-year threshold, however, might be the reason RWE is now of greater assistance than the graphs to which freeholders’ valuers once referred; especially after they have chosen a subjective ‘no-Act world’ deduction.

Surely, in the 21st century, there must be a more scientific and consistent method of determining relativity in a ‘no-Act world’?

1.5 Hedonic Regression

In recent years there have been attempts to use the accepted hedonic regression method in an attempt to scientifically establish what relativity in the ‘no-Act world’ should be. Most recently, this method was adopted by Parthenia Research to do just that in the Mundy case.

The method was comprehensively rejected by the judges in the Mundy decision, notoriously concluding Parthenia’s hedonic regression model “the clock that strikes thirteen”.

1.5.1 What is Hedonic Regression?

Hedonic regression breaks down the item being researched into its constituent characteristics, in this case the number of bedrooms, location and lease length, and so on, and produces estimates of the value of each characteristic. From this data, a curve can be deduced on the appropriate relativity percentage and a graph can be produced.

Leasehold Valuers supports the principles of hedonic regression and looks forward to a time when an unpartisan scientific relativity graph will be produced using this method.

LeaseholdValuersopenlycriticisedthedecisioninMundy.ItunconditionallyrejectedthePartheniamodel,whilstatthesame time proposing the Savills 2015 (hedonic regression) graph could be adopted in the PCL market, even though we understand the Savills graph has the same technical issues the judges had misgivings about with the Parthenia model.

1.6 The Delaforce Effect?

It has been suggested when a freeholder is faced with a group of leaseholders collectively taking action against them, they will agree lower extension premiums to avoid the costs of representation at a hearing of the FtT. Therefore, it may be argued the relativity achieved is not an accurate reflection of what it ‘should be’. However, it is clear that, overall, the Delaforce effect benefits freeholders and prejudices individual leaseholders.

The vast majority of freeholders are of greater financial means than the average leaseholder (certainly in Greater London) and therefore do not fear tribunal fees as much as leaseholders. Furthermore, the costs of tribunal representation are tax-deductible for freeholders, but generally not so for leaseholders.

Freeholders will invest money to establish a valuation ‘principle’ for their portfolio to ensure future lease extensions achieve higher premiums, so they are prepared to go to the FtT do just that (and appeal any FtT decision that goes against them). Leaseholders are not usually inclined to take such action, as their sole interest is likely be represented by a single flat within a block or development and their stance might be less aggressive.

Any influence of the Delaforce effect has been excluded from our graph and any settlements involving small or ‘accidental’ freeholders have been omitted. All the freeholders of the settlements in our graph are commercial, institutional freeholders.

That said, we have produced a secondary graph to demonstrate how the Delaforce effect might impact relativity (Appendix 5), in order to act as a straightforward comparison with LV 2017. The Leasehold Valuers Delaforce Graph has been compiled using settlement data gathered whilst acting on the behalf of clients of Leasehold Solutions. As Leasehold Solutions is an intermediary instructed by groups of leaseholders to project manage lease extensions of flats within a particular block or development, any lease extension completed by them has been part of a group action. The average group size within this collection of data is 7.4 leaseholders.

The Leasehold Valuers Delaforce Graph is comprised of the relativities from 1,213 settlements and shows that the relativities agreed are, on average, 0.8% higher than the Leasehold Valuers Graph 2017. Accordingly, it may be determined that by taking group action, leaseholders may achieve a relativity 0.8% higher compared to acting individually.

2.1 The Data and Methodology

fullsizeoutput_828The Leasehold Valuers Graph 2017 is based on settlements agreed between leaseholders and freeholders. As Leasehold Valuers acts solely on behalf of leaseholders and the dataset is compiled wholly from settlements where the company has acted on behalf of the leaseholder of a statutory lease extension claim.

From the 3,000 transactions carried out by Leasehold Valuers, this dataset is derived from 2,356 settlements reached during the two-year period from January 2015 to December 2016.

Each and every settlement has been scrutinised in order to respond to the criticism levelled at settlement graphs and to ensure all possible anomalies have been removed.

Any mitigating circumstances that might skew the result have been removed. These include all relativities from all lease extension claims that were:

Subject to a hearing of the FtT or the Upper Tribunal (Lands Chamber);

In PCL or outside the M25 orbital motorway;
Part of a group of claims, in order to eliminate any Delaforce effect;
Subject to onerous or anomalous ground rents;

Subject to capitalisation rates and/or deferment rates not mutually agreed by each party;
Where the freeholder was a small or ‘accidental’ freeholder; all the settlements are with professional ground rent investors; • In respect of leases having less than 30 years unexpired, where there was a paucity of settlement evidence.

This process reduced the dataset from 2,356 settlements to 503, incorporating no opinion at 30 years unexpired and above. Between 30 and 79.9 years unexpired, the graph is based on pure, untainted, settlement evidence of 503 statutory lease extensions of flats within Greater London during the period from January 2015 to December 2016. There are no leasehold houses included in the dataset.

Geographically, each of the 503 settlements is outside what is regarded to be PCL (Prime Central London), but within the M25 orbital motorway. The settlements are fairly equally spread across Greater London and no one borough or area is disproportionately represented.

The Leasehold Valuers Graph 2017 includes relativities at 79.9 years down to 30 years unexpired. The relativities below 30 years are merely Leasehold Valuers’ opinion and are only included on the graph for continuity purposes. Accordingly, the graph should only be referred to for leases having 30 to 79.9 years unexpired.

Once the dataset was cleansed and the 1,853 settlements that might skew the graph removed, it was sent to Anna Louise Schroder of the Department of Statistics at the London School of Economics. Ms Schroder then plotted our graph “using spline smoothing and interpolate values to generate a price decay curve”.

LV 2017, being solely derived from relativities collated from over 500 settlements achieved from January 2015 to December 2016, represents the fairest and most accurate way to determine relativity for flats in the Greater London area.

Schedule 6 to the Act requires the valuation of the freeholder’s interest by assessing “the amount which at the valuation date that interest might be expected to realise if sold on the open market by a willing seller.”

These settlements were achieved between two willing parties, without the need to attend the First-tier Tribunal (Property Chamber) or pursue any other form of litigation to ‘force’ an agreement.

Leasehold Valuers considers that using data from recent settlements between a willing cogent seller and an informed buyer is the fairest and least subjective graph currently in use.

Conclusion

In conclusion, we believe this graph will redress the balance for leaseholders in the determination of premiums payable for lease extensions. In preparing this graph, we have eliminated as much subjectivity as possible by only using data from transactions where the leaseholders acted both alone and against professional freeholders who were represented by enfranchisement experts. It also disregards tribunal decisions.

Of the 503 settlements analysed, which were for leases of flats having between 30 and 79.9 years unexpired, a relativity percentage had been expressly deter- mined or all other factors had been previously agreed and the only component remaining in dispute was the relativity to apply.

Taking the above into account, we are confident that the LV graph 2017 is one of the least subjective relativity graphs now available to practitioners.

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Why the threat of compulsory purchase orders has become one of the biggest fears for ex-local authority leaseholders in London.

418865_406280396101674_377969546_nCompulsory Purchases Orders (CPOs) are already a big issue in London, with many estates having already been forcibly bought. I am currently aware of 37 different estates in London that are currently fighting CPOs and it is just about to get much worse.

The current political thinking about CPOs in London

That’s because the political thinking around CPOs has shifted dramatically and swiftly during 2016. In this year’s London electoral race both Zac Goldsmith and the winning Sadiq Khan agreed that CPO’d council estates should be the land used to facilitate the building of the 50,000 new homes that were promised to be built per year in the capital.

In early 2016, the Prime Minister announced that he was about to blitz poverty by demolishing at least 100 large, run-down and difficult to manage council estates. He described these as ‘sink estates’ and to show how serious he was he pledged 149 million to it. Obviously 1.49m per estate is a paltry figure and so the government will need to rely heavily on developers’ money to pull it off.

Cameron then commissioned the silver-spooned Michael Heseltine (who ironically was a key figure in Thatcher’s original sale of council houses under the right to buy legislation) to examine how to demolish and redevelop the country’s 100 worst “sink estates” with the help of the private sector.

Heseltine says it is his dream to get rid of the ‘slums’, which is about to become a real nightmare for the legitimate tenants and owners of these properties. One thing Heseltine’s 17-person regeneration panel aims to do is speed up the process by fast-tracking developers’ applications.

Last March a body called the London Land Commission, headed by Boris Johnson, was formed to compile and publish a register of all publically owned land and property in London in preparation for this great compulsory plan.

Bizarrely a left wing think tank, the IPPR, have been embraced into this ‘social cleansing club’ and now seem to be at the forefront of current political thinking, having produced their own damaging report entitled City Villages: More homes, better communities.’ Here they assert that ‘by far the largest source of publicly owned land suitable for new housing is already owned by local authorities in their existing council housing estates.’

Following this all council estates have now been classified as ‘Brownfield estates’ and are now viable targets for CPOs, social regeneration and fat profits to be made.

This job of carving London up seems to have fallen to the estate agent Savills. They also produced a 164 report with the snappy title Completing London’s Streets: How the regeneration and intensification of housing estates could increase London’s supply of homes and benefit residents. In  their darkly disingenuous report, the estate agents spell out their vision of redeveloping existing council estates and the benefit it will bring to London (read: their friends, the developers); they also gleefully assert that they should be paid huge chunks of tax payers’ money to preside over it all, as the various councils don’t have the expertise.

I could go on and on but the upshot is that all council estates have now become valid and viable targets for CPOs and all politicians, potential mayors and the private sector are in agreement.

Why do councils want to issue CPOs?yuppie2

The official reason is to turn run-down estates into sparkling new homes for their social tenants and leaseholders.

The real reason though is mostly about money. Firstly, they get money from the eager developer who wants to mow down the flats and build nice shiny chrome and glass luxury flats to a mostly investor market.

They get out of having to pay for and provide thousands of homes for social tenants, who in CPOs get ‘decanted’ out of the area, sometimes being shipped as far away as up north.

In their eyes the area will become more desirable to live in once it’s been socially cleansed and they can then put your council tax up.

Finally, many councils signed up to LOBO loans and they need to pay them off.

A sad pattern that is emerging from all these regeneration schemes is that they are sold initially on the amount of social housing that will be included in these developments. It soon transpires that there isn’t enough profit for developers to include the social housing element they promised after all and it’s reduced to a minuscule amount of housing.

What are the biggest dangers to you if your flat is CPOed?

The number one danger is the amount of money they will offer you for your flat compared to what it is actually worth on the open market.

The councils have a legal obligation to ensure that a flat owner is in ‘a no better or worse financial situation’ after a CPO. The reality though is different and very grim.

Councils tend to make their first offer of compensation a derisibly low offer to start with to shock flat owners and set their expectations and then over a period of many months they incrementally increase the offer whilst doing a good job of managing everyone’s expectations.

Below are some very rough figures I have been given (I have not been able to check the validity of all of them all. I have heard the same figures time and time again however so they will be pretty accurate)

  • Hendon (worth £347,000), opening offer £130,000, final offer £214,000
  • Heygate (worth £355,000), opening offer £114,000,  final offer £164,000
  • Colville (worth £270,000), opening offer £120,000, final offer £150,000
  • Woodberry (worth £330,000), opening offer £130,000, final offer £158,000

Data obtained by campaigners at the Aylesbury estate under the Freedom of Information Act found Southwark council paid £147,500 for a four-bedroom, 97 sq m maisonette. The average house price in London at the time had just had hit £400,000.

At the West Hendon estate in Barnet, some leaseholders were offered just £90,000 for a one-bed flat and £130,000 for a two-bed maisonette when the council applied for the first in a series of compulsory purchase orders.

This is hugely unfair to flat owners who are not being given a fair market price for their flats and they cannot buy a like to like flat on the new development.

There is then a real human cost to receiving unfair compensation. Many leaseholders will be too old to get a mortgage and will not be given enough compensation to buy another flat in the area they have grown up in. They will be faced with either using their capital for rent until it is used up or moving hundreds of miles away to be able to buy cheaper properties.

Those young enough to get a mortgage will be in a similar positon of not being able to afford to live in the area they currently do – with their friends and extended families – and will instead be forced to move to cheaper areas. This causes real issues for families forced to break up, and it is widely documented that people in these situations are suffering from depression or mental health issues due to losing the support of their friends and families.

Of course if leaseholders are unhappy with the valuation offered they can take their case to the Upper Tribunal but the cost of valuers, solicitors and barristers is very daunting to leaseholders. Also the councils, who get all their fees paid for by the tax payer, are almost certain to appeal if they don’t get the desired decision, thus wiping out a huge portion of the compensation received by a leaseholder, win or lose.

Will buying your freehold prevent a CPO from happening?

34836_chopsticksbeforePossibly. A council can make a CPO on any property as long as it is can be proved to be in ‘the public’s interest’. In reality though, it is generally much easier for a council to make a CPO on property they broadly own than to do it on property that is completely privately owned.

The more buildings that have the freehold purchased the harder it will become to make these sweeping CPOs.

There is also the scope for a much higher valuation for flats with a share of freehold of between 1-3% which on some high value flats will start to make a big impact on compensation.

There is a further argument that was successful and became case law in CPOs.

Transport for London v Spirerose Limited.

Spirerose successfully argued a form of “hope value” on the future development value on the freehold of the building that they owned. This adds a further layer to possible compensation if a building has been bought from the council.

Councils will not like the fact that bulk lease extensions and freehold purchases are being done on these estates as it will be driving up the compensation they will have to pay out if they try to serve a CPO.

What can you do to stop a CPO?

Anyone can submit a freedom of information request to a council to see if your block is being considered as a possible CPO target. There can be lots of rumours around the fact but it is simple to find out the truth.1441360468

If you are targeted for a CPO don’t despair! The council have to jump through a lot of hoops to get the permission required to take possession of your homes.

Organise yourself into a group with your neighbours who will be affected. The best possible chance you have is to act as a group to fight the proposal. Connect your group with those social tenants at your block who will also be looking to object; although you will both have different issues you have the same goal and it is a mistake to act separately.

Look at what other estates have done to fight CPOs, as there is a lot of information out there.

Write to MPs to let them know the human cost of CPOs.

Just recently the Aylesbury estate has won a famous victory to prevent a CPO taking place but we need to watch closely what happens next.

Some useful links

The official stance on CPOs

Some key case law

Another tower of shame (35 percent)

Heygate sell off (35 percent)

Heygate Estate Southwark Notes

©Barcode1966 – 2016

 

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Proposed increases to First-tier Tribunal fees: Making the flawed leasehold system even unfairer for flat owners.

Introduction Artists-impressions-of-Lady-Justice_statue_on_the_Old_Bailey_LondonThe Ministry of Justice (MOJ) has just released a consultation paper, which proposes to increase the cost of various court fees applicable.

Slipped into the middle of this paper are some very significant proposed increases to the fees payable for enfranchisement and lease extension cases heard at the First-tier Tribunal (FtT) Click here for the document (go to page 27).

These changes will have catastrophic consequences for the vast majority of ordinary flat owners in this country and will further damage their chances of being dealt with fairly by their rapacious freeholders. This blog will explain some of these consequences in more detail.

What are the proposed changes to the FtT fees?

The Government’s consultation paper says the following about its proposed FtT fees:

  1. We are proposing to introduce a simple fee structure with a £100 fee to issue proceedings and a £200 for a matter to be listed for a hearing, which will be applicable across the majority of case types in the Chamber.

Our modeling indicates, however, that these proposals, applied to all proceedings, would not meet the objective of 25% cost recovery.  We believe that in order to reach the target recovery rate for the Chamber there is a strong policy justification for charging higher fees in leasehold enfranchisement and leasehold valuation cases.

  1. Data obtained from the Leasehold Advisory Service suggests that for a sample of around 840 leasehold enfranchisement and leasehold valuation cases lodged between 1994 and 2006, the average value determined by the tribunal was around £142,000.

On this basis we believe that given the large amounts in dispute it is reasonable to expect those bringing these proceedings to pay a higher fee and have therefore modelled a proposal based on an issue fee of £400 and a hearing fee of £2,000.

This would have the effect of charging those cases at close to full cost and, based on current volumes, would bring the cost recovery percentage across the Chamber to around 25% after remissions.

However, an alternative to flat fees in these cases would be to consider a model where fees are charged as a percentage of the value at stake.

The figures used

Before I discuss how this affects flat owners I would make two points about the figures used in this document.

Firstly the data which was supplied by LEASE (What were you thinking LEASE?) is impossible to analyse or question. There are a few ‘pick and mix’ statistics used as supporting evidence but no real substance.

I have requested a copy of the full data supplied to the MOJ by LEASE by way of a freedom of information request, which you can see here.

Secondly I find it hard to believe that a mean average of the values disputed in the 840 FtT ‘sample’ cases quoted could be anywhere near as high as £142,000 per case! Unless it includes the £30 million arbitrary amounts for ‘development value’ the freeholders throw onto every enfranchisement case.

Leasehold Solutions is currently dealing with thousands of live lease extensions on behalf of ordinary flat owners and the vast majority of these cases have a value under £10,000.

At best these figures are Prime Central London centric and will completely price out a flat owner from Walthamstow who is trying to get justice against his gluttonous freeholder.

At worse, they are heavily skewered or just plain misrepresented.

Why does this proposed change prejudice flat owners even more? homepage-head

Many predatory freeholders already successfully use the current flawed leasehold system against flat owners.

Although flat owners do have defined legal rights, which make us feel all warm and fuzzy, in reality these rights do little to help flat owners against a cognizant freeholder.

This is because the onus to take legal action against an unreasonable or just plain bloody-minded freeholder is nearly always on the flat owner. They also have to pay for this legal action, by way of current FtT costs, which are dwarfed further by the cost of their own legal and valuation representation.

For example, many freeholders refuse to engage with the flat owner’s professionals during the statutory six-month negotiation period and they are very smug in the knowledge that the flat owner will have to pay to protect their legal position and there will be no fiscal penalties imposed against the freeholder for their unreasonable behaviour.

Imagine the increased power this strategy will be given if the flat owner has to now pay an additional £2,400 of FtT fees to force the bloody-minded freeholder to act!

What lets freeholders get away with acting so badly is the fact that the FtT feels it has little or limited power with cost jurisdiction and so rarely awards costs against a party who has acted unreasonably or vexatiously (even though on paper, it is allowed).

This gives freeholders the scope to act in an unscrupulous manner in the hope of gaining a further fiscal advantage or just to ‘punish’ a flat owner for daring to want a statutory lease extension.

This proposed additional £2,400 price tag for FtT fees just plays into the hands of freeholders at the expense of the flat owner.

The MOJ’s consultation paper ignorers that their proposed increase comes with the additional cost to the flat owner of their own legal representation, a valuer and possibly a barrister too!

The cost of an average flat owner in the suburbs, trying to get justice against an unscrupulous freeholder, has just become prohibitively high!

This flawed proposal will also add a fourth dimension to the existing three valuation principles of ground rent, reversion and marriage value which determine how a freeholder is compensated for a lease extension or enfranchisement.

This fourth element would be the ‘FtT cost’.

The freeholder could easily add an additional four or five thousand pounds to the fair cost of each lease extension based on the fact it would cost a flat owner much more than that to challenge them in the FtT!

This is a real gift to the many predatory billionaire freeholders we have in the UK but really bad news to the four million flat owners who will have to pay for it.

They will be the ones who will always pay for these increases either by way of paying the new fees to the FtT or by paying more than they should to their freeholder who has used this system against them.

Another gift for the freeholder could be the terms of the new lease.

During a statutory lease extension basically both sides have the legal right only to alter defective clauses and not include new clauses or licences in the lease.

Not so with the proposed changes to the FtT fees. Now a freeholder could insist on inserting a new license which states if you rent out your flat to a third party you must pay the freeholder £1,000 a year for ‘permission’ to do so.

The freeholder can’t legally do this but now the onus is on the flat owner to challenge this in the FtT to get this licence removed. Now the flat owner will have to pay £2,400 for FtT fees plus more than this for their solicitor to prepare the case case and represent them.

This after the fact that the flat owner has just paid over the odds for his lease extension, plus his own legal and valuation fees and the legal and valuation fees for his billionaire freeholder, chances are he will just accept it!

The list of how these proposed changes will prejudice flat owners all over the country goes on and on but it is plain to see that this proposed change designed to plug a gap in the MOJ’s books will also give more power and money to freeholders.

This is the death knell for the average person owning a flat in the suburbs who is trying to force his freeholder to act reasonably. Justice has just become too expensive.

If these proposed increases to the FtT fees are implemented then this img_0779will be a huge backwards step for leasehold reform.

The consultation paper closes on 15 September 2015, so please let your voice be heard, the more of us who make our voice know the better chance we have of stopping these ludicrous proposals.

Click on this link to see the paper and it asks three questions.

Please answer those questions and send them to the MOJ.

Also send a copy of your answers and thoughts to your local MP and:

The Rt Hon Michael Gove MP Secretary of State for Justice

102 Petty France

LONDON

SW1H 9AJ

©Barcode1966 – 2015

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