Court awards ground rent purchase price based on market value plus reasonable legal conveyancing costs.

THE CIRCUIT COURT AN CHÚIRT CHUARDA DUBLIN CIRCUIT COUNTY OF THE CITY OF DUBLIN

IN THE MATTER OF THE LANDLORD AND TENANT ACTS 1967-2008 AND IN THE MATTER OF THE LANDLORD AND TENANT (GROUND RENTS) (NO.2) ACT 1978, SECTIONS 9 & 10

Record No. 2021/GR011

Between:

GA DEVELOPMENT DUBLIN ICAV (ACTING FOR AND ON BEHALF OF ITS SUB-FUND GA DEVELOPMENT FUND)

APPELLANT

-AND-

TECHNOLOGICAL UNIVERSITY DUBLIN

RESPONDENT

Judgment of His Honour Judge John O’Connor delivered on the 9th day of May, 2024:

Introduction:

1. These proceedings relate to an appeal by the Appellant of an award of the County Registrar fixing the purchase price for the fee simple and any intermediate leasehold interest in the premises the subject matter of an Indenture of Lease dated 13 October 1952, made between Stanley A. Siev of the one part and Peter Cunningham of the other part, “the 1952 Lease”. There is no dispute between the parties that the Appellant is entitled pursuant to the provisions of the Grounds Rent Act 1967 to 2019 to acquire the fee simple and all intermediate interests in the premises. The dispute between the parties relates to the purchase price to be paid by the Appellants for the fee simple.

2. The title to premises were registered lands comprised in Folio DN14509F.

Background:

3. For many years, the Premises formed part of the campus of Kevin Street College of Technology and substantial building work was completed on the lands.

4. There was second smaller portion of property held under a Lease of 3 May 1978, made between Stanley Siev and Irish Assurance, “the 1978 Lease”. There were no buildings on this land and therefore no automatic right to acquire the freehold title.

5. By contract for sale dated 11 April 2019, made between the Respondent and the Appellant, the Appellant agreed to purchase the Kevin Street Campus including the Premises held under the 1952 Lease and the smaller portion held under the 1978 lease for an aggregate sum of €140,123,000 [the contract for sale].

6. In a special condition in the contract for sale, the parties agreed that the Respondent would apply to the County Registrar to acquire the fee simple and all intermediate interest in the Premises together with a further small portion held under the 1978 lease, and if necessary, bring an appeal from her decision. It was expressly provided in the said contract for sale that the Respondent would bear the costs and expenses incurred in the application. A set date of eighteen months was provided for the acquisition of the said interest, and it was specifically provided that the purchase monies to be paid by the Appellant would be reduced by the sum of €5,000,000 if the fee simple interest in the premises was not acquired by the appropriate date.

7. The transaction completed and €5,000,000 was retained as both fee simple interests had not been acquired within the time prescribed in the contact for sale.

8. An application was made by the Respondent to acquire the fee simple interest and all intermediate interests in the two portions of ground. This resulted in High Court litigation. In that regard, Ms Justice Hyland delivered a judgement in Prime GP2 Limited v. Technological University Dublin [2021] IEHC 88.

9. Hyland J held that application was unsuccessful in relation to the further portion of ground held under the 1978 lease but was successful as far as the premises held under the 1952 lease was concerned.

10. In a subsequent judgment Ms Justice Hyland in Prime GP2 Limited v. Technological University Dublin [2021] IEHC 158 dealt with the legal costs of the litigation.

11. As the fee simple interest in the premises was not acquired by the agreed contact date, the sum of €5,000,000 was reimbursed to the Appellant.

12. By Deed of Assurance dated 30 August 2021, the Respondent assigned the lessee’s interests under both leases to the Appellant.

Test for Determination of the Purchase Price of a Freehold Interest:

13. The legislative test for the determination of the purchase price of a fee simple in a commercial property which has, as in this case, a lease with more than 15 years to run is provided for in section 7 of the Landlord and Tenant (Amendment) Act 1984:

“(1) In this section, “the relevant date” in relation to any land means the date of service of the notice under section 4 of the Act of 1967 or of the application under Part III of Act (No. 2) of 1978.

(2) This section applies to the determination of the purchase price of the fee simple or any other interest by arbitration under the Act of 1967 including an arbitration conducted by the Registrar of Titles in pursuance of section 21 of Act (No. 2) of 1978.

(3) Subject to the provisions of this section, the purchase price shall be the sum which, in the opinion of the arbitrator, a willing purchaser would give, and a willing vendor would accept for the fee simple or other interest at the relevant date having had regard to—

(a) the rent payable for the land by the person acquiring the fee simple,

(b) where, at the relevant date, the land is held under a lease which provides for an increased rent payable within fifteen years after that date, the amount of that increase and the time when it becomes payable,

(c) the current interest yields on securities of the Government issued for subscription in the State,

(d) if the land is used for the purposes of business, or exceeds one acre in area and is not used for the purposes of business, the area and nature of the land, its location and user and the state of repair of any buildings or structures thereon,

(e) the price paid for the fee simple or any other interest in the land on a sale taking place on or after the 22nd day of May 1964,

(f) any mortgage or other charge on the interest in the land of any person from whom, mediately or immediately, the person acquiring the fee simple holds the land,

(g) the costs and expenses which, in the opinion of the arbitrator, would be incurred by the persons from whom, mediately or immediately, the person acquiring the fee simple holds the land, in investing the purchase money payable in respect of the acquisition of the fee simple,

(h) the costs and expenses which, in the opinion of the arbitrator, have been incurred by a person acquiring the fee simple who holds the land under a lease by reason of the failure of the lessor to maintain any amenities which he is required to maintain under a covenant in the lease,

(i) the current price of the immediate lessor's interest in land held under leases or yearly tenancies like the lease or yearly tenancy under which the land is held by the person acquiring the fee simple, and

(j) such other matters as are, in the opinion of the arbitrator, relevant to the determination of the purchase price.”

Legal Principles of the Test to be Applied:

14. It is accepted by both parties that it is the obligation of County Registrar as arbitrator to value the interest which is being acquired based on the price a willing purchaser will pay, and a willing vendor will accept. In this context, the provisions of section 7(3) are in effect designed to help the County Registrar as arbitrator to ascertain that figure and they set out a non-exhaustive list of issues which the County Registrar shall have regard to. While attention is drawn to section 7(3)(j), I accept Counsel for the Respondent’s submission that the legislature intended the list of considerations to be non-exhaustive.

15. As JC Wylie notes in Irish Landlord and Tenant Acts: Annotations, Commentary and Precedents (2015, Bloomsbury, at para. 3.105), “the willing purchaser and vendor are hypothetical persons and not the actual parties”.

16. In Gilsenan v. Foundary House Investments Limited [1980] ILRM 273, the court held that to determine the purchase price, regard had to be had to the rent which would be reserved by a reversionary lease of the land. Pursuant to section 18(5)(a) of the Landlord and Tenant (Reversionary Leases) Act 1958, that rent would have been “the rent which, in the opinion of the Court, a willing lessee not already in occupation would give and a willing lessor would take for the land”. The Supreme Court held that that involved determining “what an imaginary lessor would be willing to take, and an equally imaginary lessee would be willing to give” for the reversionary lease.

17. In the case of Shirley v. O’Gorman [2006] IEHC 27, at page 78, Peart J explained, “what is being valued is the residual interest of the landlord in the premises, and …. For all reasonable purposes this can be seen as the income stream to which the landlord is entitled”. This is therefore an interest of limited value.

This limited monetary value was explored by the Supreme Court (Griffin J) in the case of Irish Life Assurance Co. Ltd v. Dublin Land Securities Ltd [1989] IR 253. Griffin J in the following passage explained that while ground rents may have been a valuable asset when the Lease was created in the early 1950s, they subsequently became a burdensome and unpopular asset:

“The main business of Irish Life Assurance Company Limited (the appellant) is that of selling life assurance. In the 1940s and 1950s it acquired a ground rents portfolio with the object of securing rental income. At that time, when mortgage interest rates averaged 5 per cent, ground rents were worth acquiring. However, that had changed drastically by the mid-1970s. Legislative changes had taken place and were in contemplation, tenants' associations throughout the country had commenced agitating, inflation was rampant, the ground rents were difficult to collect, and the cost of collection was out of all proportion to the income derived from the ground rents. Worst of all, however, was the effect on the appellant's main business due to what Mr. Nowlan, the property manager, described in evidence as the bad publicity created by the tenants'

associations in housing estates, advantage of which was no doubt taken by the appellant's competitors.

By 1979 the board of directors of the appellant had decided to sell its ground rents portfolio in a single transaction. Mr. Nowlan engaged in negotiations with a few potential buyers, but those discussions proved fruitless.”

18. In a helpful article, the calculation of the purchase price in relation to the acquisition of a fee simple (1996) 1(3) C.P.L.G. 51, Dwyer explains that the factors listed in section 7(3) of the 1984 Act are merely tools to help the arbitrator identify the market price:

“Under section 7(3) of the Act, the amount to be fixed is the amount which in the opinion of the Arbitrator would be such as a willing purchaser would give, and a willing vendor would accept for the fee simple. In other words, the market value. It is only to assist the Arbitrator in assessing what is or is not the market value that the Act lays out a number of criteria which are to be considered…

Category (j) relates to other matters which are in the opinion of the Arbitrator relevant to the determination of the purchase price, and obviously gives the Arbitrator wide discretion. Thus, the purchase price of the fee simple for a premises in Dawson Street with development potential is likely to exceed that of a similar premises in a country town which has no development potential. Clearly all the criteria are designed to enable the Arbitrator to calculate what is the market value of the interest.”

I also note the helpful article by Ruth Cannon BL in the Conveyancing and Property Law Journal 2019, volume 4 at page 58.

Applying the law to the facts:

19. The Country Registrar as arbitrator is conferred with a wide discretion under section 7(3)(j) of the 1984 Act as to the market value. However, it must be objectively valued by reference to a hypothetical vendor and purchaser, and not on the actual contractual time limit penalties applied by the parties in a commercial contract for sale in the overall purchase.

20. In calculating what the market value is the County Registrar is entitled to consider additional factors not specifically legislatively provided for such as for example, ascertaining the value of restrictive covenants.

21. The question in this case is

(i) whether the market value of the property overall can affect the value of the ground rent, and

(ii) can a time limit penalty clause inserted by the parties affect that value of the ground rent?

The reality is that this was a commercial contact negotiated by both parties with the aid of reputable lawyers. It is not for this court to rewrite the special conditions to the contact for sale. If there is an issue over the interpretation of those special conditions that is for a different legal forum.

22. In this case, the professional valuers for the Appellant and the Respondent agree that the market value of acquiring the freehold would in normal course be €10,000. The reality is that the purchaser is automatically entitled to acquire the freehold. There are no restrictive covenants that would have affected this purchaser acquiring the freehold. The right to purchase of the freehold was decided by Ms Justice Hyland in Prime GP2 Limited v. Technological University Dublin [2021] IEHC 88. It was a smaller portion of the property under the 1978 lease which the purchaser was not automatically entitled to purchase, but that is not the subject of the matter before this court.

23. It appears to me that the only additional factors that could be considered in this case are legal and valuation costs. In my view, it would be reasonable that a solicitor and counsel would be engaged in this case by the vendor/landlord bearing in mind the importance of approving the document from a title point of view.

24. The reason for the complexity is also due to the nature of the 1978 lease that would have required expert legal advice in respect of the sale and which would have been in the interest of both parties.

25. In very many cases, the legal costs in such a purchase would be relatively modest as the landlord’s solicitor would simply be approving a deed of purchase. However, in this case, the reason for the complexity is also due to the nature of the 1978 lease, and how it affected the 1952 Lease. This would have required expert legal advice on the freehold purchase. It would be reasonable in my view that legal conveyancing fees would have been incurred by the Respondent. This is complicated by the fact that the contact for sale expressly provided that the Respondent would bear the costs of making the application to the County Registrar.

26. However, the conveyancing costs relate to the conveyancing of the freehold interest, and not to the subsequent litigation that took place. The reason for this is that the issue of legal costs in the litigation was decided by Ms. Justice Hyland in the judgment of Prime GP2 Limited v. Technological University Dublin [2021] IEHC 158.

27. Therefore, I believe that the appropriate award in this case is a sum of €10,000 in respect of the freehold, together with a sum for solicitors, and counsels fees in respect of the conveyancing costs of the freehold purchase. The parties’ lawyers who drew up the contact for sale are best placed to ascertain what those legal costs are. As this case has taken a considerable amount of litigation, I would urge the parties to agree those costs, but in the absence of same I am prepared to make a recommendation as to what those costs should be.