Landmark ruling ‘devastating’ for leaseholders

25 January 2018
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The Court of Appeal has ruled in favour of a freeholder in a landmark case relating to the way lease extensions are valued in England and Wales. This will affect the value of around 2.1 million homes that have leases with less than 80 years to run.

The case of Mundy v The Trustees of the Sloane Stanley Estate concerns a flat in Chelsea, London with 23 years left on the lease. At present, where the lease has less than 80 years unexpired, the value of the remaining years is calculated by using ‘relativity graphs’, with most surveyors and land tribunals using a graph produced by surveyors, Gerald Eve, more than 20 years ago. This data was originally commissioned by the Duke of Westminster’s Grosvenor Estate, which owns some of the most expensive properties in prime central London.

But many leaseholders consider this to be an unfair way to assess relativity (the percentage of the freehold interest) and, in May 2016, Mr Mundy offered the Upper Tribunal (Lands Chamber) an alternative method, developed by chartered surveyor James Wyatt of Parthenia Valuations.

Known as ‘hedonic regression’, this method analyses data from nearly 8,000 open-market transactions of houses and flats between 1987 and 1991. While the tribunal acknowledged that relativities for leases have changed over the years, it has rejected the new model.

Commenting on the Court of Appeal’s decision, John Stephenson, head of leasehold enfranchisement at Bircham Dyson Bell, whose firm represented the leaseholder, says: “For the moment, it appears that the Gerald Eve graph will remain in use until a more accurate method of valuation is tested in the tribunal or the government intercedes with an amendment to the legislation.

“Unless and until this happens, leaseholders will have to pay a higher price than some of them feel they should for extending their leases or buying their freeholds. In London alone, this means nearly 500,000 flats and houses with leases under 80 years left to run and needing to extend in the near future.”

Louie Burns, managing director of leasehold enfranchisement specialist Leasehold Solutions, adds: "This verdict is an absolutely devastating outcome for leaseholders up and down the country, not just those living in prime central London. It is so disappointing to see that, yet again, the courts have backed the interests of wealthy freeholders.

"The court's decision to uphold a lower relativity in leasehold valuations means that freeholders will receive even more money from leaseholders, as leaseholders will now be forced to pay more for their lease extensions – to the tune of many millions of pounds. 

"The valuations model at the heart of this case estimates that leaseholders are currently being overcharged by £480 million a year. Over the past two decades, that's a staggering £9.6 billion that has been taken from householders due to flawed valuation methods that have favoured freeholders at the expense of leaseholders.” 

Comments

In reply to by anonymous_stub (not verified)

I had to pay £10,000 some years ago to extend my lease on an ex-council flat and that was in Sussex (have moved since). It will have increased substantially by now of course. Eventually it will start to affect the value of these properties detrimentally even for buy-to-lets as landlords will want to recoup the cost in rents. All at a time when there is a worsening housing crisis. How clever!! It does seem about time that someone got their skates on to sort this out. It is almost laughable that we work on graphs commissioned by the late Duke of Westminster more than 20 years ago!

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