Leaseholders may now have to pay more for extensions or purchasing the Freehold

by Neil Patterson

14:11 PM, 25th January 2018
About 9 months ago

Leaseholders may now have to pay more for extensions or purchasing the Freehold

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Leaseholders may now have to pay more for extensions or purchasing the Freehold

The Court of Appeal has ruled in favour of the trustees of the Sloane Stanley Estate, which owns freeholds in Chelsea.

The case of Mundy vs the Sloane Stanley Estate was a landmark ruling for valuing leases with under 80 years left on the term. On one property the leaseholder was applying for an extension of the lease where only 23 years were left and the freeholder wanted to charge £420,000 for the extension.

The Case:  LEASEHOLD ENFRANCHISEMENT – premium payable in respect of new lease – three separate cases – freehold vacant possession value agreed in one case – decision as to freehold vacant possession values in the other two cases – the value of the existing leases with rights under the Leasehold Reform, Housing and Urban Development Act 1993 – “real world relativity” – the Savills 2002 enfranchisable graph – the value of the existing leases without rights under the 1993 Act – hedonic regression – the Parthenia model rejected – the deduction to be made to reflect the absence of rights under the 1993 Act – other graphs of relativity for leases without rights under the 1993 Act – the resulting values – future cases – Leasehold Reform, Housing and Urban Development Act 1993, sch. 13, Part II

The leaseholders in the case, Mundy, were claiming that they were being charged 50% too much for extending the leases. The courts decision means that a relativity graph by James Wyatt of Parthenia Valuations, cannot be used to calculate the value of a lease extension.  This new graph would have decreased lease extensions costs for terms below 80 years.

Kerry Glanville, senior partner at Pemberton Greenish, said: “The court of appeal has today handed down its decision in the Mundy case. Effectively, the Parthenia model deployed on behalf of the tenant has been consigned to history, at least in its current form.

“This case shows, however, that until the ‘holy grail’ for determining relativity is found, the courts and tribunals will tend to favour a valuation approach which is based as closely as possible on relevant market evidence and the application of valuation judgment and experience in applying appropriate adjustments.”

‘Relativity’ graphs are used by property experts to set the value of short leases relative to the freehold.

the Department for Communities and Local Government has recently indicated it would be working with the Law Commission to make the process of purchasing a freehold or extending a lease easier, faster and cheaper with the Parthenia Valuation model being one under consideration.

John Stephenson representing Mundy, said: “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, MD of Leasehold Solutions, said: “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 £480m a year. Over the past two decades that’s a staggering £9.6bn that has been taken from householders due to flawed valuation methods that have favoured freeholders at the expense of leaseholders.

“The Government has recently said that it is willing to tackle unfair practices in the leasehold market, so it is extremely disappointing that the courts have yet again ruled in favour of wealthy freeholders and their lackeys, all of whom have a vested interest in maintaining the unjust status quo.”



Comments

Ed Tuff

14:48 PM, 26th January 2018
About 9 months ago

On the subject: in September I will have owned one of my BTLs for 2 years and wish to then extend the 82 year lease (as is my statutory right after 2 years of ownership).

I realise how close I am to the significant 80 year milestone so don't want this to drag; can I get the ball rolling now with a solicitor with intention to "complete" in September, or can nothing start until we're actually there in September? Thanks.

Ollie Cornes

18:49 PM, 26th January 2018
About 9 months ago

Reply to the comment left by Ed Tuff at 26/01/2018 - 14:48
The clock stops when you serve the section 42 notice (and pay a 10% deposit) which demonstrates your intention to extend the lease. You can only serve the notice after 2yrs ownership, but you can engage a solicitor before that date so they can serve it on the first day you have owned the property for two years. To serve the notice you will normally need a leasehold valuation survey done first and that is another reason to start sooner rather than later. I have used Mari Knowles at Leasehold Law (associated with Louie Burns, quoted above) to do more than one lease extension and recommend her. Climb mountains to get it done before the lease length drops below 80 years. It may be expensive, but much less so than waiting.

Ed Tuff

7:28 AM, 27th January 2018
About 9 months ago

Reply to the comment left by Ollie Cornes at 26/01/2018 - 18:49
Thanks so much, Ollie; I'll get cracking.

Adam Withford

14:00 PM, 27th January 2018
About 9 months ago

Do note that it is a statutory 90 years addition at peppercorn ground rent that you should apply for. Most FH will try to just increase to 99 or 125 yrs plus GR, it is not correct but unless it is challenged they get away with it.

Ed Tuff

16:13 PM, 27th January 2018
About 9 months ago

I will be sure to get the 90 years then. Thanks.


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