LEASEHOLD APPEAL DISMISSED

The Court of Appeal have now confirmed that their decision in the long awaited appeal of Mundy v The Trustees of Sloane Stanley Estate is to dismiss the appeal.

The appeal related to the intended lease extension on the part of Mundy, in relation to a property in London. The property has only 23 years remaining on its lease, and therefore the amount to extend the lease would have exceeded £400,000.00.

As part of the calculation to establish premium for the lease extension, particularly where there is less than 80 years remaining on a lease, a surveyor will calculate marriage value.

In order to calculate marriage value, it is necessary to consider the value of the property. This value is calculated as though the property was not a property to which the rights afforded by the Leasehold Reform Housing & Urban Development Act 1993 would apply. It is therefore valued as though the property would not benefit from the immediate right to extend the lease.

In doing this, a figure of relativity is utilised, and presently relativity is calculated by reference to graphs which have been prepared by groups such as Savills, albeit these graphs are considered to some extent, to be outdated.

In the appeal, Mundy argued that an alternative method of valuation should be utilised, known as the Parthenia valuation. Had this been accepted the amount that was payable for the lease extension would have been reduced by approximately 30%.

The difficulty that Mundy faced in making his argument, is that the Parthenia Valuation resulted in the value of the property being increased to such an extent that on paper it would have been worth more than the agreed market value of the property. As a result, Parthenia could not possibly be the correct model to follow, as the result would be absurd. Indeed, the Court of Appeal dismissed Parthenia for this very reason.

The result is that the appeal by Mundy has been dismissed. Whilst the Court has criticised the more common relativity graphs at present they do appear to be the model to follow. The Court of Appeal has suggested that real world evidence of relativity should be utilised if available. This therefore means for the time being the position will remain as previously, and relativity will still have an impact in terms of any calculation for a lease extension.

There are however further changes on the horizon as the government is considering wide ranging changes to leaseholds generally. The present indication is that they will consider whether or not the above should now be raised as part of those reforms. Until however we know fully the proposals of the government, and until any Act comes into force, we remain in a position where relativity will be governed by the graphs previously provided.

Should you have any queries in relation to this issue, please contact Lorraine Lancaster on 01702 338338 or llancaster@paulrobinson.co.uk.

This article does not necessarily deal with every important topic or cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. If you require specialist advice on this topic, please contact us to discuss how we may assist you.