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Court of appeal ruling a ‘devastating outcome’ for leaseholders

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  • 24/01/2018
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Court of appeal ruling a ‘devastating outcome’ for leaseholders
A landmark court of appeal ruling about the system of lease valuations is a detrimental decision for leaseholders, according to Leasehold Solutions.

The court of appeal ruling in favour of the Sloane Stanley Estate – a landowner with numerous freeholds in Chelsea – is expected to have a significant impact on those property owners with fewer than 80 years to run on their lease.

The case, Mundy v. the Sloane Stanley Estate, was a long-running legal battle over calculation methods for the cost of extending a lease, or purchasing a freehold.

Although the case itself only involved a small flat in Chelsea, where the lease had fallen to under 23 years, with the freeholder seeking £420,000 to agree an extension – the ruling held major implications for the leasehold sector as a whole.

The issue of freeholders rights has been a high profile one over the last year and the government has introduced legislation to tackle abuses of power for new build properties, but it has not targeted existing leases.

Mortgage Solutions contacted the Ministry of Housing, Communities and Local Government to ask if it would respond to the decision, but it has not yet replied.

 

Staggering

The valuation methods in question are known as ‘relativity graphs’, which are used by surveyors to plot the value of leases of a given length relative to the freehold.

However, James Wyatt of Parthenia Valuation, the surveyor behind the case representing Mundy, argued that the current system of lease valuation – which was commissioned on behalf of the Duke of Westminster in the mid-1990s – used mathematical models that give undue value to the freeholder.

According to property management company Leasehold Solutions, the current methods of valuation overcharge leaseholders an estimated £480m a year.

Moreover, had the ruling been in favour of Mundy, estimates this could have cut down the cost of lease extension or freehold purchase significantly.

The court of appeals ruling, which upheld a previous Upper Tribunal decision, also meant that an alternative relativity graph developed by Wyatt – which would have lowered the costs for lease extensions where the remaining lease length had dropped below 80 years – cannot be used to calculate the value of a lease extension.

An estimated 2.1m homes in England and Wales have leases of fewer than 80 years – with 490,000 in London alone.

Louie Burns, managing director of Leasehold Solutions (pictured) said: “This verdict is an absolutely devastating outcome for leaseholders up and down the country, not just those living in Prime Central London.”

 

 

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