Leasehold Case Law Update – Valuation

So another year, another set of surveyors (or should that be lessees and lessors) locking horns in the Upper Tribunal (Lands Chamber) (UTLC). The hot topic, as is so often the case, has been our old friend, relativity. Whilst perhaps the most famous case of recent times has been Sportelli, which established the appropriate deferment rate for both flats and houses, cases that set precedents for relativity can have huge implications for all concerned.

By far the most major case, which has received hundreds of write ups and commentaries from both side of the coin, sending nearly as many shock waves through enfranchisement circles as the realization of a Donald Trump presidency, was Sloane Stanley Estate v Mundy [May 2016], hereby referred to as Mundy. The properties in question were located in Prime Central London (PCL) and this really was a classic lessee vs lessor battle. In one corner was the Parthenia model, which used a statistical technique known as Hedonic Regression. In the other corner was the use of already existing graphs, but supported by a methodology that reduced the status quo of relativity even further. The chamber rejected the Parthenia model when it was found to incompatible with the market evidence presented at the case, with the UTLC going as far as to state that it should not be referred to in any future case.

If it had ended here, lessees across London would have been no worse off, but unfortunately for them the UTLC offered further opinion and guidance, preferring the use of the Savills 2002 graph with surveyors making further deductions to take account of Act rights based on experience. This should be then cross reference with the often used and “industry standard” Gerald Eve graph with the surveyor having preference to the lower of the two. Overnight, premiums increased significantly.

So with the end of the year approaching, how has this case shaped the world of enfranchisement valuation? Well, for lessees within the well-defined bosom of PCL, they have faced more expensive premiums, which came as a shock to some who were not prepared for it, and less of a shock to those with a surveyor with a finger on the pulse. For lessees outside of PCL the lie of the land is less than clear.

With the UTLC rubbishing so many of the PCL graphs in Mundy, there was a prevailing theory that this approach was also appropriate for the Greater London and England graphs which should also be cast aside. The good news for lessees, from my initial experience of settlements and from a few FTT Tribunal decisions that have tackled this issue, properties that are well outside of PCL, Mundy does not apply and Valuers should as a rule, take an average of the 5 Greater London and England graphs published in 2009.

As an important side note here, for the majority of lease lengths, PCL graphs produce relativities that are considerably lower than Greater London graphs, so a Valuer representing a lessee will always be arguing a preference for the latter. Where gets complicated is in areas that are not strictly PCL, but at the same tie, certainly not suburban London. Fulham, Islington, Hampstead for example are all very nice areas but each provides very trick and highly debatable ground for surveyors to tread when it comes to relativity.

There are occasional reference points but non that offer such strong and positive a precedent as Mundy. Xue v Cherry for example was published in November 2015 whereby a Victorian conversion flat in Shepherds Bush, deemed to be on the periphery of PCL, was given a relativity that was derived from graphs in the ratio two (outer London) and one (PCL). Whilst this was as much an UTLC case as Mundy, the chamber did not expressly state that this methodology should become the gold standard for properties in this type of location so whist it offers a very helpful degree of guidance the ruling is not so strong for it to be in the same league. Roberts v Fernandez [March 2015], also at the UTLC, determined that an average of the Greater London Graphs was appropriate for a property in Bromley, but along with Cherry was pre Mundy, so Valuers can either refer to these two cases or perhaps take leave from FTT cases that have carry even less weight but have been heard post Mundy. Each case has to be taken on its own merits.

So where does this leave Valuers and most importantly, your and my leaseholder clients? Whilst Mundy has for the time being, offered a reasonably high degree of certainty in the PCL world, there is much to debate and argue over further afield. With the market in PCL fairing less favorably in recent times, both in terms of the number of transactions and prices in general, more and more buyers looking for value for money will look to properties outside of Zone 1 and a good number of them and those before them will require lease extensions. Having the right team in place that is both experienced and up to date with current developments in an increasingly uncertain world is ever more important.

Surveyors at Peter Barry have their ear constantly to the ground for all the latest news and reviews from the world of leasehold valuation. Clients need sound and accurate advice at the beginning of an instruction and a strong hand through to the end. We work closely with a number of prominent solicitors across London and the M25 area but are always looking to establish new, exciting and mutually beneficial relationships.

If you have any queries regarding this newsletter or wish to refer both leaseholder and freeholder clients, please do not hesitate either Matthew Price BSc (Hons) MRICS or Steve Hobbs (Hons) MRICS at surveying@peterbarry.co.uk or by telephone on 020 7183 2578.