A landmark legal case could result in the Duke of Westminster, one of Britain’s richest men, suffering a huge drop in the value of his estates.
Surveyor James Wyatt is challenging the system of lease valuation commissioned on behalf of the Duke of Westminster more than 20 years ago.
The case of Mundy v the Sloane Stanley Estate involves a small flat in Chelsea where the lease has fallen to under 23 years, and where the freeholder is seeking £420,000 to agree an extension.
If the ruling goes in favour of Mundy, it could slice as much as half off the cost of extending a lease or buying a freehold, the Guardian reported.
There are estimated to be 2.1 million homes in England and Wales where the leases have less than 80 years remaining, with 490,000 in London alone.
The cost of extending the leases back to 99 or 125 years could fall by an average of 31% if the legal challenge succeeds.
The Duke of Westminster’s Grosvenor estate in central London includes the freeholds to some of the most expensive property in the world, making the current duke, Hugh Grosvenor, 26, one of the richest men in Britain with a fortune estimated at £9.5 billion.
Property experts use “relativity graphs” that set the value of short leases relative to the freehold.
Wyatt told the Guardian: “In 1996 the Grosvenor estate commissioned [the surveying firms] Gerald Eve and John D Wood to draw up graphs of relativity to set the price for lease extensions and buying freeholds. No one has had the time, effort or money to challenge them since. It’s a much bigger scandal than the ground rents issue, and a real David and Goliath battle.”
Wyatt, who was formerly head of valuations at John D Wood but left to set up his own consultancy, Parthenia Valuation, said the current mathematical models wrongly award too much to the freeholder.
“The big London estates will be particularly hit, but it’s not just about the London market. I hear from lots of people, many of them pensioners, who are trapped in declining leases and can’t afford to extend them,” he said.
Wyatt estimates that leaseholders are currently being overcharged by £480 million a year and that surveyors and solicitors are earning huge fees by maintaining the existing system.
DealMakerz reckons that although the specific property in question is just one apartment in Chelsea, the case could have far-reaching repercussions.
Home buyers have been exploited by unnecessary leaseholds, unjustifiable charges and onerous ground rents – something the government wants to crack down on.
If the Mundy case goes in favour of the leaseholder, the Sloane Stanley Estate is expected to appeal to the Supreme Court.
But even if the case is unsuccessful, leasehold valuations are expected to fall after a government review into the sector.
At the end of last year, the Department for Communities and Local Government announced it would ban the sale of new-build properties in a leasehold basis and write to all developers that have sold homes with “onerous ground rent terms” to ask them to provide necessary redress.