Leaseholders have been dealt a huge blow in their long-running battle to slash leasehold costs after the Court of Appeal ruled in favour of a major London freeholder.
The case, Mundy v the Sloane Stanley Estate, involved a small flat in Chelsea where the lease had fallen to less than 23 years and the freeholder, the Sloane Stanley Estate, was seeking £420,000 to agree an extension.
The case was led by surveyor James Wyatt, who argued that the mathematical models used in the current valuation system, which uses “relativity graphs” to set the value of short leases relative to the freehold, wrongly award too much to the owner of the freehold.
Campaigners had hoped that a ruling could slice as much as half off the cost of extending a lease or buying a freehold.
But the court found in favour of the Sloane Stanley Estate, in a major victory for owners of freehold land such as the Duke of Westminster’s Grosvenor Estate.
Wyatt, formerly head of valuations at one of the surveying firms behind the current system, put forward an alternative relativity graph that would have lowered the costs for lease extensions for leases below 80 years.
The decision to rule in favour of the Sloane Stanley Estate upholds a previous verdict by the Upper Tribunal (Lands Chamber) in May 2016, and is “absolutely devastating” for leaseholders, according Louie Burns of Leasehold Solutions, a firm that helps people extend their leases.
“The valuations model at the heart of this case estimates that leaseholders are currently being overcharged by £480 million a year,” he said.
Lawyers acting on behalf of the Sloane Stanley Estate, which controls land around London’s Sloane Square, King’s Road and Fulham Road, said the Parthenia valuation model proposed by Wyatt was now “consigned to history”.
Around 2.1 million properties in England and Wales have leases of less than 80 years.
Extending a lease adds value to a property, and the landlord is entitled to half of this increase when a lease of below 80 years is extended.
Leaseholders are legally entitled to extend their lease after owning their property for two years, which should see their ground rent reduced to zero and the lease extended by 90 years. But it can be a long and expensive process, with the leaseholder paying the extension premium plus the legal and surveying costs for both sides.
DealMakerz thinks the decision is hugely disappointing for home buyers who have been exploited by unnecessary leaseholds, unjustifiable charges and onerous ground rents.
However, it doesn’t look like the battle is completely over.
Sir Peter Bottomley MP previously stated that if the Court of Appeal did not overturn the decision, parliament will prescribe relativity by statute.
What’s more, the Department for Communities and Local Government said in December it would be working with the Law Commission to make the process of purchasing a freehold or extending a lease much easier, faster and cheaper.
The valuation model proposed by Parthenia Valuation is understood to be among those being considered in the department’s reform.