“This is the biggest scandal of the leasehold world” – James Wyatt
The value of leasehold properties in the UK is in flux this week. The Court of Appeal is currently presiding over the Mundy v The Trustees of The Sloane Stanley Estate case which will decide how leasehold properties are to be valued in the future.
Mundy’s counsel aims to rely upon a new model of leasehold valuation known as the Parthenia model. The Parthenia model, designed by chartered surveyor at Parthenia Valuations, James Wyatt, would lower the price of lease extensions for tenants compared with the traditional method of valuation. If accepted by the court, this model could significantly reduce the price of freehold and lease extensions for 2.1m properties across the UK.
The industry standard for leasehold valuations has up until now been the Gerald Eves relativity graphs, commissioned by the Duke of Westminster’s Grosvenor Estate in 1996. James Wyatt claims, however, that these graphs have been inflating the price of lease extensions by up to 50%.
Mundy is a tenant in a Chelsea property with less than 23 years remaining on the lease. The freehold owner is asking £420,000 for the lease extension, whilst Mundy, relying upon the Parthenia method, is disputing that figure.
The case was originally heard in a Tribunal in May 2016 when the trustees of The Sloane Stanley Estate made three separate applications for the Tribunal to determine the amount payable for lease renewals.
In the first instance the Tribunal held that, though the Parthenia model may be sound in principle, in practice it was not fit for the purpose as it failed to match the evidence of real world market values.
What is the Parthenia Model
Since 1993, tenants with less than 80 years remaining on their lease have had a statutory right to extend their lease at a fair price. When extending a lease you will pay a premium to the freehold owner and this premium will include something called the ‘marriage value’ [link to Lease Extension blog]. This is the difference between the value of the lease before and after being granted an extension. Therefore, the increase in value of the lease is shared between the freehold owner and the tenant.
The Parthenia model, also referred to as the ‘hedonic regression model’, calculates the marriage value based on sales data between 1987 and 1991. By relying on data from pre-1993, the aim was to give a figure for the true value of the extension without the impact of the 1993 Act.
Though the model may be theoretically sound, due to reliance on archived data it failed to match current market values, producing an impossible figure – causing one judge to call it, “a clock which strikes thirteen”.
The positive outcome of the Tribunal for leasehold owners is that the court was also critical of the other methods of valuation proposed, including those which form part of the industry standard. Therefore, there is no telling what will be decided in the coming days by the Court of Appeal – though with one remaining route of appeal to the Supreme Court, it unlikely to end here.
We can gain some sense of what may be in store from the Tribunal’s judgement which indicated that calculations should be based, where possible, on real world sales figures. In addition there has also been talk of parliamentary intervention. Notably, Sir Peter Bottomley MP said recently that if Mundy’s case failed to establish the Parthenia valuation model, the Government should seek to reverse the decision by statute.
James Wyatt claims this case could cause the greatest redistribution of property since 1066. Because of these changes, remaining well informed and well represented is more important than ever for those in the leasehold market.
Therefore, if you have, or are looking to buy, a leasehold property in Nottingham, Derby or the surrounding area, please get in touch with Campions Specialist Leasehold Solicitors for up to date, expert information and advice.