Court of Appeal rules against leasehold campaigners in landmark case

The Court of Appeal has ruled against campaigners who were seeking to change the model used for calculating the cost of extending a lease or buying the freehold on leasehold property. The new model the campaigners had proposed could have seen these costs reduce by almost half in some cases.

The landmark case, Mundy vs Sloane Stanley Estate, centred on a small Chelsea flat where the lease had fallen to less than 23 years. The freeholder, the Sloane Stanley Estate, was seeking a premium of £420,000 in order to extend the lease.

This valuation was based on long established “relativity graphs”, used by property professionals to set the value of short leases relative to the freehold. These relativity graphs were first drawn up by the surveying firms Gerald Eve and John D Wood in 1996 on behalf of the Grosvenor Estate. They have since become the standard for calculating leasehold extensions and the cost of buying the freehold on leasehold property (known as ‘leasehold enfranchisement’).

The legal challenge to the Sloane Stanley Estate’s valuation was led by surveyor James Wyatt of Parthenia Valuation. Wyatt claimed that under the existing system of valuation, leaseholders were being overcharged by as much as £480million a year. He believed his proposed alternative system, the so-called ‘Parthenia model’, gave a more accurate estimate of a lease’s true value. Wyatt estimated that switching to his model would save the average leaseholder 31% on the cost of extending a short lease (i.e one with less than 80 years left on the lease).

However, in a unanimous ruling, the Court of Appeal judges ruled against the campaigners, while also refusing them leave to appeal and awarding costs against Mundy. This ruling means the status quo regarding leaseholds will remain in place for the time being, although other changes to the market are expected in the near future.

A change in the law around leaseholds is expected after the Department for Communities and Local Government announced in December 2017 that 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”. This is part of a wider plan by the UK government to review the leasehold market, including plans to ban new-build houses being sold leasehold.

Whether you are a leaseholder or freeholder of leasehold property, Preston Redman’s property solicitors have the expertise you need to protect your property interests. Contact Adrian Falck, Partner on 01202 292424 or by email acf@prestonredman.co.uk.