John Stephenson comments on Mundy v The Trustees of the Sloane Stanley Estate

Leases and Valuation

A landmark decision from the Court of Appeal in the case of Mundy v The Trustees of the Sloane Stanley Estate has just been handed down in relation to the valuation method for valuing statutory freehold and lease extension claims.

Background

This long running case involves a flat in Chelsea with a residue of 23 years left to run on the lease. The issue that arose in the case was how to calculate the premium for a lease extension in cases where the lease has less than 80 years unexpired. This is done in part by calculating the value of the tenant’s interest in the flat with the present lease (but excluding statutory rights to extend) as a percentage of the freehold interest (‘relativity’).

Calculating relativity and the effect of excluding statutory rights is complex and involves an assessment of comparable market sales of flats. The assessment has hitherto been mainly done by reference to so called ‘relativity graphs’ the most frequently quoted of which was produced by surveyors, Gerald Eve, over 20 years ago on instructions from the Grosvenor Estate. In the absence of other credible methods to assess relativity, the Gerald Eve graph has been adopted by surveyors and Tribunals alike as the industry standard but leaseholders have long felt that it no longer represents a fair way to assess relativity.

In 2016, Mr Mundy offered in the Upper Tribunal an alternative model to calculate relativity known as hedonic regression which involved analysis of statistical data from nearly 8,000 open market transactions of houses and flats between 1987 and 1991 with adjustment for length of lease. His attempt failed even though the Tribunal accepted that relativities for leases have changed over the years. Mr Mundy then appealed to the Court of Appeal but the court has now again rejected the hedonic regression model in its judgment.

Commenting upon the outcome of the appeal, John Stephenson, head of leasehold enfranchisement at Bircham Dyson Bell, whose firm represented the appellant, said that

‘For the moment it appears that the Gerald Eve graph will remain in use until a more accurate method of valuation is tested in the Tribunal or the Government intercedes with an amendment to the legislation. Unless and until this happens leaseholders will have to pay a higher price than some of them feel they should for extending their leases or buying their freeholds. In London alone, this means nearly 500,000 flats and houses with leases under 80 years left to run and needing to extend in the near future.’