Leasehold enfranchisement – Leasehold Reform, Housing and Urban Development Act 1993 – Lease extension – Statutory valuation assumption – Valuation of existing leases of flats without benefit of rights under 1993 Act – Use of graphs of relativity – Whether Upper Tribunal erring in rejecting “Parthenia model” to determine value of existing lease – Appeal dismissed
The appellant was the long leaseholder of flat 3, 36 Elm Park Road London, SW3. The respondent landlord applied, under section 48 of the Leasehold Reform, Housing and Urban Development Act 1993, for a determination of disputed matters in relation to a claim by the appellant to acquire an extended lease pursuant to Chapter II of Part I of the Act. The existing lease had an unexpired term of 23 years. The matter in dispute was the premium payable by each leaseholder for the extended lease, pursuant to section 56 of, and Schedule 13 to, the 1993 Act.
The first-tier tribunal (FTT) referred the application (with two similar applications) to the Upper Tribunal to determine an issue as to the appropriateness of using a particular model (the Parthenia model) for the purpose of determining the value of the existing lease, on the statutory assumption that Chapter I and Chapter II of Part I of the 1993 Act conferred no right to acquire any interest in any premises containing the lessee’s flat or to acquire any new lease.
Since 1993, tenants with less than 80 years remaining on their lease had had a statutory right to extend their lease at a fair price. When extending a lease they paid a premium to the freehold owner (the marriage value), i.e., the difference between the value of the lease before and after being granted an extension. Therefore, the increase in value of the lease was shared between the freehold owner and the tenant. The Parthenia model calculated 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.
Such a valuation was acknowledged to be problematic because leases currently sold in the open market in the real world did have the benefit of rights under the 1993 Act, so that there was little or no available market evidence, for comparison purposes, involving the sale of existing leases without such rights. The promoters of the Parthenia model sought to calculate the value of each individual property comprised in their data relative to the freehold vacant possession (FHVP) value, by representing it as a percentage (relativity) of the FHVP value.
The Upper Tribunal concluded that the Parthenia model did not satisfy economic and market logic, as it failed to distinguish between the relativities of longer leases and produced results that were out of line with “real world” transactional evidence and market practice. Though the model might be theoretically sound, due to reliance on archived data it failed to match current market values, producing an impossible figure. Accordingly, it failed the fundamental test of giving results that were observed in practice: see [2016] UKUT 223 (LC); [2016] EGLR 38. The appellant appealed.
Held: The appeal was dismissed.
(1) (1) It had been agreed that a lease with rights under the 1993 Act was more valuable than a lease without rights under the Act. However, when the Parthenia model was applied to that agreed value, it produced a figure for the same lease without rights under the Act which was higher than the value of the same lease with rights under the Act. The tribunal had been entitled to hold that the Pathenia model was “a clock which strikes 13” because it produced an impossible result. It suggested that the value of a lease without 1993 Act rights was worth more than the lease was actually sold for, with Act rights. Whether to accept or reject the Parthenia model (unless perverse) was a question of fact for the tribunal. The tribunal had carefully examined the Parthenia model at a 9-day hearing, with extensive expert evidence, and concluded that it was defective. In view of the sustained criticism of the Parthenia model by the experts, there was ample evidence upon which the tribunal could rely and to support the tribunal’s rejection of the model: Nailrile Ltd v Earl Cadogan [2009] 2 EGLR 151 followed.
(2) Valuation essentially proceeded by analogy. The valuer looked for an analogue that was as close as possible to that which he had to value, and which had been the subject matter of a real transaction. In the case of a property valuation, the analogues were usually called “comparables”. Property valuation usually proceeded by way of comparison with appropriate adjustments. Typical adjustments would reflect differences between the comparables in location, terms of letting and so on. Those adjustments were essentially a matter of valuation judgment. The fewer the differences there were between the comparable and the subject of the valuation, the greater the weight that could be given to the comparable. There was nothing in the positive requirement in para 4A(1)(b) of Schedule 13 to the 1993 Act, to assume that no rights under the Act attached to the lease or the premises in which the tenant’s flat was, that forbade a valuer from looking at transactions in the real world in order to assist in determining value on the required assumptions. There was no legal justification in a case such as the present for ignoring real market transactions. The Upper Tribunal was well within the scope of its functions in ruling out future use of the Parthenia model in its current form: Marklands Ltd v Virgin Retail Ltd [2003] EWHC 3428 (Ch), [2004] 2 EGLR 43 and Earl Cadogan v Sportelli [2007] EWCA Civ 1042, [2008] 1 WLR 2142 considered.
Edwin Johnson QC (instructed by Bircham Dyson Bell LLP) appeared for the appellant; Stephen Jourdan QC and Anthony Radevsky (instructed by Pemberton Greenish LLP) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read transcript: Mundy v Trustees of Sloane Stanley Estate
