The Court of Appeal’s dismissal of the leaseholder’s appeal in Mundy v Trustees of the Sloane Stanley Estate [2018] EWCA Civ 35 against the decision of the Upper Tribunal (‘UT”) may not have come as a surprise (the UT had rejected the ‘Parthenia’ model in determining ‘relativity’), writes James Driscoll.
Others though will be disappointed that, Parthenia, a new approach to determining ‘relativity’ in leasehold enfranchisement and new lease claims, has failed to make any headway, particularly as it could have resulted in lower premiums being paid in many claims.
Mundy concerned a number of new lease claims (made under Part I of the Leasehold Reform, Housing and Urban Development Act 1993). Application was made to the First-tier Tribunal (Property Chamber) (‘FTT’) for a determination of the premiums to be paid.
As the relativity issue and the Parthenia model were major points in dispute, the FTT decided to transfer the applications to the UT. The UT rejected the Parthenia model as it found several technical errors rendering it an unreliable guide to relativity
A successful new lease claim under the Act results in the leaseholder being granted a new lease 90 years longer than the current lease at a nominal rent. A premium, representing the loss to the landlord of the ground rent and the diminution in its interest in the flat concerned has to be paid.
What is ‘relativity’? It is the ‘value of a dwelling held on an existing lease at any given unexpired term divided by the value of the same dwelling in possession to the freeholder expressed as a percentage’ (Leasehold Reform, Graphs of Relativity, RICS October 2009).
It is an important element in determining the ‘marriage value’ element of the premium to be paid. Broadly speaking, marriage value is what is released when a new lease is granted. In new lease claims it is based on the difference between the claimant leaseholder’s and the freeholder’s interests before and after the new lease is granted. By statute the marriage value is to be shared 50:50 (unless the value of the the current lease exceeds 80 years).
Not least of the valuation challenges is that the Act requires values to be assessed as if the current lease carries no statutory rights. An obvious practical difficulty is that flats will almost invariably carry rights under the 1993 Act which makes it hard to find sales evidence of flats without statutory rights.
To try to resolve this, valuers have analysed sales and other flat market evidence to try to arrive at the ‘relativity’ element. The results have been recorded on graphs which valuers use in negotiating, or in giving evidence in the tribunal, when this aspect of valuation is in issue.
The utility of such graphs has not passed without criticism. This is why the Parthenia model aroused such interest and controversy. It is based on research into London property transactions between 1987 and 1991, before the 1993 Act introduced rights for flat leaseholders. By using a statistical technique known as ‘hedonic regression’ it isolated factors such as the lease length to arrive at sales evidence of dwellings without statutory rights.
Although this empirical evidence seems to have attractions over relativity graphs, the UT rejected it. The main reason was that the application of the Parthenia model in that case concluded that the value of a lease without rights was more than its agreed value with rights – an impossible result.
The Court of Appeal upheld the decision of the UT finding that its dismissal of the Parthenia was fully justified.
James Driscoll is a solicitor and a writer
