The Upper Tribunal (Lands Chamber) (“UT”) has rejected a statistical model that could have transformed the way valuations are carried out in lease extension claims.
The UT delivered its complex judgment on three cases in which the principal issue was the correct way to value an existing lease of a flat without statutory rights under the Leasehold Reform, Housing and Urban Development Act 1993, a central tenet of the valuation process under the legislation.
The lessees had argued for relativity in the valuations to be determined by reference to “the Parthenia model”, using a statistical technique known as hedonic regression.
The model was constructed from a large amount of data from market transactions between 1987 and 1991, at a time when the market was not influenced by the 1993 Act, and applied so as to isolate from that data the effect on value of lease length. The proposition was that the model was accurate in indicating relativity in the market for the period the data covered and that it remained accurate at the valuation dates in 2014.
However, ruling in favour of the lessors, the UT found that the Parthenia model was not compatible with market evidence which showed that it produced an impossible result.
In their decision, Mr Justice Morgan and Andrew Trott said: “As it was put in the course of argument, the Parthenia model is a clock which strikes 13. It cannot be used as a reliable time piece and we do not consider that we have any alternative to rejecting the use of the Parthenia model.”
The tribunal also set out a clear framework for valuers on the approach to be adopted to relativity in future cases, based on real market evidence.
Commenting on the decision, Kerry Glanville, partner and head of real estate dispute resolution at Pemberton Greenish, which successfully represented the Trustees of the Sloane Stanley Estate (a party in two of the three cases) said: “The Upper Tribunal decision is to be welcomed for its robust clarification of the correct approach to relativity and for its emphatic rejection of the Parthenia model. We are thrilled at the outcome both for our clients and for landlords generally.”
The UT said that, if the Parthenia model were an appropriate method for valuing an existing lease, on the assumption that it did not have rights under the 1993 Act, the use of the model would “confer a very great benefit on the parties to applications for collective and individual enfranchisement”, reducing the number of disputes on the question of the value of the existing lease (without rights under the 1993 Act) which in the past has been a “fruitful source of disagreement”.
The judges added: “We would have liked to have arrived at a method of valuation which would be clear and simple and predictable as to its future application to determine the relativities for leases without rights under the 1993 Act.”
However, it said that, while the Parthenia model is popular with lessees, it is not favoured by lessors, because it throws up a higher relativity for a lease of a particular length as compared with the result of using other possible methods of determining relativity.
Rejecting the model, the UT said: “This case was brought to provide a test of the Parthenia model. It is clear to us that the Parthenia model has failed that test. It should not be put forward in a future case as a method of arriving at the value of an existing lease without rights under the 1993 Act.”
Trustees of the Sloane Stanley Estate v Lagesse and Munday, Aaron v The Wellcome Trust Upper Tribunal (Lands Chamber) 11 May 2016
