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Mundy appeal on relativity dismissed by Court of Appeal – the challenge of local evidence over graphs continues

January 2018

What happened?

The Court of Appeal in the case of Adrian Howard Mundy v The Trustees Of The Sloane Stanley Estate dismissed the appeal brought by a leaseholder from the decision of the Upper Tribunal(Lands Chamber) regarding the cost of extending his lease, and in particular the lessee’s use of the ‘Parthenia model’ to establish the appropriate relativity.

 What is the Parthenia model?

The Parthenia model is a method used to establish ‘relativity’. Relativity is basically the relative value of the current lease vs its ‘freehold long lease value’ i.e. if it were say 99 years or more. This is vital where a lease is under 80 years because ‘marriage value’ applies to the calculation of the cost of the lease extension.

Historically valuers have used graphs, specifically averaging across a number of graphs, to come up with the relative value of a flat on the valuation date. But landlords argued that these graphs were not producing figures reflecting the ‘no Act world’, something fundamental to compulsory acquisition rights such as the right to extend a lease under the Leasehold Reform Housing and Urban Development Act 1993 Act.

What does the Parthenia model do?

It is a different approach to modelling relativity by graphs. It seeks to establish relativity in the ‘no act world’ based on actual sales data between 1987-1991, a period when no rights under the 1993 Act existed or were contemplated. This data was fundamental to the use of ‘hedonic regression’. The latter is a statistical method used to isolate the effect on value of a single variable. In the case of lease extension, it is the unexpired length of the lease.

With the appeal dismissed what does this mean?

  1. In the absence of a successful appeal to the Supreme Court, leaseholders cannot use the Parthenia model. In short it means that premiums for lease extensions won’t be reducing as anticipated.
  2. Valuers, when calculating such costs, will continue to determine relativity as follows:
    • Where there is a recent sale date for a lease take that price and deduct for ‘Act-rights’, to arrive at the ‘no Act world’. The valuer should use their experience in judging the deduction.
    • The Gerald Eve Graph (GEG) can be used as a cross check; but an alternative method is to use the Savills 2002 enfranchiseable graph to find the real world leasehold value, and make a deduction for rights based on experience. If these methods throw up different figures the lowest figure should be used because relativity must logically have fallen since both 1996 (date of the GEG) or 2002 (date of the Savills 2002 Graph). See graph information here.
  3. The Court of Appeal made the concluding point that at the invitation of the Government the Law Commission is to consider the simplification of valuations under the 1993 Act. “It may be, therefore, that the holy grail (for deciding relativity) will one day be found.”

More information you might find useful:

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