21st June 2016
Area of law | Leasehold enfranchisement, leasehold relativity |
Decision Date | 10 May 2016 |
First Application | The Trustees of The Sloane Stanley Estate v Adrian Howard Mundy (Flat 3, 36 Elm Park Road, London, SW3 6AX) |
Second Application | The Trustees of The Sloane Stanley Estate v Arnaud Lagesse (Flat 11, 26-28 Elm Park Road, London, SW3 6AX) |
Third Application | Sophie Nathalie Jeanne Aaron v Wellcome Trust Ltd (Flat 5, 17 Cranley Gardens, London, SW7 3BD) |
Court / Tribunal Panel | UTLC, Mr Justice Morgan |
Case Ref/ Case No | [2016] UKUT 0223 (LC) |
Counsel for Applicants in first and second Application | Anthony Radevsky (Pemberton Greenish LLP) |
Counsel for Applicant in third Application | Stephen Jourdan QC and Julia Petrenko (CMS Cameron McKenna) |
Counsel for Respondents | Philip Rainey QC and Cecily Crampin (Collins Benson Goldhill LLP) |
The claims involved the valuation of premiums under the Leasehold Reform Housing and Urban Development Act 1993. The UTLC listed three applications for the specific purpose of considering the validity of a hedonic regression model (“the Parthenia model”) to determine leasehold relativity. The Tribunal indicated the approach to be adopted for assessing relativity for different lease lengths and commented on the use of published relativity graphs.
The three cases each involved applications under section 48 of the 1993 Act to determine the amount payable for a new lease. The claims related to flats in Central London. They were specially listed to decide the appropriateness of using the Parthenia model to determine the value of the existing lease on the statutory assumption that the Act conferred no right to acquire any interest in any premises containing the lessee’s flat or to acquire any new lease. The use of an earlier version of the Parthenia model had already been rejected in Kosta v Carnwath [2014] UKUT 0319 (LC), where the UTLC adopted an average of a number of published relativity graphs.
The UTLC considered the issues in some detail over a 9-day hearing and its decision ran to some 170 paragraphs together with a further 36 pages of appendices.
The main conclusion is that the UTLC rejected the use of the Parthenia model for the purpose of determining relativity. The model is incompatible with market evidence, and in the words of the UTLC, “the Parthenia model is a clock which strikes 13.” There are a number of other technical criticisms which were set out in detail in Appendix B to the UTLC’s decision.
The UTLC commented on various published relativity graphs in Appendix B to its decision.
At paras 163-169 of its decision, the UTLC set out those matters which it considered might be useful in determining relativity in future cases.
This is an exceptionally important decision. Although not specifically stated to be a ‘guideline’ case, valuers should follow the approach to leasehold relativity suggested by the UTLC. The primary method of valuation suggested (i.e. a real world trascation adjusted for Act rights) is in a sense an easy one, although opinions may well differ on the value of ‘Act rights’. The secondary method (i.e. a comparison of graphs) relies on a selection of the appropriate graph as well as an assessement of ‘Act rights’. Some graphs were praised (especially Savills Enfrancshisable and Gerald Eve) but the Tribunal did not specifically reject the use of others. However, the Tribunal did not favour the commonly used method of simply averaging graphs of relativity.