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| Landmark leasehold case fails to slash extension costs | Landmark leasehold case fails to slash extension costs |
| (about 21 hours later) | |
| Campaigners vow to fight on after appeal court rules in favour of leading London freeholder | |
| Patrick Collinson | |
| Wed 24 Jan 2018 17.40 GMT | |
| Last modified on Thu 25 Jan 2018 14.17 GMT | |
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| Campaigners have failed in a long-running legal battle to slash leasehold costs after the court of appeal ruled in favour of a major London freeholder. | Campaigners have failed in a long-running legal battle to slash leasehold costs after the court of appeal ruled in favour of a major London freeholder. |
| The case, Mundy v the Sloane Stanley Estate, involved a small flat in Chelsea where the lease had fallen to less than 23 years and the freeholder was seeking £420,000 to agree an extension. | The case, Mundy v the Sloane Stanley Estate, involved a small flat in Chelsea where the lease had fallen to less than 23 years and the freeholder was seeking £420,000 to agree an extension. |
| Britain has had leasehold homes for hundreds of years, but only in the past few months has the ground rent scandal exploded. Now the government is proposing a complete ban on new houses sold as leasehold, and reducing ground rents to zero. Traditionally, houses have been sold as freehold, and the buyer has complete control over their property. When a house is sold as leasehold, the buyer is effectively only a tenant with a very long term rental, with the ground the home is built on remaining in the hands of the freeholder. The home buyer has to pay an annual “ground rent” to the freeholder, and has to ask the freeholder for consent if they want to make any changes to the property, such as building a conservatory or changing the windows. | Britain has had leasehold homes for hundreds of years, but only in the past few months has the ground rent scandal exploded. Now the government is proposing a complete ban on new houses sold as leasehold, and reducing ground rents to zero. Traditionally, houses have been sold as freehold, and the buyer has complete control over their property. When a house is sold as leasehold, the buyer is effectively only a tenant with a very long term rental, with the ground the home is built on remaining in the hands of the freeholder. The home buyer has to pay an annual “ground rent” to the freeholder, and has to ask the freeholder for consent if they want to make any changes to the property, such as building a conservatory or changing the windows. |
| In the past, leasehold property owners were generally charged just a “peppercorn” ground rent, sometimes as little as £1 a year, and many freeholders did not bother to collect it. But the picture changed earlier this century, when developers started to insert clauses into leasehold contracts where the ground rent was set at £200-£400 a year, doubling every ten years. Direct Line estimates the typical ground rent to be currently £371. Although unsuspecting first-time buyers were frequently told that 999-year leases were “virtually freehold”, the clauses meant that the ground rent would soon spiral to absurd levels. The government quotes a family house where the ground rent is expected to hit £10,000 a year by 2060. | In the past, leasehold property owners were generally charged just a “peppercorn” ground rent, sometimes as little as £1 a year, and many freeholders did not bother to collect it. But the picture changed earlier this century, when developers started to insert clauses into leasehold contracts where the ground rent was set at £200-£400 a year, doubling every ten years. Direct Line estimates the typical ground rent to be currently £371. Although unsuspecting first-time buyers were frequently told that 999-year leases were “virtually freehold”, the clauses meant that the ground rent would soon spiral to absurd levels. The government quotes a family house where the ground rent is expected to hit £10,000 a year by 2060. |
| The Leasehold Knowledge Partnership, which has vigorously campaigned on this issue, estimates that around 100,000 homebuyers are trapped in contracts with spiralling ground rents. There are many more people in leasehold flats, some of which also have doubling ground rents. | The Leasehold Knowledge Partnership, which has vigorously campaigned on this issue, estimates that around 100,000 homebuyers are trapped in contracts with spiralling ground rents. There are many more people in leasehold flats, some of which also have doubling ground rents. |
| No. Freeholders are able to extract other sums out of their leaseholders in a variety of ways. Homebuyers report being charged £100 even to have a letter answered by the freeholder, and as much as £2,500 for permission to build a conservatory. These are charges that are on top of obtaining planning permission. | No. Freeholders are able to extract other sums out of their leaseholders in a variety of ways. Homebuyers report being charged £100 even to have a letter answered by the freeholder, and as much as £2,500 for permission to build a conservatory. These are charges that are on top of obtaining planning permission. |
| Campaigners had hoped that a ruling could slice as much as half off the cost of extending a lease or buying a freehold. But the court found in favour of the Sloane Stanley Estate, in a major victory for owners of freehold land, such as the Duke of Westminster’s Grosvenor Estate. | Campaigners had hoped that a ruling could slice as much as half off the cost of extending a lease or buying a freehold. But the court found in favour of the Sloane Stanley Estate, in a major victory for owners of freehold land, such as the Duke of Westminster’s Grosvenor Estate. |
| The challenge had been led by surveyor James Wyatt of Parthenia Valuation, who argued that a system of lease valuation commissioned on behalf of the Duke of Westminster more than 20 years ago was invalid. | The challenge had been led by surveyor James Wyatt of Parthenia Valuation, who argued that a system of lease valuation commissioned on behalf of the Duke of Westminster more than 20 years ago was invalid. |
| But lawyers acting on behalf of the Sloane Stanley Estate, which controls land around London’s Sloane Square, King’s Road and Fulham Road, said the Parthenia valuation model proposed by Wyatt was now “consigned to history”. | But lawyers acting on behalf of the Sloane Stanley Estate, which controls land around London’s Sloane Square, King’s Road and Fulham Road, said the Parthenia valuation model proposed by Wyatt was now “consigned to history”. |
| Kerry Glanville, a senior partner at Pemberton Greenish, said: “The court of appeal has today handed down its decision in the Mundy case. Effectively, the Parthenia model deployed on behalf of the tenant ... has been consigned to history, at least in its current form. | Kerry Glanville, a senior partner at Pemberton Greenish, said: “The court of appeal has today handed down its decision in the Mundy case. Effectively, the Parthenia model deployed on behalf of the tenant ... has been consigned to history, at least in its current form. |
| “This case shows, however, that until the ‘holy grail’ for determining relativity is found, the courts and tribunals will tend to favour a valuation approach which is based as closely as possible on relevant market evidence and the application of valuation judgment and experience in applying appropriate adjustments.” | “This case shows, however, that until the ‘holy grail’ for determining relativity is found, the courts and tribunals will tend to favour a valuation approach which is based as closely as possible on relevant market evidence and the application of valuation judgment and experience in applying appropriate adjustments.” |
| So-called “relativity graphs” are used by property experts to set the value of short leases relative to the freehold, with graphs drawn up by surveying firms Gerald Eve and John D Wood, commissioned by the Grosvenor Estate, currently the standard version in use. | So-called “relativity graphs” are used by property experts to set the value of short leases relative to the freehold, with graphs drawn up by surveying firms Gerald Eve and John D Wood, commissioned by the Grosvenor Estate, currently the standard version in use. |
| But Wyatt said the battle is far from over. Speaking after the ruling, he said: “Now we need the government to act. Sir Peter Bottomley MP said that if the court of appeal did not overturn the decision, parliament will prescribe relativity by statute.” | But Wyatt said the battle is far from over. Speaking after the ruling, he said: “Now we need the government to act. Sir Peter Bottomley MP said that if the court of appeal did not overturn the decision, parliament will prescribe relativity by statute.” |
| In December the Department for Communities and Local Government said it would be “working with the Law Commission to make the process of purchasing a freehold or extending a lease much easier, faster and cheaper”. | In December the Department for Communities and Local Government said it would be “working with the Law Commission to make the process of purchasing a freehold or extending a lease much easier, faster and cheaper”. |
| The valuation model proposed by Parthenia Valuation is understood to be among those being considered in the department’s reform. | The valuation model proposed by Parthenia Valuation is understood to be among those being considered in the department’s reform. |
| John Stephenson of Bircham Dyson Bell, whose firm represented Mundy, said: “For the moment it appears that the Gerald Eve graph will remain in use until a more accurate method of valuation is tested in the tribunal, or the government intercedes with an amendment to the legislation. Unless and until this happens, leaseholders will have to pay a higher price than some of them feel they should for extending their leases or buying their freeholds. In London alone, this means nearly 500,000 flats and houses with leases under 80 years left to run and needing to extend in the near future.” | John Stephenson of Bircham Dyson Bell, whose firm represented Mundy, said: “For the moment it appears that the Gerald Eve graph will remain in use until a more accurate method of valuation is tested in the tribunal, or the government intercedes with an amendment to the legislation. Unless and until this happens, leaseholders will have to pay a higher price than some of them feel they should for extending their leases or buying their freeholds. In London alone, this means nearly 500,000 flats and houses with leases under 80 years left to run and needing to extend in the near future.” |
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