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The cost of a Leasehold Extension

We all know longer leases are more favourable to the savvy buyer. It is also a fact that if you are a leaseholder who wants to extend their lease you will have to pay a premium to do so. A recent Court of Appeal case regarding premiums payable for leasehold extensions has been dismissed, availing the average leaseholder from saving nearly 50% on the premium payable for their lease extension. The landmark case is Adrian Howard Mundy v The Trustees of the Sloane Stanley Estate which was about the extension of a lease with 23 years left to run.

The case was about making a decision on the calculation of premiums with the relativity graph. An element a valuer accounts for in calculating the premium is the value of the property on the lease versus the freehold value of the property. Whilst relativity graphs provide a basis for calculating relativity they depend on differentials and therefore have recently been criticised as ‘old timey’. In this particular case, the agents used a relativity graph which has been grouped with those outdated models which resulted in a higher premium being charged for the lease extension. The valuation did not reflect the basis for which valuations are intended to be undertaken by statutory requirement. If you are a leaseholder, it is likely you will agree that the valuers’ models were skewed in the landlord’s favour.

Mundy, the leaseholder in this case wanted to use an alternative model, the Parthenia model, to calculate relativity. This model uses actual market values from 1980s and 1990s before the Leasehold Reform (Housing and Urban Development) Act 1993 was introduced. The Upper Tribunal ruled out future use of this model and the Court of Appeal agreed.

The case has however brought to light once again the need for the Law Commission to consider how valuations can be simplified under the 1993 Act, and enfranchisement will be one of the three priority areas that will kick off the commission’s two and a half year residential leasehold reform project.

For specialised Leasehold Enfranchisement advice contact Chris Sykes Head of Commercial Property and Enfranchisement.