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Legal challenge to cut leasehold extension costs thwarted

Written by: Tim Chen
Leaseholders in England and Wales will continue to pay more than they believe is fair for extending a property lease following a landmark Court of Appeal ruling over the way they’re valued.

The case, Mundy v the Sloane Stanley Estate was a long-running legal battle over calculation methods for the cost of extending a lease, or purchasing a freehold.

While the case related to a small flat in Chelsea, London, where the lease had fallen to under 23 years, it has a major impact for all leaseholders in England and Wales with properties with fewer than 80 years left on their lease.

What was the case about?

Sloane Stanley Estate is a landowner with numerous freeholds in Chelsea. The freeholder sought £420,000 to agree a lease extension for the small Chelsea flat.

This figure was calculated using the ‘relativity graphs’ method which helps surveyors plot the value of leases of a given length relative to freehold.

However, James Wyatt of Parthenia Valuation, the surveyor behind the case representing Mundy, argued that the current system of lease valuation – which was commissioned on behalf of the Duke of Westminster in the mid-1990s – used mathematical models that give undue value to the freeholder.

Instead, Wyatt offered an alternative relativity graph which would have lowered the costs for lease extensions where the remaining lease length had dropped below the 80-year mark.

The case was previously heard in the Upper Tribunal but the Court of Appeal upheld the earlier ruling. This now sets a legally binding precedent for lower courts in England and Wales to follow.

Had the ruling been in favour of Mundy, experts estimate this could have cut down the cost of lease extensions or freehold purchases significantly.

John Stephenson, head of leasehold enfranchisement at Bircham Dyson Bell, whose firm represented the leaseholders, said unless and until a more accurate valuation is tested and used,  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.”         

According to property management company, Leasehold Solutions, the current methods of valuation overcharge leaseholders an estimated £480m a year.

An estimated 2.1m homes in England and Wales have leases of fewer than 80 years.

Louie Burns, managing director of Leasehold Solutions, said: “This verdict is an absolutely devastating outcome for leaseholders up and down the country, not just those living in Prime Central London.”

Bircham Dyson Bell said it cannot comment whether the case will be taken further to the Supreme Court.

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