The recent Court of Appeal decision in Mundy v the Sloane Stanley Estate favours landlords

The Court of Appeal recently dismissed the eagerly anticipated appeal in the case of Mundy v the Sloane Stanley Estate.

Had the result gone the other way, it would potentially have had quite a dramatic impact on the prices of the premiums that leaseholders would have to pay their Landlords in exchange for lease extensions.

The case concerned one of the components of the formula for how lease extension premiums are calculated. In simple terms this has to do with assessing the difference between the value of the lease compared to its value, had there been no legislation entitling leaseholders to claim a lease extension under the Leasehold Reform, Housing and Urban Development Act 1993. This is known as “relativity”.

There has been some debate as to whether some of the current graphs, which have been widely used in the industry as the basis to calculate relativity are fit for purpose in the 21^st century. It has been argued that they lead to bias in the favour of supporting higher valuations for landlords.

An alternative relativity graph developed by James Wyatt of Parthenia Valuations (known generally as the Parthenia model) has been argued by leaseholder representatives to be the more accurate method, which results in premium calculations which reflect favourably on leaseholders. Had the appeal been successful, this would have potentially led to the widespread adoption of the Parthenia model and ultimately to significant reductions on premiums payable for all lease extensions across the country.

The reasoning behind the decision is essentially one of judicial policy and limitations, as opposed to the merits of the alternative methods of calculation, with The Court of Appeal citing that it was well within the Upper Tribunal’s function within its rulings to provide definitive guidance to tribunals on valuation matters and that it is empowered to rule out future use of the Parthenia model in its current form.

This may not however be the end of this issue, as the Court of Appeal has ruled that as only its current form has been decided upon, it follows that it remains open for the Upper Tribunal to approve an upgrade or variation to the Parthenia model, which could one day become generally adopted.

Moreover, the government’s most recent white paper contains numerous references to leasehold reforms, in particular addressing what it agrees to be the unfair practices and imbalances between leaseholders and their landlords. It would therefore appear that there is mounting pressure on the government to more clearly define relativity in a way that would benefit leaseholders.

Indeed, contained within appeal judgment itself, is reference to the invitation of the government to the Law Commission, to reconsider the simplification of valuations under this particular legislation. So, there may yet be changes on the horizon with regard to this issue.