The Mundy case challenging freeholders’ carve-up of the lease valuations goes before the Court of Appeal tomorrow.
It is being moved by chartered Surveyor James Wyatt, of Parthenia Valuations, who believes existing valuation models, commissioned by the country’s richest freeholders, are weighted in their favour.
It has been a five-year struggle for Mr Wyatt, a former head of valuations at John D Wood, who believes the rigged lease valuation models are “leasehold’s biggest rip-off”.
The issues are reported in full on LKP here:
The Mundy case is one challenge to lease valuations; another is Justin Madders MP’s Bill capping the amount leaseholders pay for their freeholds at no more than 10 times the annual ground rent.
The Bill is scheduled to be called next month.
Whatever its fate, it indicates that leaseholders and their MPs have wised-up to the murkiest corner of residential property where freeholders have been gaming the system to massive commercial advantage for years.
The announcement that government aims to reduce ground rents to zero in future developments was massive shock to entrenched interests in the sector.
Mr Wyatt’s victory over the Mundy case would be another.
Yesterday the Patrick Collinson, the personal finance editor of the Guardian rehearsed the issues, claiming that 2.1 million homes in England and Wales have leases less than 80 years remaining, with 490,000 in London alone.
One of Britain’s richest men, the Duke of Westminster, could see the value of his estates plummet this week if a landmark legal challenge is successful. The case could also benefit 2m households across England and Wales.
The cost of extending the leases back to 99 or 125 years could fall by an average of 31% if the legal challenge succeeds, the Guardian claimed.
The Communities Secretary Sajid Javid said in December that the government wishes to make the lease extension / enfranchisement process “easier, faster and cheaper”, and has referred the question to the Law Commission.
Mr Wyatt told LKP that there are four options to prescribing relativity (the calculations in lease valuations).
Option One: Use the freeholders’ model
The freeholder graphs have been shown in the Mundy case to have either no market evidence or robust methodology and to have significantly overvalued the freeholders’ interest. The latest graph only has nine data points from the corrupted market and means leaseholders are overpaying by circa £480 million a year.
Option Two: Use an arbitrary theoretical graph
This has been tried by the College of Estate Management in 1997 when they could not get hold of the market evidence. It has found no support from leaseholders/freeholders/tribunals and if higher than the current graphs, freeholders will demand compensation running into tens of billions for diminution of their interests. Everyone agrees relativity must be set according to market evidence.
Option Three: Ban marriage value
Several MPs have suggested banning marriage value, but the freeholders would demand compensation running into hundreds of billions of pounds for the loss/confiscation by statute of their marriage value interest. We do not believe the Government has the funds to pay this compensation.[LKP disputes whether this compensation actually needs paying at all.]
Option Four: the Parthenia model
Our research has been extensively peer reviewed and even the freeholders admit it is right, as they have been claiming for over 20 years the only way to determine relativity is through the pre-1993 Act market evidence (we use more market evidence than all the other graphs combined).
Consequently, adopting and prescribing the Parthenia relativity would mean no compensation to freeholders and leaseholders would have a publicly available relativity that is fair and based upon the market evidence and it would mean online calculators would be accurate, thereby making the whole process easier, quicker and cheaper.
The Government has been asked to intercede in the Mundy case by Sir Peter Bottomley amongst others (the Government has interceded in previous cases.
But even if we are successful at the Court of Appeal tomorrow this may mean another year or two to continue the judicial process which started in 2013.
The freeholders have used the court/tribunal system to their advantage in the knowledge leases continue to run down and leaseholders will continue to pay the overinflated premiums.