Nick Davis, Divisional Partner in the Valuation Services team, speaking to Property Week about the recent Mundy vs. Sloane Stanley case. The recent Mundy vs. Sloane Stanley legal battle has shone a bright spotlight on the industry’s calculation basis for extending a property’s lease. There are estimated to be 2.1 million homes in England and Wales that have less than 80 years to run on their lease; had the ruling favoured Mundy, it would have sent shockwaves through the property industry. But with the Court of Appeal ruling in favour of Sloane Stanley, a major London freeholder, many in our industry are asking themselves: “what does this decision mean for real estate?” The long-running dispute was considered by many to be the last attempt to change the basis of calculating ‘relativity’ – the discount rate which is applied to establish the value of property with short leases when no clear comparable evidence is available. Traditionally, surveyors have struggled to find good evidence to support the sale of property which comes with a short lease; these homes are also considered to be less desirable among buyers, as properties with short leases can make it harder to source mortgage finance. As a consequence, data has been compiled and surveyors have published ‘Graphs of Relativity’ as an aid to setting the appropriate value for the property with a short lease. Often the information has been sourced from different markets, including prime Central London, Greater London and the regions. With the data informing the majority of these graphs being collected around 20 years ago pre-recession, understandably they are now considered outdated. Throughout the case, Mundy’s legal team attempted to argue the case for the need to radically change the basis by which ‘relativity’ is calculated; it’s failure has urged many to call for the Government to intervene. The ruling also coincides with a growing concern in Parliament regarding the sale of new homes on a leasehold, instead of freehold, basis – in particular those that are subject to the unfair doubling of ground rent provisions. There appears to be cross party support for change, and it’s possible the two issues could be combined in any future legislation. Following the decision, both tenants and landlords have expressed a desire to make the process of purchasing freehold or exchanging a lease fairer and easier. Of course, this process is far easier said than done and updating the current system will take time – there is no quick fix. It seems likely that, for the time being at least, property with leases below 80 years remaining will continue to suffer a more limited demand in the sales market – spurring most leaseholders into negotiations for lease extensions prior to marketing. So, in the meantime, the advice to those on both sides would be to seek out professional advice from expert valuers who know the field very well. There is a clear need for a credible model. Moving forward, we must all be prepared and willing to work together to look for alternatives, perhaps taking components from various models to find a solution that can be accepted across the property industry.
Mundy vs. Sloane Stanley: what does the decision mean for the property industry?
By Robert McAllister