Campaigners have failed in a bid to introduce a new valuation model which could have halved the value of some residential leasehold properties. The Court of Appeal has ruled that an existing valuation model, established for over 20 years, should still be used to price new leaseholds.
Holders of residential leaseholds with less than 80 years to run can apply to the landlord for an extension of the lease in return for a payment. Many short leases are valued by setting their value relative to the freehold using ‘relativity graphs’ prepared by surveyors Gerald Eve and John D Wood. Campaigners have long argued that these graphs over-price short leases.
The Court of Appeal was asked to decide whether the established valuation model, or a new scheme known as “Parthenia Valuations”, should be used to value a small residential flat in Chelsea, London. The lease had less than 25 years to run and the landlord, Grosvenor Estates, was seeking £420,000 for an extension. The Parthenia model came up with a far lower valuation for the lease. In a boost to landlords the court rejected the Parthenia model and ruled that the established model using relativity graphs was the correct valuation method.
Although the Parthenia model cannot now be used to value leases, there is a possibility that the government may step in to address concerns over leasehold valuations. In December 2017 the Department for Communities and Local Government said that it would be “working with the Law Commission to make the process of purchasing a freehold or extending a lease much easier, faster and cheaper.”
James Burgoyne, Director – Claims & Technical, Brunel Professions says the ruling will not only please landlords but also leaseholders who have recently bought leases at the full market value and will want to recoup their investment when they sell. “The decision will also be reassuring to many surveyors, who can continue to price leaseholds with confidence that the established valuation model will not be challenged. However, it remains to be seen what will happen to leasehold valuations if the government steps in and legislates in the future,” he added.
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