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Blue Mundy?  Why lease extensions will continue to be valued the same way (for now)

The Court of Appeal has delivered its decision in Mundy v Trustees of the Sloane Stanley Estate.

Under the Leasehold Reform Housing and Urban Development Act 1993 (1993 Act), a tenant who owns a long leasehold interest in a property is generally entitled to a new lease (commonly referred to as a lease extension) for a term equal to their existing term plus ninety years. In return, they must pay their landlord a premium plus the landlord’s legal and valuation costs.

The calculation of the premium payable for lease extensions is a complex and specialist area, and is generally the last thing to be agreed between the parties. A failure to agree to premium is the main reason why such matters can go all the way to the Tribunal. The Mundy case concerned valuation principles used by surveyors when calculating and agreeing such premiums.

One of the most complex aspects of such valuations is “marriage value”, i.e. the difference between a landlord’s and a tenant’s respective interests in a leasehold property, before and after the grant of a lease extension. A key concept in this is “relativity”, or the relationship between the value of a lease with and without a tenant’s statutory rights (including the right to a lease extension under the 1993 Act).  The Appellant in Mundy argued the current method was flawed and favoured landlords, and put forward a different model known as the “Parthenia” model.

Mundy had created a lot of media attention, with speculation that a successful appeal would lead to a reduction in the premium payable for a lease extension. However, the Court of Appeal has now upheld the Upper Tribunal’s earlier decision that, whilst neither method of valuation is perfect, the Parthenia model is flawed.  The appeal in Mundy was dismissed, therefore, and (at least for the time being) lease extensions will continue to be valued the same way.

If you are a residential landlord or tenant and have any questions about lease extensions, please contact – Chris Hoxley 01328 852804 – email chris@butcherandrews.co.uk

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