On the 24 January 2018 Lord Justice Lewison sitting in the Court of Appeal alongside Lady Justice Arden and Lord Justice Peter Jackson delivered the unanimous judgment in the case of Adrian Howard Mundy v The Trustees of the Sloane Stanley Estate, which has been long-awaited in the world of lease extensions.

The case relates to the Leasehold Reform, Housing and Urban Development Act 1993, which permits a Qualifying Tenant of a flat to acquire a new lease extending the original term by 90 years at a peppercorn rent.

The ‘marriage value’

The case focused on the method that is used in calculating the ‘marriage value’ element of the premium of a lease extension, which only applies where the lease has fallen below 80 years. The ‘marriage value’ is the amount by which the leasehold interest will increase upon the grant of the new lease. To assess this increase, the value of the existing leasehold interest must first be established.

The parties were unable to agree the ‘marriage value’ or the method by which it should be assessed and the case went before the First Tier Tribunal which transferred the matter to the Upper Tier Tribunal. Those acting for Mr Mundy argued before the Upper Tribunal that the correct way to establish the ‘marriage value’ of the lease extension was to use the ‘Parthenia Model’, a graph which calculated the value of the existing lease based on a ‘no Act world’ which assesses what the value of a lease would be were it not for the existence of the 1993 Act, using data from the period 1987 – 1991 when there were no rights under the 1993 Act -by applying a statistical method known as ‘hedonic regression’.

Rejection

The Upper Tribunal rejected Mr Mundy’s position holding that the ‘Parthenia Model’ put forward by Mr Mundy was not reliable given it had produced at least one result which was impossible by producing a higher value for a lease in the ‘no Act world’ than it would have been sold for at the time (being 1987). The Upper Tribunal was of the view that it was preferable not to use graphs at all and, where it was available, to use actual evidence from a ‘no Act world’ as the starting point of any valuation.

Mr Mundy appealed this decision to the Court of Appeal which considered whether the Upper Tribunal had been entitled to conclude that the ‘Parthenia Model’ was flawed. The Court of Appeal held that the Upper Tribunal was so entitled.

It may be that Mr Mundy appeals this decision to the Supreme Court but until a contrary decision is made the current method employed for valuing lease extension premiums by way of comparison, relevant information regarding location, statutory assumptions and other pertinent facts relevant to the lease in question, will continue to be used.

This ruling comes as a disappointment to many tenant organisations which were hoping for a ruling in Mr Mundy’s favour, which would likely have resulted in a significant fall in the rates of premiums for lease extensions.

We shall watch with interest as to whether the matter is appealed to the Supreme Court and, if so, whether they uphold the Court of Appeal’s decision or if Mr Mundy is eventually successful in his quest.

Mundy v The Trustees of the Sloane Stanley Estate [2018] EWCA Civ 35