The Court of Appeal is today expected to rule on a legal battle which may be critical in determining the value of an estimated 2.1m homes in England and Wales with leases of less than 80 years.
One estimate says the cost of extending leases to the more usual 99 or 125 years could fall by an average of 31 per cent depending on the ruling.
The case in question is Mundy v The Trustees of the Sloane Stanley Estate, which has been brought by chartered surveyor James Wyatt.
He used to be head of valuations at Countrywide’s John D Wood estate agency but now has set up his own firm, Parthenia Valuations, which has created mathematical model challenging those of the major estate owners.
These models are used to base the costs for lease extensions for properties with less than 80 years remaining on their leases; the Munday case contends that many freeholders have allegedly overvalued their interests and that for some two decades leaseholders may have been overpaying by up to 50 per cent for their lease extensions and freeholds.
Although the specific property at the centre of the case is an apartment in Chelsea - its lease is just 23 years with the freeholder seeking £420,000 to agree an extension - the wider repurcussions, depending on the decision, could involve hundreds of millions of pounds.
“In 1996 the Grosvenor estate commissioned Gerald Eve and John D Wood to draw up graphs of relativity to set the price for lease extensions and buying freeholds. No one has had the time, effort or money to challenge them since. It’s a much bigger scandal than the ground rents issue, and a real David and Goliath battle” Wyatt has told The Guardian newspaper.
“The big London estates will be particularly hit, but it’s not just about the London market. I hear from lots of people, many of them pensioners, who are trapped in declining leases and can’t afford to extend them. For example, I know one where the lease extension should be £30,000 but the freeholders want £50,000 and the pensioners can’t afford it” he said.
If the Mundy case goes in favour of the leaseholder, the Sloane Stanley Estate is expected to appeal to the Supreme Court on appeal.
Last month the then-Department for Communities and Local Government announced that ‘rip off’ leasehold clauses would not be allowed on almost all new homes and that ground rents on all new leases would be set at zero.
“It’s unacceptable for home buyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms” said Secretary of State Sajid Javid at the time, adding that a formal consultation period had received an “overwhelming response” from the public seeking intervention.