Below is a short note on the Court of Appeal decision in this case:

This is the much awaited decision of the Court of Appeal in the final round of the Mundy saga.

The right of appeal was confined to a point of law arising out of the Upper Tribunal (UT) decision. The Court clarified that the applicable test was the ordinary first appeals test. Mr Mundy had succeeded on obtaining permission to appeal on one ground and two more grounds were adjourned for consideration by the full court of appeal.

The Court set out the background to the key issue in Mundy, namely that pinning down relativity for the purposes of determining the amount of marriage value under Schedule 13 to the 1993 Act. It commented that ‘the holy grail would be a method of determining relativity that is both reliable and simple to apply.’ (para 13). The failure of the RICS working party to produce a standardised approach was remarked upon. Interestingly Jonathan Gaunt QC (who appeared for the landlords) chaired that group.

The court recited the historic, known issues with the Gerald Eve Graph. It was prepared using a set of settlements from around 1975 onwards agreed for the Grosvenor Estate.

In particular the Court looked at two of the transactions analysed in Mundy. Flat 3 and Flat 5. The UT had adopted the 2002 Savills enfranchiseable graph and made a deduction of 10% for Act rights.

The ground on which leave to appeal had been granted was the argument that the comparison between the value of the lease in the real world (with rights under the 1993 Act) and the value of the lease without such rights as shown by the Parthenia model was an illegitimate comparison. The legal effect of the Act prevents the valuer (and the UT) from having regard to any leasehold transaction in the real world where the lease attracts rights under the Act.

The court rejected this view. It said that it was a question of fact for the UT and not something that raised a point of law at all.

In addition, it was acceptable for the valuer to take real world items and make a comparison with adjustments. This is an accepted way of carrying out a valuation.

The court also looked at the so-called circularity argument. This is the idea that the Gerald Eve Graph has tainted all other market sales. The Court rejected this argument. The UT had considered the available evidence and had based its decisions on what it had considered the ‘least unreliable’ evidence. The court said that to describe the market as ‘corrupted’ was an overstatement. It was noted that markets sometimes behave irrationally, examples being the tulip mania and the South Sea Bubble. It was noted that ‘the open market may be a false market in that it is based upon false assumptions, but it is still the open market.’ (Lord Hoffman in Electricity Supply Nominees Ltd v London Clubs Ltd [1988] 2 EGLR 152).

The next point considered was the ‘no act world’ – the Court pointed out that the intention of parliament was to construe this narrowly. The flat itself is to be considered to be within premises to which the Act does not apply, but the restriction is not to apply to the world at large. No Act building would be a better short hand.

Finally, the Court concluded that the UT was entitled to state that the Parthenia model should not be used in its current form in any future cases. It is the function of the UT to provide guidance. ‘The UT was well within the scope of its functions in ruling out future use of the Parthenia model in its current form.’ (para 50).

The Court of Appeal recognised that at the invitation of the government the Law Commision is to consider the simplification of valuations under the Act, as the Court said, ‘It may therefore be that the holy grail will one day be found.’

Mark Chick

7.2.2018

Much vaunted by some as being the great white hope of leaseholders everywhere the much awaited decision of the Court of Appeal was handed down last week.

For those in the know the outcome was not a surprise. The Court upheld the decision of the Upper Tribunal rejecting the Parthenia Model and declined to grant leave to appeal.

What does this mean in practical terms? Effectively, ‘we are where we were’ so to speak, in other words, graphs are not the only way of determining relativity and in fact, comparable evidence, including where appropriate an adjusted treatment of the subject flat is to be preferred.

The Savills 2015 enfranchiseable graph is reliable – and a good place to start to them make a ‘no act’ adjustment.

The decision was also helpful in that it clarified the extent of the no-act assumptions. The court of Appeal clarified that we are talking about a no act environment in the building and in reference to the flat in question, but the wider world can be one in which the Act applies.

The decision will be disappointing to those who hoped for a big shift in relativity upwards (which would favour tenants) but the Court was careful to speak twice of the hunt for the ‘holy grail’ of relativity- a simple prescriptive method and it mentioned the inconsistent outcome of the 2009 RICS study on this and also noted that parliament had recommended referring the question of how to make the calculation of the price payable on enfranchisement simpler and ‘fairer’ to the Law Commission.

It is in this perhaps that the greater hope of leaseholders will lie.

No-one could expect the discussion of the outcome of this case to be seen in a vacuum given all of the other things going on in leasehold at the moment – not least Justin Madders MP’s private members’ bill and also the outcomes of the consultation and the proposed reforms to ground rents.

What is certain is that there are now some very interesting times ahead for leasehold this year so, as ever, watch this space.

Mark Chick

Sajid Javid has announced the results of the consultation on ‘Tackling Unfair Practices in the Leasehold Market’

The Communities Secretary has announced these new measures to cut down what he terms ‘unfair and abusive practices within the leasehold system,’ including a ban on leaseholds for almost all new build houses.

This comes as part of the Government’s desire to provide redress for those affected by the issues coming out of the ‘leasehold scandal.’

Changes will also be made so that ground rents will be restricted on new long leases – for both houses and flats.

The Government also says that it will make it make it cheaper and easier for existing leaseholders to buy-out their freehold – although how this will be brought into force is not clear.

These measures follow the recent consultation which has been much commented on and which received more than 6,500 responses.

There are estimated to be around 1.4M leasehold houses in total in England and Wales and hence the desire to be seen to ‘redress the balance’ and stamp out some poor practices on the part of developers involving leaseholds.

It has to be said that ready access to better quality advice might well have prevented some of these ills, – but with developers encouraging buyers to use ‘panel’ solicitors and people being unfamiliar with the potential issues with ‘sharp’ drafting – we have the current situation, which has led to the have led to the government’s approach to solving what has become a consumer issue.

This is very welcome news for buyers of new properties in particular, but the promised changes are stated to have some wider objectives, which may have benefits for other leaseholders.

A short summary of the proposals appears below:

• Legislating to prevent the sale of new build leasehold houses except where necessary such as shared ownership;

• Making certain that ground rents on new long leases – for both houses and flats – are set at zero;

• Working with the Law Commission to support existing leaseholders and make the process of purchasing a freehold or extending a lease much easier, faster and cheaper;

• Providing leaseholders with clear support on the various routes to redress available to them;

• A wider internal review of the support and advice to leaseholders to make sure it is fit for purpose in this new legislative and regulatory environment; and

• Making sure freeholders have equivalent rights to leaseholders to challenge unfair service charges.

Exactly how these will Be brought into force remains to be seen, but 2018 will be a busy year for leasehold and leasehold reforms.

Insurance Premiums and Service Charges – when does an insurance premium become ‘unreasonable’?

A recent case, Cos Services Limited v Nicholson and Williams [2017] UK UT389 (LC) has looks at the question of insurance premiums and whether these are ‘reasonably incurred’ within the meaning of the service charge legislation.

The case is potentially good news for those looking to challenge their insurance premiums.

Generally, the FTT will not look in too much detail at the amount been charged in respect of an insurance premium provided that the Lease allows the Landlord to insure.

It is certainly not the case that the Landlord is generally bound to choose the cheapest insurer that is available.

The case is interesting as it shows a willingness to widen the scope of interpretation of Section 19 (1) of the Landlord and Tenant Act 1985 to include the amount paid by way of a premium for an insurance policy, particularly when as in the particular case the tenant was able to produce evidence of comparable premiums that were some £10,000.00 cheaper.

Where properties are in multiple ownership, it is not uncommon for the Landlord to place a block policy and to allocate the costs of obtaining such cover to the particular blocks under management.  The case shows that the Landlord needs to consider the level of premium that is going to be charged against other equivalent quotes obtained in the market.

Although in each case the facts will need to bear out the argument being made, this does show a willingness on the part of the Upper Tribunal to encourage the First Tier Tribunal to look more closely at whether insurance costs have been reasonably incurred.

Clearly, if the discrepancy is not as extreme as was shown on the facts in this case then the scope for redress will be reduced.

However, this case may well cause flat owners to consider having an independent review of the likely cost of obtaining cover and putting this to the landlord and in appropriate cases bringing a challenge in the First Tier Tribunal.

Mark Chick
14 November2017