_Mundy v the Sloane Stanley Estate: Victory for freeholders as lease extension costs upheld

Summary

Mundy v the Sloane Stanley Estate has been eagerly awaited by leaseholders hoping the courts would favour a method of working out the short lease value in a lease extension claim which generally favoured tenants.

All the tenants’ grounds for appeal have been rejected.

The Court ruled that comparisons of leases with and without rights to extend were legitimate and that ‘real world’ transactions can be considered.

There was plenty of evidence for the sustained criticism of the Parthenia model.

The tenants’ view that the market was “corrupted” was overstated and whilst the market might not be perfect, it was the market and could not be ignored.

Although the court confirmed the Parthenia model could not be used in future, it was noted that the Law Commission has been asked by the Government to consider the simplification of valuations under the Act.

Campaigners were hoping to slash leasehold extension and freehold purchase costs

Mundy v the Sloane Stanley Estate - what you need to know 

The decision of the Court of Appeal

The Court of Appeal handed down their decision on Wednesday 24th January which was an endorsement of the decision made by the Upper Tribunal.  All the grounds for appeal were rejected.

Lord Justice Lewison rejected the tenants’ assertion that the comparison of a lease with rights and one without rights was illegitimate and that the legal effect of the Act precludes the valuer (and the UT) from having regard to any leasehold transactions in the real world.

In his view, whether to accept or reject the Parthenia model was a question of fact for the UT.  In view of the “sustained criticism” of the Parthenia model by the experts called on behalf of the landlord, there was ample evidence upon which the UT could rely.

Lord Justice Lewison did not accept that Carnwath LJ in Earl Cadogan v Sportelli [2007] EWCA Civ 1042 [2008] 1 WLR 2142 at [87] was proposing that a comparison of the sale of a lease with rights and one without was illegitimate as a matter of law.

In his judgment, Lord Justice Lewison concluded that the UT was well within the scope of its functions in ruling out future use of the Parthenia model in its current form and secondly that at the invitation of the Government, the Law Commission is to consider the simplification of valuations under the Act, ending, “It may be, therefore, that the holy grail will one day be found.”

Where next?

That appears to be the end of the matter. The appellant can’t go to the Supreme Court without leave from the Court of Appeal.  In theory it can apply to the Divisional Court to challenge the decision of the Upper Tribunal, but the obstacles to such a challenge are formidable.

Might the Government intervene?

It might. 

A Government consultation paper floated the suggestion that lease extensions should be made quicker and cheaper.  There would have to be consultation on that. 

Not only would traditional landlords strongly (and rightly) object to having their assets disposed of at below market value.

There are now thousands of former leaseholders who have bought their freeholds at full value and will feel hard done by if others now come along and get their freeholds on the cheap.  

There will also be blocks of new freeholders who will have paid full value for flats who chose not to join in the claim, and will be looking forward to recouping their investment when those flat owners want to extend their leases.

Do you need advice in a matter relating to ground rents, lease extensions or leashold reform? Contact us or download our Guide for Leaseholders.