Yesterday the Court of Appeal dismissed the tenant’s appeal to the Upper Tribunal decision in Mundy v Sloane Stanley Estate.
This was because the Mundy CA appeal raised absolutely no ‘point of law at all’ (para 27) and so the UT was right to rule out the validity of the Parthenia hedonic regression model (in its current form).
The Achilles heal of the model being that it calculated the value of the lease on one of the flats in the conjoined appeals (flat 5, 17 Cranley Gardens) as at the valuation date at a higher value without the right to the extended lease than the price the lessee paid for the very same flat in the same condition within a week of the valuation date with the right to the extended lease; and where it was agreed between the parties that a flat in the market place with rights under the Act was more valuable than a lease without rights under the Act (para 25). This is simple logic.
And so we as valuers are now left with dealing with relativity as we used to do by looking at market evidence of both the value of the future extended lease / freehold (if a house) and the existing lease. In the case of the latter, to then make a judgment call as to an appropriate discount for Act rights rather than relying on graphs of relativity. Only if there is no recent sale of the subject property / other similar unexpired leases as at the valuation date does the valuer need to check the result against the more recent graphs of relativity now in circulation that have recast relativity lower than they were back in October 1996 when Grosvenor published what became known as the Gerald Eve 1996 graph of relativity. This is because there have been (primarily) structural changes in the interest rates and rates of investment returns [leading to a lowering of the hitherto deferment rate from 6% to 5% for flats and 4.75% for houses post Arbib and Sportelli in the mid noughties making it more expensive to enfranchise | extend a lease], as well as other changes in the nature of the market, etc. (para 17).
Ultimately all negotiations and adjustments must come down to valuation judgment rather than complicated algorithms to determine relativity. This is what an expert valuer is able to offer.
If though the only answer to resolve relativity is for the Government to invite the Law Commission to consider the simplification of valuations under the Act to one day find the holy grail, then we as valuers might as well pack up shop!
In the meantime, I am delighted to have settled this week relativity for an unexpired 57.22 year lease at 80.4% – this differential being higher than the average of all the former graphs of relativity per RICS October 2009 report at 80.2%, above the old Gerald Eve 1996 graph at 79.31% let alone the new Gerald Eve 2016 graph at 79.31% | Savills 2015 unenfranchiseable graph at 76.35%!
So for the moment there is indeed still a place for an expert valuer to sort out relativity.