Mundy v Sloane Stanley Estate

Under Leasehold Reform, Housing and Urban Development Act 1993, a statutory assumption that lease-extension rights do not attach does not require valuation in an imaginary market divorced from reality. A valuer may use a real-world transaction involving such rights as a comparable, provided an appropriate adjustment is made for their absence.

The relevance and scale of that adjustment are matters of valuation judgment. An imperfect market, including one influenced by a relativity graph, remains the open market unless the statutory hypothesis requires its features to be disregarded. The assumption in paragraph 4A(1)(b) is confined to the premises containing the flat. It does not create a whole-world no-Act market.

The tenant exercised the right to a new lease of Flat 3 under Leasehold Reform, Housing and Urban Development Act 1993. The premium included the landlord’s share of marriage value. The dispute concerned the valuation of the existing lease on the statutory assumption that lease-extension rights did not attach.

The Upper Tribunal (Lands Chamber), in a test case concerning three flats, rejected the tenant’s Parthenia hedonic-regression model and used real-world evidence, relativity graphs and valuation adjustments. Its decision is reported at [2016] UKUT 223 (LC) and [2016] L & TR 32.

The tenant appealed on the ground that actual market transactions involving rights under the Act could not lawfully be used as comparables. He also sought permission to advance two further grounds concerning the scope of the statutory assumptions.

1. Appeal dismissed. The Upper Tribunal’s acceptance or rejection of the Parthenia model was a question of valuation fact and judgment. There was ample expert evidence supporting its rejection. Its result for Flat 5 was inherently unreliable because it valued a lease without statutory rights higher than the same lease with those rights.

2. Property valuation proceeds by comparison and adjustment. A real-world sale of the same lease may be an especially strong comparable. The valuer may adjust it to reflect the statutory assumption that lease-extension rights do not attach. The adjustment’s relevance and magnitude are matters for the tribunal’s valuation judgment, consistently with Earl Cadogan v Sportelli [2007] EWCA Civ 1042.

3. Paragraph 4A requires a hypothetical sale in the open market, but the market itself remains real. The statutory hypotheses displace reality only so far as their terms require. Accordingly, the tribunal could take account of real market transactions even though the market had been influenced by the Gerald Eve relativity graph. A market may be imperfect or influenced by mistaken assumptions, but it remains the open market. The tribunal was required to value the asset in the market that existed at the valuation date, rather than substitute an imagined market.

4. Paragraph 4A(1)(b) of Leasehold Reform, Housing and Urban Development Act 1993 confines the assumption concerning the absence of statutory rights to premises containing the tenant’s flat. It does not require a whole-world no-Act assumption. That broader construction was contrary to the statutory language, inconsistent with an open-market valuation and practically unworkable. Lord Hoffmann’s dissenting observations in Earl Cadogan v Sportelli [2008] UKHL 71 did not assist, as the issue was not before the House.

5. The proposed reliance on paragraph 4A(2) failed in any event. It had not been advanced before the Upper Tribunal, there was no relevant valuation evidence, and whether an additional assumption is appropriate is a matter of valuation judgment. Permission to appeal on that ground, and on the whole-world assumption ground, was refused.

6. The Upper Tribunal acted within its function of giving authoritative valuation guidance when it ruled that the Parthenia model, in its current form, should not be advanced in future cases.

• Court of Appeal (Civil Division): Dismissed the tenant’s appeal and refused permission on two additional grounds: [2018] EWCA Civ 35.
• Upper Tribunal (Lands Chamber): Determined the statutory lease-extension premiums in three test cases and rejected the Parthenia valuation model: [2016] UKUT 223 (LC); [2016] L & TR 32.