Following Lord Justice Lewinson’s plea that hopefully “The Holy Grail will one day be found” in the recent Court of Appeal case of Mundy v Sloane Stanley (2018), we have set about trying to find a graph that will hopefully satisfy both Leaseholders and Freeholders alike in the absence of short lease sales evidence.
The original Upper Tribunal Decision found favour with the Gerald Eve Graph (“industry standard”) and both Savills 2002 and Savills 2015. As part of that decision and on several cases after that decision there has generally been a view that relativities have fallen since the graph was formulated:
“One of the concerns that the UT had about the reliability of the Gerald Eve graph was that because the relativities shown by that graph had not changed since the graph was first compiled, it no longer reflected relativities as they were in 2014. Structural changes in interest rates and rates of investment returns, changes in the nature of the market such as an influx of foreign buyers, and changes in the institutional and legal structure of the residential market all suggested that the Gerald Eve graph overstated the relative value of a lease by comparison with the value of a freehold. These concerns were summarised at [28] to [32] of Appendix B to the UT’s decision and reiterated in Appendix C at [64].”
In order to work out how much relativities have fallen, I have considered the Savills 2002 and Savills 2015 Enfranchisable graphs and noted the Lands Tribunal view:
“If market transactions involving leases with rights under the 1993 Act relied exclusively on the relativities shown by the GE graph, then there would be no reason for relativities for leases with rights under the 1993 Act to have changed between 2002 and 2015 (the dates of the two Savills enfranchisable graphs) since the GE graph has not changed over that period. Nonetheless, a comparison of the Savills 2002 graph and the Savills 2015 graphs does suggest that there has been a change in relativities for leases with rights under the 1993 Act. This may be due to either the difference in the methodology of construction of the Savills 2002 and 2015 graphs, or a real change in relativity in the market (my
emphasis).
I have produced a table and graph showing the percentage difference between both these graphs. Please view the attached pdf below to view the graphs and further information.
Richard Murphy MRICS Registered Valuer, Director of Enfranchisement at Richard John Clarke Chartered Surveyors
