Sir Peter Bottomley told the Commons yesterday that leaseholders are overpaying for their lease extensions and called on the government to end the “injustice”.
The veteran MP, who is patron of LKP and co-chair of the All Party Parliamentary Group, strongly criticised existing methods to value short leases – almost all of which were commissioned and paid for by the sector.
As a result, the market has been distorted which “means leaseholders are overpaying for their lease extensions by thousands, and often tens of thousands, of pounds”.
The early day motion “calls on the Government to end this injustice to millions of leaseholders”.
Sir Peter’s intervention supports the case made by chartered surveyor James Wyatt, of Parthenia, who commissioned an Oxford mathematics professor and a PhD student to come up with a fairer relativity graph to estimate lease values.
“On a 50-year lease flat-owners are overpaying freeholders £13,000,” he says. “Under the Gerald Eve methodology they would pay £33,500, instead of £20,500 using Parthenia.
“Lease extension experts reckon there are 40,000 lease extensions a year, which would equate to an annual overpayment of £500 million to freeholders!”
At an Upper Tribunal in May, Mr Wyatt failed to persuade the tribunal that his methodology be adopted, but he did manage to demolish the rationale behind the existing graph by surveying giant Gerald Eve. It had been commissioned by the Grosvenor Estate of the Duke of Westminster, England’s richest landlord.
The case was reported on LKP here
Mr Wyatt is now seeking leave to appeal to the Court of Appeal at a hearing scheduled for June next year.
Last week the issue was debate at the Law Society conference, where many felt the existing lease extension methodology was unfair.
Ironically, Mr Wyatt’s court case has made the situation far worse for leaseholders as Savills stepped in to provide yet another insiders’ relativity graph which is even less favourable than the Gerald Eve original.
As a result, leaseholders are being asked to pay considerably more for lease extensions than they were before the ruling last May.
Sir Peter’s early day motion reads:
“That this House believes that, in determining the price for a residential lease extension, relativity, which is the ratio of leasehold value without rights to freehold value, should be set according to empirical evidence untainted by the effects of the 1993 Leasehold Reform, Housing and Urban Development Act 1993 and untainted by most existing relativity graphs; further believes that injustice to leaseholders is perpetuated in the current situation by relying upon relativity graphs which have no pre-1993 market evidence and lack robust methodology; declares that the current situation is not in the public interest and that it means leaseholders are overpaying for their lease extensions by thousands, and often tens of thousands, of pounds; and calls on the Government to end this injustice to millions of leaseholders.”
Related posts:
Court of Appeal to hear Mundy case which will save millions on lease extensions
Court of Appeal ruling on Mundy case’s ‘inconvenient truth’ expected on Wednesday
Private Eye reports challenge to ‘scandal’ of lease extension values
Property tribunal upholds lease extension ‘scandal’ that pays millions to freeholders
Bottomley attacks ‘uncivilised extortion’ of lease extension racket in Mortgage Solutions
Last year: £64.8bn leasehold properties sold. £13.7bn was new-build. Leasehold house numbers double. Developers make £300-500 million a year from ground rent sales
“Savills stepped in to provide yet another insiders relativity graph which is even less favourable than the Gerald Eve original”
That would be the Savills that employs Roger Southam who currently heads up the Leasehold Advisory Service and was set up to offer independent advice to leaseholders?
Roger Southam is not merely an employee but, according to the Savills website profile, is a Director in Savills Property Management team. Presumably he has persuaded both himself and The Leasehold Advisory Service that his appointment at Savills does not constitute a conflict of interests.
Sir Peter is right. The lease extension valuation process is not in the public interest. In fact, I would say the Leasehold Law is flawed, inflexible and unjust. It is flawed in that it empowers the freeholder and disempowers the leaseholder and has clearly been written for the benefit of freeholders as demonstrated for instance by the existence of the so-called ‘marriage value’ clause in which the freeholder is entitled by law to a 50% share of a profit figure that arises from a hypothetical sale, and yet the freeholder does not contribute to R&M costs or capital expenditure such as roof replacement or electrical works. Why should a freeholder benefit from a hypothetical sale when he/she contributes absolutely nothing towards the upkeep and improvement of the property? This is just one example, albeit a key one, in which the law favours the freeholder and is flawed.
It is inflexible insofar as the leaseholder has only two options: (1) follow the formal statutory route for a 90 year lease extension at peppercorn rental, or (2) if the premium is unaffordable, take the risk of signing up to an informal deal of say 50 to 70 years and hope that your solicitor is competent enough to spot any sneaky attempts to insert onerous ground rent clauses that could damage the resale value of the property. There is a third option of course. That is, not to extend the lease and forfeit the property at the end of the term and lose all the money poured into the purchase and upkeep of the flat. The law is inflexible because it does not take account of affordability or the leaseholder’s needs and plays into the hands of those freeholders and agents who are driven by greed and the insatiable desire to maximise profit at the expense of the suffering leaseholder.
And the law is unjust in that it rewards freeholders and punishes leaseholders once the unexpired term falls below 80 years and the so-called ‘marriage value’ (i.e. the freeholder’s 50% profit share of a hypothetical sale) comes into effect. In the case of say a £30,000 or £40,000 lease extension quote you will find that the freeholder’s share of the marriage value can account for as much as £15,000 to £25,000 of the premium. It is a form of wealth transfer, from the suffering leaseholder to the ‘quids in’ freeholder. It is an oppressive law and gives weight to what a friend has called a form of ‘legalised theft’ and is not worthy of a Parliament that prides itself on doing what is right in the eyes of the people of this great land.
If our new PM really does want a country that works for all, then it is time that the 80 year rule and the freeholders entitlement to a 50% profit share of a hypothetical sale are removed from the statute book. All of the problems arising from the use of relativity graphs and extortionate lease extension costs for those with medium-to-short-term unexpired leases would be removed with the stroke of a pen if the marriage value was reduced to zero per cent permanently.
It would also be helpful if the government recognised and admitted that Parliament got it wrong back in 1993 and to put a mechanism in place to compensate those leaseholders who have unjustly overpaid to the tune of thousands of pounds simply to extend the lease term on their properties.
My vote at the next election will depend on two things (1) the success or failure of Brexit and (2) who will take up a righteous cause and fight for the rights of leaseholders to be given a fair and just deal. I am not a believer in class warfare as I believe we are at heart ‘a peace loving people’ (a quote from Winston Churchill’s Gathering Storm) but I know from personal experience that this law is unbelievably unjust and the sooner the unrighteous elements of it are uprooted from the statute book and consigned to the bin of history then the sooner peace can be restored to the hearts and minds of suffering leaseholders and we can start to build a nation that really does work for all. Keep up the good work LKP.
LEASE EXTENSIONS -whether formal or informal- are a “legal scam”.
1-the formula used to calculate premium is subject to negotiation with landlord; If you cannot see the contradiction in this statement then take your chances.
2-landlord’s solicitors have every incentive to upset the process (their fees are due in any case)
3-total lack of transparency of legal fees with the nonsensical phrase “reasonable costs” which is very misleading and subjective.
4-large corporate landlords can afford litigation while “clock is ticking”.; Leaseholders often cannot.
Solution:
1-convert all leaseholds to commonhold by Law;
2-prevent all mortgage lenders to accept such terms in Leases for lending purposes by Law.