There should be an urgent judicial review into the costs of leasehold extensions – and how those costs are calculated.
The call has come from a firm which manages lease extensions and freehold purchases, Leasehold Solutions.
The firm’s managing director Louie Burns has hit out at a decision by the Upper Tribunal (Lands Chamber) to reject a proposed change in how leases are valued.
Burns said the current method is flawed and described it as the LIBOR scandal of the property world.
Once the lease length of a property has fallen below 80 years it is said to be worth less than its full value. The property continues to lose value as the lease length falls – this is known as ‘relativity’.
When a leaseholder extends their lease, they are legally obliged to pay 50% of the resulting uplift in the property’s value. Thus, the lower the relativity, the more money the freeholder receives.
Two decades ago, a number of London’s freeholders decided to commission the development of their own relativity graphs.
Burns said: “It has always been in freeholders’ interests to ‘prove’ low relativity in order to squeeze as much money as possible from flat owners.
“As a result, the industry’s standard relativity graphs use flawed, subjective methodology, and leaseholders have been forced to pay more for their lease extensions – to the tune of many millions of pounds.”
The Upper Tribunal was ruling on a new relativity graph proposed by Parthenia Valuation, which used nearly 8,000 pieces of evidence from the sale of flats in central London to calculate the loss of value scientifically and remove subjectivity.
The Upper Tribunal ruled that Parthenia’s model contained “technical errors”.
Burns said: “Leaseholders have been paying freeholders far too much for their lease extensions for decades, and thanks to the Upper Tribunal’s ruling, this process will continue.
“If a building firm had overcharged a little old lady for roof repairs to the same degree, they would have several episodes of Rogue Traders dedicated to them.
“We need a judicial review as a matter of urgency before the unfair and antiquated leasehold system we have in this country takes on a new and even more sinister twist.”