This paper has been prepared by Julian Clark of Gerald Eve LLP to address the implications of the Upper Tribunal’s decision on Relativity (the Mundy decision), in so far as they relate to the Gerald Eve 1996 Graph and the reviewed version of the Graph that we published in December 2016 in the light of the Upper Tribunal’s decision.
The Mundy decision was published in May 2016 following the major group hearing on the issue of Leasehold / Freehold Relativity in Leasehold Reform Valuations which took place in January 2016.
In the decision, the Upper Tribunal gave its conclusions on a number of important issues relating to the valuation of leasehold interests in enfranchisement valuations. Amongst those conclusions, the Upper Tribunal held that by the time of the valuation dates for the appeal cases being February to April 2014:
- what is known as the Gerald Eve 1996 Graph of Relativities (the 1996 Graph) had become the “industry standard”, adopted by practitioners when undertaking leasehold enfranchisement valuations in Prime Central London for valuing leasehold interests in residential properties subject to statutory claims to enfranchise or to extend their leases.
- leasehold / freehold relativities for properties without rights to enfranchise as shown by the 1996 Graph may (at least by 2014) have been overstated.
- there have been significant changes to the structure of the market since the 1996 Graph was created.
- contrary to market practice hitherto, the statutory assumption to disregard lessee’s statutory rights to enfranchise when calculating the premium payable on enfranchisement or lease extension, should apply only to the property subject to the claim and not to the market as a whole. This is known as the No Act Bubble v the No Act World assumption.
In the light of the Upper Tribunal’s conclusions, Gerald Eve reviewed the 1996 Graph and in December 2016 published a new table of relativities and graph to be known as the Gerald Eve 2016 Graph. For unexpired terms below 100 years relativities shown by the 2016 Graph are lower than those shown by the 1996 Graph and are the same as the 1996 Graph for terms above 100 years.
Whilst since its publication Gerald Eve have referred to the 2016 Graph in premium negotiations, the 1996 Graph has not been withdrawn and remains as a matter of record.
