Cadogan v. Sportelli- marriage value- Court decisions

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    Cadogan v. Sportelli- marriage value- Court decisions

    The 1993 Leasehold Reform Act apparently requires valuations to be performed in the hypothetical "no-act" world, where the marriage value can be calculated without being influenced by the tenant's share of the marriage value.

    Without this clause, the marriage value 50/50 split could be applied recursively to get it down to nil in all cases, I presume this is the main reason for the "no-act" concept.

    Is this correct?

    In which case, how do surveyors deal with this? The idea that you have to assume a £25K (say) difference between the value of the unextended and extended lease property to arrive at a £15K price for the lease extension (therefore implying that the real difference in value is £15K rather than £25K) seems to be so astonishingly recursive and stupid that I find it hard to believe that it can be law.

    What am I missing here?

    #2
    Yes your assumption is correct.

    In the real world the difference in values of a flat with a short lease and a long lease will be the cost of the lease extension. If that differential was the basis of the calculation then marriage value as you say it would disappear very quickly so the cost of a lease extension would be simple be the capitalisation of the ground rent and the deferment value.

    Marriage value is therefore the by-product of an inefficient market. IMO marriage value would not exist if the market was 100% efficient the value of flat would decline on an expediential curve.

    Surveyors in putting forward their evidence on differentials cannot therefore use market data as market data is arrived at in the "Act world". Therefore you have a a hypothetical argument as to what the values would be in the “no Act” world. These LVT decisions on hypothetical values become the basis on which later cases are argued. It all becomes very abstract indeed. You might seek to use differentials on property prices prior to 1993.

    A crude rule of thumb is the decline in the lease is 1% per year for every under 80 subject to a minimum of 3% works reasonably well in London down to about 68-69 years. Such crude rules of thumb are frowned on by the panel members of the LVT who are drawn from the surveying profession. They would prefer their members to spend their time arguing about a world which does not exist at charge out rates that do!
    Last edited by sgclacy; 27-06-2007, 00:07 AM. Reason: Further (better spelt) thoughts

    Comment


      #3
      Excellent post- but the value would decline on an exponential curve, surely?
      JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
      1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
      2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
      3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
      4. *- Contact info: click on my name (blue-highlight link).

      Comment


        #4
        Thanks for your excellent posts.

        So a valuer will have two sources of reference for estimating the marriage value, the pre-1993 decisions, and the precedent set by post-1993 LVT decisions.

        There must come a time, one presumes, where the whole "no-act" world becomes such a ridiculous concept that the law simply has to change. We're already 14 years away from the real no-act world, and the property market is dramatically different.

        Also, the law is so blatantly biased towards the landlord. Not only does he get a compensation for the loss of his investment, he also gets a 50% share of the remaining hypothetical difference in the value of the flat that would have existed had the law not been in place.

        Not extending the lease hoping that the law will change seems a little risky though!

        Comment


          #5
          In my opinion the landlords’ case will always be argued well by the major London landowners as they have the money and political influence whereas a class action by lessees (which would be necessary to fight such an attack) seems unlikely. Therefore I feel that the current scenario will continue with the envitable appeals. I doubt whether the government will ever make the calculation more straight forward by defining what the capitalisation rate will be , deferment rate or the theoretical decline in the value of a lease (however they did for CGT on lease below 50 years).

          This uncertainty of course makes work for the professions and all legislation has in my opinion in the last 10 years at least created works for the professions. This may be a conscious decision by the government or a reactive response to the growing blaming and claiming culture that is taking place in this country.

          Comment


            #6
            Well, I wonder if the double whammy of property prices at least doubling in the last 6-7 years, as well as Sportelli v Cadogan, will push lease extension prices so high that enough MPs from constituencies with a high percentage of leasehold properties may push this issue on the legislative agenda.

            Wishful thinking, perhaps. But I'm sure there are hundreds of thousands of people falling deeper and deeper into this trap as I write, most of which are unaware of the consequences.

            Comment


              #7
              It is so hypothetical.

              I recently had a case where a client was buying a maisonette with a lease of about 75 years left. I pointed out the need to extend the lease in due course for a sale and that the landlord would be asking a 4 figure sum for this. Client found virtually identical maisonette up the road with 970 year lease - same ground rent, same landlord - same price! So much for values being different!

              As a conveyancing solicitor I believe the information given in the post to be useful but I accept no liability except to fee-paying clients.
              RICHARD WEBSTER

              As a conveyancing solicitor I believe the information given in the post to be useful (provided it relates to property in England & Wales) but I accept no liability except to fee-paying clients.

              Comment


                #8
                Sportelli Update

                The Court of Appeal heard the case on 23-26 July. The appeal was on three specific aspects of the decision- see LAS website for details
                It seems that the CA judgments will be given in September- no indication as to exactly when, but watch this space.
                JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
                1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
                2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
                3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
                4. *- Contact info: click on my name (blue-highlight link).

                Comment


                  #9
                  I heard on the bush telegraph that the appeal failed.

                  There is a statement ( dated mid Sept) about this matter at www.lease-advice.org but I did not understand if the statement ending is indicating a further appeal.

                  Comment


                    #10
                    Originally posted by tenant29 View Post
                    I heard on the bush telegraph that the appeal failed.

                    There is a statement ( dated mid Sept) about this matter at www.lease-advice.org but I did not understand if the statement ending is indicating a further appeal.
                    I think that statement is dated mid Sep 2006, so it's in relation to the original ruling which means the appeal they are referring to is the one we are still waiting to hear the outcome of.

                    Comment


                      #11
                      I haven’t read the whole decision but it looks as though the appeal failed, so we remain with 4.75% & 5% and no hope-value.

                      http://www.bailii.org/ew/cases/EWCA/Civ/2007/1042.html

                      Comment


                        #12
                        Originally posted by WakeyWakey View Post
                        I haven’t read the whole decision but it looks as though the appeal failed, so we remain with 4.75% & 5% and no hope-value.

                        http://www.bailii.org/ew/cases/EWCA/Civ/2007/1042.html
                        Yes. The Court of Appeal heard (but dismissed) five linked appeals. Unless any lessee appeals further to the House of Lords, we are therefore stuck with:
                        a. low deferment rates; and
                        b. high enfranchisement prices/ lease extension premia.
                        JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
                        1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
                        2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
                        3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
                        4. *- Contact info: click on my name (blue-highlight link).

                        Comment


                          #13
                          Originally posted by jeffrey View Post
                          Yes. The Court of Appeal heard (but dismissed) five linked appeals. Unless any lessee appeals further to the House of Lords, we are therefore stuck with:
                          a. low deferment rates; and
                          b. high enfranchisement prices/ lease extension premia.
                          Having briefly read the decision myself, it appears the CoA have simply sat on the fence. They have upheld the LT decision of Sept 06, but by way of "Obiter" comment (or "additional comment" for those of you more interesting than us lawyers), the Judges appear to support the view that deferrment rates for those properties outside of the Prime Central Location area could (and maybe should?) be different. Accordingly, it is back over to the surveyors to continue to raise their arguments during negotiations. I wonder if the LVT's will continue to shy away from making determinations of 5% across the board? Watch this space...
                          Disclaimer (I would, wouldn't I!) - My views are personal and should not be relied upon as formal legal advice.

                          Comment


                            #14
                            Perhaps Parliament will intervene and enact a better and simpler procedure. Tell your MP to instigate something like this (for enfranchising a house, as it's easier to explain):
                            1. T serves Notice of Claim.
                            2. If lease has 80 yrs. (or more) unexpired, and rent R is <1% of house's present value, price shall be R x 100 divided by (N-1). No deferment rates, no surveyors.
                            3. "N" is baseline interest rate- say Bank of England Bank Rate.
                            4. EXAMPLE: using BoE 5.75% means that N-1= 4.75 so price would be 21 x rent (+ L's fees for solicitors/VAT/disbursements)
                            5. New law will also give T the right to challenge L's solicitors' fees, which currently T cannot do.
                            6. If term has less than 80 yrs. unexpired, law will set a defined sliding scale of multipliers: e.g the price (after applying the formula above) would then be increased by 1% for each month by which term is less than 80 yrs. (down to 60 yrs. unexpired) then 2% (for each month of shorter unexpired term, down to 40 yrs. unexpired), and so on.
                            JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
                            1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
                            2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
                            3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
                            4. *- Contact info: click on my name (blue-highlight link).

                            Comment


                              #15
                              Great. So the Court of Appeal have not managed to bring any clarity into a situation which is so confused it beggars belief. In fact, they've made things slightly less clear by the reservation that they are "uncomfortable" with the 5% deferment rate applying to all properties in England rather than just Prime Central London.

                              The only people benefiting from this are surveyors and solicitors. They must be dead pleased with this decision. Why is English property law so much more complicated than anything I've come across in other countries? All aspects of housing - buying, selling, surveying, owning - seem to have been designed to cause maximum confusion and uncertainty.

                              I have just completed a lease extension based on 5% deferment rate, in Oxford. It got settled without S42 and LVT, but I did consider this to challenge the rate. However, considering the minefield that leads to a LVT decision, I decided that the £3000 or so I paid over what I think I should have paid, was worth it. I've reviewed dozens of LVT decisions, and it is very clear that the end price is a lottery, and depends on at least 3 or 4 very subjective decisions taken by "expert" surveyors (two of which will provide vastly different valuations depending on whether they represent landlord or lessee), as well as the requirement to have the property valued in the parallel universe where the current legislation does not exist (The "No-Act World"). If my property had gone to the LVT I estimated I could have ended up paying anything from 30% less to 30% more than I ended up paying, mainly because of the Marriage Value calculation. With the added solicitor costs, delays and worries caused by LVT, the risk was not worth it.

                              Needless to say, this stacks the odds in the lessee's disfavour. Happily I don't have to worry about it anymore, but I have still written to my MP to encourage him to see if the law could be changed. I hope others will do the same.

                              Comment

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