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| 30 October 2018

Leasehold reform-chapter 14 and 15 - Valuation

To state that the current law in connection with the valuation process is complicated would be an understatement.  Presently, only a surveyor can provide any indication in relation to valuation, and whilst it is not necessarily the intention that that procedure would changed, ultimately the Tribunal is looking at making the area less complex, but still ensuring that the freeholder is adequately compensated for the value of his property.

As a result, the Law Commission wish to ensure that there is a more consistent valuation methodology for all types of claim. They do not wish for us to continue with a position where one surveyor may use one methodology and another may use an alternative, and therefore create a dispute which must be litigated. If there is a single methodology that is in place, then there can be no dispute concerning the manner in which the calculation is progressed.

The Law Commission is also looking at circumstances where an owner occupier would pay a lower premium than an investor. Ultimately the Law Commission is of the opinion that the legislation was intended to enable an individual to own their own home.  As there are an ever increasing number of flats that are now owned by investors,  there is a concern that homes are not treated as homes any longer, and the Law Commission wishes to revert to this belief.  As a result, the Law Commission intends to provide a benefit to owner/occupiers by requiring them to pay less for their freehold share.  Ultimately however in relation to this differential premium, the Law Commission is seeking consultation.

When looking at the options for reducing premiums, the Law Commission has considered whether or not it might be simple enough to create a simple formula which is completed, such as ground rent multiplier for example, which then determines the amount of premium which is to be paid and can be easily ascertained. This would then eliminate any negotiation or argument concerning what multiplier is utilised for the purpose of the calculation. The second option in this area, would be to set a percentage of the freehold value for the acquisition or the extension of the lease.

If we look at the situation based on the current valuation methodology, the Law Commission believes this could still be utilised, but for example they may only take into account a fixed percentage of the ground rent (and this was certainly benefit those with a ground rent that increases over a period of time).  The other option would be to prescribe the rates which are currently utilised for the purpose of the calculations, rather than leaving them to be interpreted, albeit the Commission equally sees a lack of benefit in doing this because such rates will vary over time and continuously have to be reset.

The other option, would be to remove the requirement to pay marriage value, so that only a fixed price is paid. If you remove a component such as marriage value, then the ability for there to be any dispute in relation to it is not as significant. They are however aware of the fact that to remove the marriage value, would remove the compensation element and could provide inadequate compensation to the landlord.

What however is very clear is that this particular area is extraordinary complex and may prove difficult to reform.

If you have any questions concerning the consultation, or indeed leasehold generally, please contact this firm's Real Estate Department on 01702 338338 or llancaster@paulrobinson.co.uk

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