Tenants of flats held under a long lease have the right to acquire a new lease of their flat at a peppercorn rent on payment of a premium. The key question for landlords and tenants alike is: How is the premium for a new lease to be calculated? This was the question for the Court of Appeal in Mundy v Sloane Stanley Estate.
The cost of a new lease is calculated by looking at the ‘marriage value’ of a lease. This is the relative values of the landlord’s and the tenant’s interest in the flat both before and after a new lease is granted. The tenant in this case was hoping to persuade the Court of Appeal to rule in favour of a new method of calculating the marriage value of a lease; known as the Parthenia model, which would have slashed the cost of a new lease for tenants. However, the Court rejected all of the tenant’s arguments as it found the Parthenia model was flawed.
In the short term, landlords can breathe a sigh of relief as the value of their freeholds has been upheld, but the battle will continue to rumble on as the Government announced in a recent consultation paper that it intends to make the process of extending a lease easier, faster and cheaper.