24th January 2018 - the Court of Appeal today dismissed the tenant's appeal of the Upper Tribunal (Lands Chamber) decision known as the Mundy case. This was a very quick decision - the case was only heard 7 days ago. It may be concluded that the most expensive possible outcome pre Mundy is now the cheapest possible scenario post Mundy and the main impact of this case has been to increase the cost of lease extensions for tenants in prime central London. Lessees who were waiting for the outcome of this appeal before serving their s42 notice will rue a missed opportunity and all lessees with leases under 80 years may regret delaying their claims any longer.
The latest authoritative indices show that values in prime central London have fallen fallen by approximately 5% over the last twelve months. Given Brexit and the pervasive global economic and political turmoil there is no firm indication that the market is stabilizing. Whilst market sentiment appeared to have gained some confidence due to the election of a majority Conservative government in May 2015, increased transaction costs and the uncertainty caused by the impending European referendum served to put the brakes on market activity well before Brexit.
The Referendum was decided on 24th June 2016 with the UK voting to leave the EU and it is too early to assess the impact this radical change will have on the property market in central London. There may be further changes in market conditions during the next six months which may be influenced by the Brexit decision and we will continue to monitor its effect. There are likely to be opportunities as the cheap pound will incentivise overseas buyers to take advantage and European buyers keen to hedge against the potential demise of the whole EU could also return in strong numbers.
The recent Upper Tribunal decision known as Mundy in May 2016 has made premiums more expensive in prime central London than they were prior to this hearing. The decision also suggests that relativities should be even lower and therefore premiums higher and we understand one major estate’s valuer is in the process of compiling data for publication to try to prove this.
Furthermore we understand that the Wellcome Trust may be planning an attempt to reduce the deferment rate at a hearing in the foreseeable future. Details are currently unknown, but if they are successful a lower deferment rate will further increase premiums and our advice to our clients is to serve the s42 notice now before it becomes more expensive to extend your lease. It is likely that future clients will look back at this period as a time of missed opportunity.
After the recent 6% fall over the last 6 months, property values in prime central London have started to rise slightly according to the latest authoritative research. The cautious behaviour of purchasers may reflect last years stamp duty increases as well as concerns that the market has overheated. However, the perception that prime London is a safe haven in a dangerous world has not changed and current market sentiment appears to have gained some confidence due to the recent election of a majority Conservative government.
Property values have fallen by approximately 6% over the last 6 months in prime central London according to the latest authoritative research. This may reflect uncertainty over the forthcoming general election as well as concerns that the market has overheated. Time will tell if there will be further rises in values after the election due to pent up demand.
With regard to relativity a case was heard at the end of June 2014 by the Upper Tribunal (Lands Chamber) in an appeal between Latif Kosta v The Trustees of the Phillimore Estate known as Kosta in which the sole issue was relativity. The tenant relied on the expert evidence of an economist in arguing the appropriate relativity, rather than following the traditional method adopted by valuers. The Tribunal concluded in that case that the economist’s methodology was unable to provide any reliable assistance in determining the existing lease value at the valuation date. In January 2015 another case concerning a house in Melbury Road W8 was heard at the First-tier Tribunal where again the sole issue was relativity, the economist’s methodology was relied on by the tenant and again the decision was in the landlord’s favour. There are likely to be further decisions on the subject of relativity based on the economist’s hypothesis and as always we shall keep you informed following any further ruling on its validity.
Property values in prime London rose again in the latest quarter, but only marginally according to the latest authoritative research. The forthcoming election in 2015 has bred a certain amount of uncertainty with market sentiment suggesting that values may flatline or even dip in certain areas for the next couple of quarters. However, with interest rate rises not expected in the short term and the current global political, social and economic crises, prime London may still be regarded as a safe haven by overseas investors after the next general election. The Upper Tribunal (Lands Chamber) in the Phillimore Gardens W8 decision known as Kosta has merely kicked the can of relativity further down the road. It is likely that the same fight will be fought at later date by another tenant with deep pockets and we will keep you informed of further developments on this issue.
Property values in prime London rose again for the twentieth quarter in a row, this time by approximately 3.6% according to the latest authoritative research. Current market sentiment does not expect any change in the short term at least to prime London’s status as a safe haven for overseas investors. The effect of this growth in property values on the cost of lease extensions in prime areas such as Mayfair, Kensington and Chelsea is significant. Taking the case of a 20 year lease falling to a 19 year lease as an example, a premium which would have cost £2.3m in April 2012 would be likely to cost £2.5m in March 2013 just because of the delay in serving notice during a rising market. To keep it simple, all things being equal, the shorter the lease the more expensive the premium. And if market values are rising as they are at the moment, the cost of the delay of serving notice is even more expensive. The Upper Tribunal (Lands Chamber) is scheduled to hear a case on relativity concerning a property in Phillimore Gardens W8 at the end of June 2014. We shall keep you informed of any developments.
Property values in prime London continued to rise this quarter by approximately 3.3% according to the latest authoritative research. Current sentiment does not expect any change in the short term at least to prime London’s status as a safe haven for overseas investors. The effect of this growth in property values on the cost of lease extensions in prime areas such as Mayfair, Kensington and Chelsea is significant. Taking the case of a 20 year lease falling to a 19 year lease as an example, a premium which would have cost £2.3m in April 2012 would be likely to cost £2.5m in March 2013 just because of the delay in serving notice during a rising market. To keep it simple, all things being equal,the shorter the lease the more expensive the premium. And if market values are rising as they are at the moment, the cost of the delay of serving notice is even more expensive.
Values in prime London rose again in the last quarter by 2.5% according to the latest authoritative research. As the uncertainty in the Eurozone and the turmoil in the Middle East and elsewhere shows no signs of abating, prime London is likely to continue to be regarded as a safe haven for overseas investors. The long awaited Upper Tribunal decision in Voyvoda v Grosvenor West End Properties has confirmed that the deferment rate for flats is 5% as set by the decision in Sportelli. Following the Upper Tribunal decisions in Zuckerman and Yeats, tenants had been hoping the Upper Tribunal in Voyvoda would confirm that there should be an addition of a further 0.25% to the deferment rate to reflect the potential burden of management. However their hopes have been dashed and this 0.25% addition which has been referred to as the Zuckerman addition is now dead….However the fight to change the deferment rate continues on both the landlord and the tenant sides although it will be fought on other fields … As always we will continue to keep you informed of developments.
The latest authoritative research shows that the indices for residential property in prime London rose by 2.2% over the last quarter. Prime central London is likely to continue to be regarded as a safe haven for overseas investors whilst the turmoil and uncertainty in the Eurozone and elsewhere continues. There has been an interesting decision in the never ending battle over deferment rates. In the case of City & Country Properties Ltd v Alexander Christopher Charles Yeats the Upper Tribunal gave another chink of light for lessees hoping for a rise in the deferment rate in central London. In their decision in July 2012, the Upper Tribunal stated that “… there should be an addition of a further 0.25% to the deferment rate to reflect the potential actual burden of management…”. As Yeats concerned a property outside London, the major estates have been reluctant to accept a deferment rate of 5.25% as applicable in prime London. However there is an Upper Tribunal case concerning a property in Grosvenor Square W1 which is due to be heard this summer on this very issue. We will keep you informed of developments…
The latest authoritative research shows that the indices for residential property in prime London increased by 0.5% over the last quarter. Annual growth around for prime Central London is 5.5%, but some core areas are still seeing over 10% over the last 12 months.
The latest authoritative indices for prime central London flats show about a 3% rise for the quarter ending March 2012 resulting in an estimated 10% rise in values for the year from April 2011 to March 2012. The effect of this growth in property values on the cost of lease extensions in prime areas such as Mayfair, Kensington and Chelsea is significant. Taking the case of a 20 year lease falling to a 19 year lease as an example, a premium costing £2.3m in April 2011 would be likely to cost £2.63m in March 2012 – an increase of about 15% just because of the delay in serving notice for 1 year. To keep it simple, all things being equal,the shorter the lease the more expensive the premium. And if market values are rising as they are at the moment, the cost of the delay of serving notice is even more expensive.
As the mayhem in the eurozone shows no sign of abating, prime central London property prices continue to rise. Many overseas purchasers are paying prices well in excess of those achieved at the so called peak of the market in Autumn 2007. Lease extension premiums are therefore rising on a daily basis as leases continue to shorten. Only the service of a s42 notice arrests this decline and stops the likely premium from rising further.
PRIME central London property values appear to have held steady over the last 12 months and latest authoritative research by Savills suggests that values in this sector are anticipated to rise by 10% in 2012. The obvious conclusion to be drawn from this research is that lease extensions in prime central London are likely to be much cheaper today than in a years time when the lease is a year shorter and freehold values are starting to rise.
Freehold values in prime central London remained reasonably steady overall for the third quarter in a row. Lease extension premiums are therefore becoming more expensive because the unexpired term is inevitably shortening as time passes.
Freehold values in prime central London levelled out according to the latest authoritative indices. Despite conflicting opinions and uncertainty regarding the prospects for the UK economy as a whole, it seems the current sentiment is that the prime central London residential property market appears to be insulated against the effects of any potential downward slide. Largely because of the lack of good quality stock, low interest rates and the weakness of sterling, prices are being paid that sometimes exceed those achieved in the peak of the 2007 market. With regard to the deferment rate, a major freeholder, the Wellcome Trust, is believed to be pressing for a reduction in the deferment rate in a case due to be heard at the LVT regarding a collective enfranchisement in Onslow Gardens. If the LVT rules in the freeholders favour and decides a reduction in the deferment rate is appropriate, it may mean premiums will be more expensive in the future. Obviously there is a certain amount of water that needs to go under the bridge before any conclusions can be drawn, but it is best to be aware of possible developments in this area.
Freehold values in prime central London rose again in 2010 for the fourth quarter in a row and, according to the latest authoritative indices, are now just 10% below their September 2007 peak. Whether or not values continue to rise in 2010 is difficult to call because much of the “recovery” has been due to restricted supply of good quality stock and the weakness of sterling. The supply of rental properties in prime central London has fallen contemporaneously resulting in potentially higher yields which should further strengthen appeal to the overseas investor. Therefore even in this uncertain economic and political climate it is hard to see freeholds in prime central London market falling in value over the next 12 months.
The most recent indices of prime central London property values have shown a rise of just under 13% over the last three quarters. This “recovery” appears to be a result of both the low supply of good quality stock and the return of the overseas investor emboldened by the weakness of sterling. Whatever the cause, the effect is simple, the recent savings in premiums due to the large fall in freehold values between September 2007 and March 2009 are diminishing. It is worth reiterating the simple fact that, all things being equal, the shorter the lease the more expensive the premium. Lessees are deciding to serve their s42 notices now to prevent their leases declining further.
WE have been inundated with instructions from lessees wishing to take advantage of the huge fall in freehold values. The prevailing sentiment that the bottom is not far away and central London property is beginning to look affordable again is coinciding with the widespread realisation that a long lease is essential in order to maximise marketability.