© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
Last summer, I was writing that it had never been easier to buy your freehold or extend your lease. There was only one cloud on the horizon. If the government brought in the regulations attached to the 2002 Act, which include the right of participants to dip in and out of the process, enfranchisement would become problematic again. But it was a small cloud – the regulations have been in administrative limbo for four years now, and the hope is the government has abandoned them.
Generally leaseholders were facing a sunny prospect, with no residence qualification, the minimum number of participants down to 50% and a legal right to enfranchise or extend leases that the landlord could not contest. But even as I wrote the storm was gathering. And now, six months later, there is a concern that the whole process of leaseholders exercising their rights will grind to a halt.
The storm is, of course, the Sportelli judgement. Back in the summer, the case of Arbib v Cadogan Estates, for the first time linking valuations not with the property market but with the money market, generated the initial rumblings. But Arbib decreed lower yields and rocketing prices for leaseholders of a few very high value properties in central London. Sportelli, which came in September, sets yields at 5% for all properties, be they in Mayfair or Macclesfield, Kensington or Kensal Rise.
Leaseholders suddenly find the bill for buying the freehold or a lease extension can run into additional thousands and wipe out the uplift in value to the property. Peter Haler of LEASE quotes the example of a suburban flat with a 68-year lease and a vacant-possession value of £160,000. With yields dropping from 8% to 5%, the leaseholder would end up paying out £14,450 in premium and legal costs to increase the value of his property by £15,000.
All those with leases nudging the 80-year mark, who have been rushing to take advantage of the 2002 Act’s amnesty on marriage value for leases over 80 years, also face disappointment. The 5% rate can wipe out any financial benefit the concession bestows. Surveyors are already seeing leaseholders withdraw from the process, concluding they are better off paying the landlord’s costs rather than struggling to raise daunting extra sums.
Why has this happened? Why has the Lands Tribunal decided that gilts are a better benchmark for valuations than evidence from the property market?
The question of unfairness bedevils the whole issue of leasehold. Flat owners argue that leasehold itself is unfair, that a system that leaves them with a wasting asset that they must pay to maintain, but eventually hand back to the landlord, is a travesty of justice in our property-owning democracy.
But landlords in their turn feel enfranchisement legislation is unfair. They are subject to compulsory purchase of their assets while the leaseholder makes an easy profit. Their 50% share of marriage value is supposed to provide them with compensation. But landlords are now claiming that the rights given to leaseholders by the 2002 Act have distorted the market, enabling leaseholders to make a killing.
“If something is worth £100, you can turn it into something worth £200,” said Roland Cullum of Cluttons, who acts as the valuer for the Cadogan estate, “but you pay only £50 to do it.” Property, it is argued, is no longer a high-risk investment, meriting yields of 6% – 9%, but low risk, like gilts. Thus the leaseholder must pay more to exercise his legal right.
But what has stunned many about the Sportelli judgement is that it applies to all leasehold properties, regardless of location. The argument is that location will be allowed for in the vacant-possession value. But does buying the freehold of a 1960’s block in Hounslow involve the same low risk as enfranchising in Chelsea and Mayfair? Damien Greenish of solicitors Pemberton Greenish acted for Cadogan in the Sportelli case and says, unsurprisingly “We were not unhappy with the decision.” Although even he seems bewildered by the countrywide application. “I couldn’t speak about outside London,” he said. “It’s a different world.”
So is property, in any case, an investment with rock-solid returns like gilts? Have we forgotten 1989, when soaring interest rates caused the market to plummet, wiping thousands off property values? Interest rates are edging up again and, although prices are kept buoyant by chronic lack of supply, it would be foolish to believe there could never be another downturn.
Although the Sportelli judgement is not legally binding, with one exception LVTs have been applying it rigorously since September. The government has no plans to legislate on yield rates, but is leaving the matter to LVTs. It is possible the Sportelli case may go to the Court of Appeal, if leave is granted.
In the meantime the judgement has added millions at a stroke to the portfolios of large landlords. And it may manage to succeed where past forays to the Court of Human Rights have failed. The right of leaseholders to enfranchise or extend their leases could become a right in name only. A nice idea, but just too expensive.
Ironic, since we are in the process of building more and more flats. Which, since the government is still consulting over its badly drafted Commonhold legislation, are all likely to be leasehold.