Relativity is the name given to the relative value of a leasehold interest against the freehold interest. Freehold has 100% of the value. However, if there is a lease the value is shared between the freehold and the leasehold. As a lease diminishes over time, the ‘relative’ value of the lease decreases and the freehold value increases. The shift in the value between the freehold and the leasehold is known as the ‘relativity’. For many years there has been a question of how to determine the appropriate ‘relativity’, as it has a significant impact on values and the cost of extending a lease or buying the freehold. Since the Leasehold Reform, Housing and Urban Development Act 1993 leaseholders have had the right to extend their leases by 90 years or buy the freehold (the Act also allowed for high value houses to buy the freehold). Consequently, since the 1993 Act transactions have been tainted, as purchasers know they can extend their lease or buy the freehold. This has meant ‘relativity’ has been determined with reference to settlements and previous determinations. In 2009 The Lands Tribunal (now known as the Upper Tribunal) asked the Royal Institution of Chartered Surveyors under Jonathan Gaunt Q.C. to produce a definitive ‘relativity’ curve. Unfortunately, the result was a plethora of curves and no conclusion. This research is new. For the first time several thousand pre-1993 transactions have been examined using hedonic regression.The resulting relativity uses real world transactions from the ‘no Act’ world. It is significantly different to the existing curves, as it uses real world ‘no Act’ evidence. If interested in ‘real world relativity’ please contact: research@parthenia.co.uk
