Please identify any UK based case law which would support the
principle that it is only right and proper for a bank to value its
security based upon the legal interest / mortgage that it (the bank)
has in that security? i.e. if a bank only has a leasehold charge then
it should be instructing its valuer to value the property on a
leasehold basis and not on a freehold basis. |
Request for Question Clarification by
jumpingjoe-ga
on
07 Oct 2006 06:18 PDT
See my question below, which I meant to post as a request for clarification!
|
Request for Question Clarification by
pafalafa-ga
on
07 Oct 2006 06:46 PDT
calia-ga,
You've asked an interesting question, but it's not entirely clear what
sort of case law would best meet your needs.
Please have a look at the following, and let me know if it's on target or not:
http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWLands/2005/LRA_87_2004.html&query=freehold+basis+leasehold&method=all
England and Wales Lands Tribunal
...These are six appeals (heard together) relating to the price
payable on enfranchisement or for an extended lease for houses or
flats in central London. Four appeals by the freeholders are solely
concerned with the deferment rate to be applied to the reversionary
value; one appeal is concerned not only with this issue but also with
a claim for a discount to be given for freehold ownership; and an
appeal by the leaseholder relates to the freehold vacant possession
value of 40 Chelsea Square, in respect of which the freeholder has
made an appeal in respect of the deferment rate. The question of the
appropriate deferment rate has continued to produce a significant
number of applications for permission to appeal to this Tribunal and
is clearly a matter of wide concern. It was felt that comprehensive
consideration of this issue should be given by the Tribunal to reduce
the number of appeals in the future.
...This is a composite decision dealing with all appeals. It is
structured as follows. First, we set out the facts relating to each
appeal with a brief summary of the evidence. Second, we determine the
freehold vacant possession value of 40 Chelsea Square, the subject of
an appeal by the tenant. Third, we deal with deferment rates,
generally and specifically for each property. Fourth, we set out our
decision in each appeal. (Our valuations are contained in five
appendices). Finally, we refer to costs.
Let me know what you think.
pafalafa-ga
|
Clarification of Question by
calvia-ga
on
08 Oct 2006 01:15 PDT
Pafalafa-ga
Thanks for taking the time and trouble to reply. I've had a look at
the link but sadly it's not what I'm after. To clarify, perhaps my
question should have read "...that a mortgagee is only entitled or
only has the right to value its
security based upon its legal interest in the mortgaged property."
The scenario is that in 1998 my parents applied to mortgage their main
asset (their home) in order to borrow a lump sum to provide more
capital in their retirement. Before the mortgage document was signed,
the bank concerned instructed its valuer to undertake a 'Base
Valuation' of the property on a freehold basis. When my parents
purchased the property (1970) it was done so as a long (99 years)
leasehold title, with the freehold being retained by the property
developer. A few years later (1973) my parents, along with the other
6 residents in the road, were offered the chance to purchase the
freehold from the developer, which they did. Hence the property has
both freehold and leasehold titles. When the bank came to perfect its
security, my parents' solicitor arranged for the bank to receive a
legal charge of the leasehold estate (not the freehold) with the
leasehold having approximately 70 / 71 years remaining. 8 years on
(2006) and my parents now wish to repay the mortgage. The terms of
the mortgage are that the the mortgagee will require its valuer to
undertake an 'Exit Valuation', as the bank will be due 75% of the
increase from the Base Valuation (done in 1998) when compared with the
Exit Valuation (2006). Clearly, the bank stands to gain substantially
more if the Exit Valuation is done on a freehold basis as opposed to
it being done on a leasehold basis (with 63 years of the lease
remaining).
Sorry to go on so, but now you have the full picture. Hope you can help further.
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Request for Question Clarification by
pafalafa-ga
on
08 Oct 2006 06:08 PDT
calvia-ga,
Thanks for the clarification. I hope things work out for your folks.
The issue is a tough one. There is definitely some case law on the
question of leaseholder and freeholder valuation, such as this
document:
www.crownofficechambers.com/downloads/117.pdf
but nothing I saw that goes directly to the bank's obligation regarding a mortgage.
I'll keep looking, but thus far, nothing much has turned up in the UK
(lots of Australian and Ghanan cases, though!).
paf
|
Clarification of Question by
calvia-ga
on
09 Oct 2006 02:13 PDT
Dear Jumpingjoe
Re your question which you menat to post as a clarification request.
Does my clarification to pafalafa of 08/10/06 (01.15) answer it?
The bank is not looking to enforce its security. My parents are
looking to exit the arrangement.
Calvia
|
Request for Question Clarification by
jumpingjoe-ga
on
09 Oct 2006 15:09 PDT
Hi Calvia
Yes, thanks for your clarification. Like pafalafa I have drawn a
blank, and suspect that there is no caselaw that deals with this
precise situation. In any case there is unlikely to be any authority
that provides the bank's obligations in this situation. The question
is most likely to be a simple analysis of the contract between your
parents and the bank. If you're able to to post the written documents
online somehow (although I'd anonymise them if I were you) then we
might be able comment further.
Ultimately however this is a situation where the difference in value
between the freehold and leasehold interest may make it worth seeking
professional legal advice. For your local solicitor to take a cursory
look at the situation and bundle the whole thing off for Counsel's
advice shouldn't cost the earth.
jumpingjoe-ga
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