Leasehold enfranchisement and graphs of relativity

Publication Date26 Aug 2014
AuthorRichard Grover
SubjectProperty management & built environment,Real estate & property,Property valuation & finance
Leasehold enfranchisement and
graphs of relativity
Richard Grover
Oxford Brookes University, Oxford, UK
Purpose – The purpose of this paper is to examine a device used in leas ehold enfranchisement
valuations known as the graph of relativity, which shows the percentage of the freehold value of
a dwelling that a lease of a given unexpired term comprises. There are a number of such graphs in
existence put forward by practitioners based on their experience and as a result of research but they
contain different values.The paper explores why this might be the case and how this issue can be resolved.
Design/methodology/approach – The paper examines the literature on graphs of relativity and the
various graphs that have been published and critically examines the methodologies behind them to see
if these account for the differences between them.
Findings – There are different methodologies that have been employed in producing the graphs,
including transaction evidence, the opinions of practitioners, and tribunal decisions, and these may
account for some of the differences. Many of the graphs are based upon relatively small samples,
particularly at specific points on the graphs, so there are likely to be differences as a result of sampling
errors. The graphs mix together properties with different characteristics, which could be a further
source of variability.
Practical implications – Further research is needed to produce a more definitive graph of relativity
based on a larger sample of properties and that reflects the differences between properties.
Originality/value – The paper challenges the notion that there is a single graph of relativity in which
the length of the lease term remaining is the only significant variable and argues that there are likely to
be multiple graphs of relativity that reflect the risks associated with investing in leasehold property.
Keywords Property rights, Graphs of relativity, Leasehold enfranchisement, Leasehold valuation,
Statistical solutions, Statutory valuations
Paper type Conceptual pap er
This paper examines a device used in valuations for leasehold enfranchisement known
as the graphs of relativity. Leasehold enfranchisement is a process by which a tenant in
possession of a long lease at low rent is able to compel the freeholder to sell him the
land. In Britain, most of the properties affected are residential though the process also
includes some properties with business premises or a commercial comp onent.
Typically the tenant is a person though it is also possible for companies to enfranchise.
The tenant is obliged to compensate the landlord by paying the market price the
property would fetch subject to the tenancy if it were not subject to legislatio n obliging
the landlord to sell his interest. However, there is a problem in finding comparable
evidence given that the market has long been affected by this legislation. As the RICS
Working Group on graphs of relativity noted:
Although there may be market evidence available of enfranchiseable leases of similar
properties, there is unlikely to be any evidence of sales of leases without rights under the Act,
since there are few leases these days which would not qualify for a new lease or
enfranchisement. This lack of market evidence of unenfranchiseable leases causes the
problem which confronts valuers today (RICS, 2009, paragraph 1.2).
The current issue and full text archive of this journal is available at
Journal of Property Investment &
Vol. 32 No. 6, 2014
pp. 642-652
rEmeraldGroup PublishingLimited
DOI 10.1108/JPIF-07-2014-0052

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