Leasehold enfranchisement and graphs of relativity

Abstract

Purpose

The purpose of this paper is to examine a device used in leasehold 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.

Citation

Grover, R. (2014), "Leasehold enfranchisement and graphs of relativity", Journal of Property Investment & Finance, Vol. 32 No. 6, pp. 642-652. https://doi.org/10.1108/JPIF-07-2014-0052