Flat-Living.co.uk Workshop Range Finder
So you’ve decided in principal that you should extend your lease. But how is the range of premiums for the extended lease calculated? And why is the landlord’s calculation often greater than your own surveyor’s estimate? Justin Bennett of Langley Byers Bennett Chartered Surveyors has lease values firmly in his sights.
Be you a landlord or tenant, obtaining advice relating to the amount of a premium for a lease extension or freehold purchase (enfranchisement) is essential. The range of values of those premiums when that advice is obtained can be distressing and confusing. Information sites advise that you need to obtain advice as to the “best” and “worst” case scenarios. If you are a landlord the “best” case is the
CASE STUDY
A high value property near the centre of London: The ground rent is at a peppercorn (£0) and 65 years remain on the lease. Its freehold value is in the region of £1m. As there have been few recent sales and the tenant has undertaken repairs/renewals, alterations and improvements, the effect on value of some of which should be disregarded there is a case for it to be only worth £850,000 for the purpose of calculating the premium. Valuation of property is subjective rather than scientific, so the (true) value of the flat is not an exact figure. (Courts have considered before now that a 15% variance is not wrong).
Similarly, the flat with a 65 year lease will have a range of value. This is where solicitors and surveyors will talk of relativity. Let’s say that quoting range is £743,750 (87.5% of £850,000 for the tenant) and £875,000 (82.5% of £1m for the landlord). The extended lease of 155 years (65 years plus a further 90 years) is likely to be 1% less than the freehold value: this is a widely accepted adjustment for the benefit of freehold ownership.
On this basis, a valuation report may say something along the lines of:
Value of flat as freehold: 155 year lease value: 65 year lease value:
Landlord’s view: quoting £1,000,000 £990,000 £825,000
Tenant’s view: quoting £850,000 £841,500 £743,750
The premium to be paid factors in all of these values: the basis of calculation is similar for lease extensions and freehold purchase, except when buying the freehold, the landlord generally has not interest in the property afterward.
most you can reasonably expect to receive and the “worst” case is the figure you should accept to avoid Tribunal costs based on the evidence available at the time the report is prepared. For a landlord with a portfolio the wide range of premium values that may arise is generally understood but for a tenant or group of tenants this is not necessarily the case. In this article I will attempt to explain the dark arts of enfranchisement or lease extension valuation.
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