enfranchisement. This requires participation by at least50% of flatownersand thereare othereligibility requirements so leaseholders must take professional advice if considering this course.
What’s the benefit? The benefit of extending your lease under the1993act is that theentitlement is foran additional90years at no ground
rent.This means that once extended, flat owners can have the peace of mind that their investment in theirownproperty is secure foralifetime andthe asset is no longer adiminishing one. A flat with a lease extended under
the statutory provisions should sell for fullmarketvalue even if it is held by the leaseholder for a generation. Similarly, collaborating with fellow
leaseholders to buythe freeholder out resolves the lease length issue because with the freehold purchase comes the right to extend your individual leases by 999 yearsat anytime. Thecollectiveenfranchisement routealso
hasother benefits, particularly if flatowners areindispute with theirfreeholders over maintenance(or lack of it). By purchasingthe freehold, blocks of flats becomeeffectively co-operativesmanagingtheir ownaffairs in termsofmaintenanceand insurance andusuallymakesignificantsavings in the process. In this respectitissimilar to the ‘right tomanage’which has morerecently been granted to leaseholders but without the limitations. Right tomanage is not a remedy forshort leases.However if leaseholders arehavingmanagementissues anddonot qualify forenfranchisement it is another alternative to explore. TheLeaseholdReformAct 1993 lays down
aformula forestablishingthe priceof extendingyourlease or buying thefreehold
What constitutes afairprice
remainshotly contested
butwhatconstitutes afairprice remainshotly contested.Withinthe set formulaoppositeare a number of variables andwhile one surveyor might put forward a value favourable to flat- owners anothermight take astancemore favourable to thefreeholder. Forthisreason both sidesshouldtakeindependent advice. Generallyasettlementprice is negotiated between the two sides’ valuers.Where no agreementcan be reachedthe Leasehold ValuationTribunal(LVT) candetermine the price. Often a price can be privately negotiated butvaluation advice is essentialtoensure that thetermsandprice of informal deals areequitablewhileanawareness of thelegal process is useful in case they are not. ●
StewartGray Principal, Austin Gray, Brighton Tel 01273 201980
www.austingray.co.uk
Flat Living Autumn2011
PRICE TO BE PAID FOR PREMIUM OF A NEWLEASE Valuer JohnByeRS showsthecalculations
involvedin assessingthevalueofaleaseanddoes themaths
basic information FreeholdValue
ValuationDate
Commencement Term
UnexpiredTerm GroundRent
Relativity Uplift
CapitalisationRate 7.0% DefermentRate LeaSe
£175,000 3/4/10
5.00% 1/8/86
99 years 75.33 years
£80.00 for the first 33 years ie till 1/8/199.33 years £160.00 for the remainder of the termie till 31/7/85 93.5% 1%
Valueof the freeholder’sexistinginterest 1PresentGroundRent Income YP
Future GroundRent Income YP
PV£1
9.33 years@7% 66.00 years@7%
2ReversiontoFreeholdinPossession PV£1
9.33 years@7% 75.33 years@5%
ValueofFreeholder’sexistingInterest £175,000
£80.00 6.6861
£160.00 14.1214 0.5320
£175,000 0.0253
£535
£1,202 £4,435
£6,172
Valueof the freeholder’s interest afterLeaseextension ReversiontoFreeholdinPossession PV£1
165.33 years@5.00%0.0003
DiminutioninValueofthefreeholder’s interest Value of Freeholder’s Existing Interest
Value of the Freeholder’s Interest After Lease Extension DiminutioninValueof theFreeholder’s Interest
MarriageValue ValueofPropertyafterLeaseextension Freeholder’s Interest Leaseholder’s Interest
66.00 years
£55 ValueoftheFreeholder’s InterestafterLeaseextension£55
£6,172 £55
£6,117
£55
Freehold Value £175,000 Relativity 99.0%
Freehold Value £175,000 Relativity 93.5%
£173,250
ValueofProperty afterLeaseextension£173,305 existingValueofProperty Freeholder’s Existing Interest Leaseholder’s Existing Interest
£6,117 existingValueofProperty
MarriageValue Value of Property after Lease Extension£173,305 Existing Value of Property
Marriage Value£3,563 Freeholder’s share of anyMarriage Value50%
£169,742 50%
£6,117
£163,625 £169,742
£1,782
PremiumPayableto freeholder forGrant ofLeaseextension Diminution in the Freeholders Interest
Freeholder’s share of anyMarriage Value£1,782
JohnByers is founding director ofLBBchartered surveyors Tel 020 7822 8850
www.lbb.org.uk
49 £7,898
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