How lease premium calculated?

  • Filter
  • Time
  • Show
Clear All
new posts

    How lease premium calculated?

    How is the lease premium is calculated?
    For example
    Rental Market £10000 per year
    Ground Lease £50 per year
    Lease term 98 years
    How would you determine the lease premium?

    A premium is the capital value of the profit rent. Using your example, assuming the 'rental market' is £10,000 pa for the whole of the lease term 98 years, the profit rent is £9,950 pa. The capital value is calculated on the yield that would be considered appropriate for the type of property, physical characteristics, terms and conditions of lease, etc. 98 years might be considered akin to freehold so if for example the appropriate yield were 10% then the premium would be £99,500, However, as it is a lease that amount of premium might not hold after about 28 years (all other factors remaining constant) because once a lease has >70 years unexpired it can start to become less valuable.

    Generally thinking premium would be better suited to a short lease. For example, the passing rent is £10,000 pa subject to review to market rent in 5 years' time. But the passing rent is too low because the market rent now is £15,000 pa. The premium value would be the capital value of £5000 pa for 5 years.

    The premium is for the benefit of the lease only, so goodwill is excluded, so too any tenant's fixtures and fittings. in some respect, the theoretical concept of a premium is outmoded. In places where demand for premises exceeds supply, buyers might pay a disproportionate amount simply to get in. Whether such buyers could recoup the amount paid when they themselves come to sell depends upon the state of the market at the time.

    It might also depend upon the source of finance. Generally, lenders want at least 7 years unexpired so a buyer having paid say £20,000 premium when the lease had 5 years remaining might not get their money back when the lease has only a couple of years left.


    Latest Activity


    • Reply to Rent Concessions
      by darkstar
      Of the 3 that you rejected, are the paying in full?
      Much of this boils down to what type of business they are. Some are not affected by C19, some were forced to stop trading and some are doing better than before C19. I guess this determines if they feel they should pay the rent or not
      21-09-2020, 15:58 PM
    • Rent Concessions
      by comm1985
      Having been inundated with requests for rent holidays/concessions/relief some which i believe to be genuine but others less so, i wanted to gauge feedback from other landlords on how they approached this and what if any concessions they offered?
      18-09-2020, 17:14 PM
    • Reply to Freeholder of building with leasehold shop query.
      by Bertie63
      Thank you. I contacted land registry and found that the property management has acquired the second lease. Now my only question is subletting as I see no provision in the leases. Maybe that isn't necessary?...
      21-09-2020, 11:49 AM
    • Freeholder of building with leasehold shop query.
      by Bertie63
      Hoping for some guidance. I own the freehold of a building that I own a flat in. The ground floor is occupied by a shop which oddly has two leases. One lease bought in 1980 by a property management company who have sublet it since then. They say that they also bought the second lease in...
      06-09-2020, 15:10 PM
    • Reply to Freeholder of building with leasehold shop query.
      by desamax
      Have you checked with the Land registry ? If the shop is ona 999 yr lease the rent is normaly a peppercorn. your Man co should collect managment fees and Building insurance, maintanance contrebutions. you realy need to check the lease to see their obligations....
      20-09-2020, 21:09 PM
    • Reply to Rent Concessions
      by comm1985
      Rejected requests for three tenants, but considering proposing temporary reduction for two long standing tenants. I've tried to take a pragmatic approach so far. I've rejected any request if there is even the slightest feeling i'd be funding tenants lifestyles rather than helping them keep their business...
      19-09-2020, 21:05 PM
    • Reply to Rent Concessions
      by darkstar
      I didn't approach it , tenants approached me. I offered a reduction which was refused. A month or two later we are putting the finishing touches to a CCJ.
      How did you approach it?
      18-09-2020, 21:54 PM
    • Reply to Rent Concessions
      by AndrewDod
      Ask if their energy company, water supplier, city council and local supermarket have offered similar concessions. You will match those by way of a temporary loan.

      Strange how only some seem to be needing to be the subject of this facilitated theft encouraged by government....
      18-09-2020, 18:21 PM
    • Understanding Usage Classes under the New Order
      by midlandslandlord
      A specific case which I will need to put to the Council. I am trying to find out if I now do not need to do a Planning App for Change of Use.

      But I would welcome any views first.

      I have a Gym in a former business / light industrial premises.

      Before we started,...
      13-09-2020, 22:50 PM
    • Reply to Understanding Usage Classes under the New Order
      by flyingfreehold
      The trouble with asking is that you might get the answer you don't want. Its not the advice an advisor would give you but I'd be inclined just to carry on and hope for the best and be prepared to appeal/ hold petitions./prevail on Councilors if served with an order to discontinue which is fairly un...
      18-09-2020, 13:01 PM