Valuing a freehold

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  • Gordon999
    replied
    Put yourself in the freeholder's shoes and put on his thinking cap. The building has 5 tenants and total rent is 4 x £500 = £2000 p.a

    If freehold title is held by a company the company tax rate is 19% and if held by private person may be 40% tax rate on £2000. and if ground rent is collected by an estate agent, the rent money handed over to freeholder is less 10%. So the income after tax may be somewhere between say £1200 to £1500 .

    Bank interest rates have been held down since 2008, so your rough guide may be correct for now. But if the bank lending interest rate rises to higher levels, the value of the freehold may fall. . .

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  • 5leaseholders
    replied
    Gordon999,

    Useful to know about the bill, and interesting to now keep an eye on that - thank you.

    Also useful re the potential exemption for commercial leaseholders to contribute to the purchase price. I think I am hearing that the 2 commercial leaseholders (by having enough floorspace) do not have to be contribute towards the freehold purchase (other than legal costs) ? Presumably though if they wanted to have closer control over the freehold in future they are still "allowed" to be an equal shareholder of the new company that purchases the freeholder - ie each leaseholder has an equal share.

    In terms of the original question regarding overall valuation, what impact does the 1 lease with £0 Ground Rent clause have?
    Does it just have zero value / impact on the Freehold Valuation, in other words the only factors for valuation purposes are the other 4 leases at £500 annual Ground Rent each and market values of £575k for 3 residential units and £125k for 1 commercial unit (all 4 having 250 year leases).
    So rough guide 4 x £500 x circa 20 multiplier?

    Or do both commercial units have zero impact? Surely the one that has the same £500 Ground Rent clause as the 3 residential leases is treated the same within the valuation model?

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  • sgclacy
    replied
    Justin Madders proposals seem not to give any consideration to short leases and seem to imply that if you held say a 15 year lease on a flat in Belgravia paying say a few Guineas a year in rent that you wouls have the right to extend it for a couple of hundred pounds whereas before the premium would be many hundreds of thousands of pounds

    it would seem inequitable to the freeholder and to those other lessees who have paid much larger sums in the past. It would also be unfair on those former lessees who sold based reflecting in their price the cost of an extension

    it would also render any discussion about the Mundy case irrelevant

    there is is a need to reduce the amount of time and effort spent calculating a premium under the Act and for modest properties with leases of say 50 yrs plus much of this could be achieved by defining capitalisation rates deferment rates and relativity. A lessee can typically be faced with £4K to £5k in professional fees for a lease extension. These costs would fall significantly if the amount of the premium could be relegated to a desk top exercise which in many cases it could be.

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  • Gordon999
    replied
    If the commercial area exceeds 25% of total floor area in building , there are no legal rights to help collective purchase of the freehold title .

    The units which has no ground rent would only contribute to the legal costs for participation to buying the freehold title.

    Justin Madders MP has introduce a bill in Parliament to reduce the cost of buying the freehold to 10 x Annual Ground rent , the second hearing of the bill is scheduled in September but it may be rejected/modified along the way.

    But you can vigorously lobby your local MP to give support to Justin Madders bill because the legislation at present excludes assistance to leaseholders in semi-commercial blocks.

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  • 5leaseholders
    started a topic Valuing a freehold

    Valuing a freehold

    My understanding from online 'ballpark' calculators is that the key factors in determining a Freehold Valuation are:

    - Annual Ground Rent payable
    - Number of years remaining on a lease
    - Number of Flats in the building
    - Market Value of the Flats

    What impact (if any) is there if 1 of the leases has Ground Rent of £0 whereas the other leases have a 'proper' Ground Rent figure (with no clause permitting an increase)?
    Is the market value of that flat / unit (with peppercorn rent clause) disregarded from the calculation as it has zero value / impact on the overall value of the Freehold? All other units have same length lease and same annual Ground Rent payable.

    Also, any impact if some of the leases are commercial units and some are residential flats?

    For the sake of a creating an example scenario...

    3 residential flats & and 1 commercial unit that each have the same length of lease (eg 250 years originally with 240 remaining) and same Ground Rent figure (say £500 with no clauses permitting an increase). Combined market value of flats £575k, and market value of commercial unit £125k.
    1 other unit in the building which is another commercial unit, being the one with £0 Ground Rent and a 999 year lease, with market value £125k



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