Freehold Purchase

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  • KBK
    started a topic Freehold Purchase

    Freehold Purchase

    I have a leasehold flat value say £500K and wish to purchase the freehold. Term remaining is105 yr of a 125 yr lease. Ground rent: 5 yr left at £150 pa - then 25yr at £300 - 25yr at £600 - 25yr at £1200 and final 25yr at £2400. Would any member help me with a suitable formula for calculating both the value of the ground rent and the reversionary value? What capitalisation rates and Deferment rate would I expect to use? Is a Capitalisation rate of 6% and Deferment rate of 5% a reasonable rate to use?

  • KBK
    replied
    I have now found a link to the case (see below). I have read the decisions and agree with your helpful comments. The case did highlight the need for a competent property valuer - I still haven't had any recommendations - any suggestions welcome.

    http://www.residential-property.judi...area=Decisions

    Leave a comment:


  • sgclacy
    replied
    The All Saints case gives a capitalisation rate of 3.35% for a ground rent linked to the RPi where the review is every 15 years. It was on a large development in Bournemouth. A leading barrister in leasehold matter a Philip Rainey QC acted for the freeholder and the lessees valuer was heavily critised in the judgement for letting down his clients (para 81) Large blocks with ground rents linked to the RPI are actively sought by large financial institutions and this was a factor in settling at this rate . The lessees valuer our forward the argument that valuation of ground rents was still a very crude valuation exercise and this appeared to annoy the Tribunal hence their unsusal damning remarks

    Leave a comment:


  • KBK
    replied
    I have just been sent a recent FTT case "All Saints" which set the Cap rate 3.35%. Def rate 5.00%
    Case ref CHI/21UC/OCE/2017/0025 St Emmanuel House, 6 Darley Road, Eastbourne BN20 7GD. 7 Feb 2018. (28 pages)
    I can't find a link to the case and this site restricts the pdf size to less than a page.

    Leave a comment:


  • KBK
    replied
    Many thanks for all the replies. Regarding the above, can anybody recommend a valuer. Any suggestion here or via the message facility would be most welcome.

    Leave a comment:


  • sgclacy
    replied
    A landlord may decide that rather than demand 4 times a year he can demand twice yearly,, he loses the cash flow advantage but saves on cost

    Leave a comment:


  • Gordon999
    replied
    You should claim the cap rate most favourable to you .

    Here is an example for lease extension in Croydon area with def rate 5% and cap rate at 7%.


    https://decisions.lease-advice.org//...-5000/4449.pdf

    Leave a comment:


  • KBK
    replied
    Thank you Gordon999 for producing a copy of the 2017 decision. Reading an actual case is always useful. Regarding sgclacy's helpful comment about the capitalisation rate, the ground rent in my case would be for about 100 flats, so economies of scale in respect of collection, would apply. On the other hand, my ground rent is payable quarterly, increase the cost of collection. I am wondering if quarterly ground rents attract different capitalisation rates to annually collected ground rents.
    I still have the remaining problem of appointing a valuer to be at the hearing. I don't wish to just pick one at random. The valuer I engaged, prior to the section 13 notice, for a full valuation report, turn out to be not as good as anticipated (understatement), so they will not be used.

    Leave a comment:


  • sgclacy
    replied
    The case that Gordon999 has highlighted confirms that a deferment rate of 5% is used in all but a handful cases

    The capitalisation of the rent appears to be that if a small rent and 6.5% is quite common larger rents because the collection costs are he same are more efficient and attract rates of sub 6% in an era where base interest are so pitifully low

    Leave a comment:


  • Gordon999
    replied
    The result of this case for property located in Essex : 5% Def and 6.5% Cap rate.

    https://decisions.lease-advice.org//...-5000/4550.pdf

    Leave a comment:


  • KBK
    replied
    Thank you sgclacy for your post. Just over 70 flats are involved in the enfranchisement. The freeholder has shown no sign of reaching an agreement on the proposal of a 5% Def rate and a 6% Cap rate or even rates near to those proposed.

    Leave a comment:


  • sgclacy
    replied
    Mindful that the freeholder will have to pay his own costs at the FTT or represent himself and mindful that the figures are (without wishing to sound arrogant) correct I strongly suspect the freeholder will agree to your figures. How many flats are taking part in the enfranchisement - if there is a fair number then it might be worth having a surveyor represent you.

    Leave a comment:


  • KBK
    replied
    I now have to convince a Tribunal that a Deferment rate of 5% and a Capitalisation rate of 6% should be applied to the flats. Is it safe to assume that the Tribunal will come to that conclusion on its own or will I need "Expert" evidence? Is it usual to have oral or written evidence? Can anybody suggest anybody that will give such evidence in the London area?

    Leave a comment:


  • KBK
    replied
    Many thanks for your clear and very helpful post. My starting point has been to use a cap rate of 6% and a deferment rate of 5%. Your post has given an assurance that I am not way out and that the calculation method I have been using is valid.

    Leave a comment:


  • sgclacy
    replied
    There are just THREE variables in the valuation.Firstly the capitalisation rate which can be between 5.75% to 6.25% Secondly a deferment rate which for a £0.5 m flat will for almost certain be 5% and finally the value of your flat which you advise is £0.5m

    If the income is discounted at 6% then the cost for your flat will be £5750 plus 0.6% of the value of your flat or £3000 a total of £8750

    if the capitalisation rate moves by 0.25% then the cost moves by around £400. Lower cap rate increase the value and visa versa

    You will if you go down a statutory route have to pay the landlords valuation fee and certain aspects of their legal costs - allow around £1750 plus your own costs. If you do a collective enfranchisment the value of the freehold will be the sum of the individual lease ext )unless here are non participators with sub 80 year leases )then the landlords costs will be less per flat.


    Leave a comment:

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