Purchase of freehold – basement – development potential

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    Purchase of freehold – basement – development potential

    I am in the process of purchasing the freehold for our block of 4 flats. The freeholder is also a lessee.

    The block of flats has a basement which is not demised to any flatholder in any of the lease documents.

    The basement includes a set of stairs and is used predominantly for storage. It has been used by all 4 flats for this purpose for many years (probably since the building was converted from a house to a block of flats in 1975). There is no division of the basement between the flats (ie. we just put our goods on a shelf alongside the other flat owners).

    The lease does contain a clause providing lessees easement rights to access services (ie. to access utilities including gas and electricity services) which are housed in the basement.

    During our freehold purchase process, we had two valuations completed; one on behalf of the three lessees and one on behalf of the freeholder.

    The freehold valuation conducted on behalf of the three lessees noted that a basement existed and that the cost of developing the space would exceed the end sales value of the resulting basement flat, as such no value was attributed to this aspect of the building.

    The freehold valuation conducted on behalf of the freeholder contained a value attributable to the development potential of the basement, predominantly on the basis that a similar building next door to our block of flats has developed the basement. We do not have any details on this basement development. Anyway, the value attributed was £77,000. The valuation did however note that the development potential was contentious.

    Can the freeholder claim development potential of this space?

    I have read a number of similar threads on these themes. I have briefly looked into the cases Smirke v Lyndale Developments and Lord Hastings v Saddler. I am slowly coming to the conclusion that we do not have a case of adverse possession. What I believe we do have is the right to occupy the basement til the end of our leases. On that assumption, it may be appropriate to recognize development potential, but not to recognized this til the end of our leases. As such, the development value of £77,000 is not available to the freeholder now but might be available at the end of the lease term (ie in 84 years). As such, it may be appropriate to take the £77,000 valuation and discount it over 84 years.

    Can someone help me out on this? Am I missing anything? Thanks

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