Lease Extension Valuation - Headlessee/Freeholder Split

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    Lease Extension Valuation - Headlessee/Freeholder Split

    I own a lease in a small block of flats. My landlord is a company owned by me and the other leaseholders, and its landlord is the freeholder. My current lease is for the entire duration of the headlease, less ten days.

    A surveyor recently prepared a valuation report in preparation for a 90 year statutory lease extension. Each valuation is broken down into two constituent parts: reversion value and loss of ground rent. The surveyor also advised me of the ratio of the split between the freeholder and headlessee. Surprisingly, this ratio doesn't mirror the ratio of reversion to ground rent, but is rather much more heavily weighted towards the freeholder.

    Does this sound correct? As after all, it would be the headlessee that loses out on the ground rent collected from me as a result of the lease extension, even though the headlessee would have to continue paying the same ground rent. The freeholder would see no change in ground rent collected. And similarly, it would seem to me that the reversion value entirely belongs to the freeholder.

    So conceptually, it seems to me that reversion should be paid to the freeholder, and loss of ground rent to the headlessee. Or am I missing something?

    No as the GR you pay is likely £ for £ the amount paid over by the HL to the FH ( or close to it)
    Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.


      Sorry about being a bit dim, as this isn't really an area I know much about, but I didn't really understand the answer. Is that no, I haven't got the split correct; or no, I'm not missing anything?

      For context, the ground rent (theoretically) due under my lease is half that of the headlease, but there are six undertenants in total, who all pay the same ground rent. In reality, everyone pays one sixth of the ground rent due under the headlease. But does any of this matter, as the ground rent due under the headlease won't be affected by my lease extension?


        It does as the amount of GR paid by HL to FH affects their income stream which is built into the valuation .

        In this case if the LH pays £10 the HL pays £5, ie £10 *6 - £5*6.
        Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.


          Thanks leaseholdanswers for your answers.

          So if I understand correctly, if I proceed with a statutory 90 year lease extension, the following points hold:
          - Currently the freeholder collects (say) £6 ground rent every year from the headlease. After my lease extension, the freeholder will continue to collect £6 every year for the remaining term of the headlease.
          - Currently the headlessee collects £18 every year from all undertenants. After my extension, the headlessee will collect £15 every year.
          - As my surveyor has indicated, from the £100 'capitalised loss of ground rent' part of the lease extension premium that I'll have to pay, the freeholder will be entitled to about £50 and the headlessee will be entitled to the remainder.

          It seems to me then that it would be better to try to persue an extension that doesn't change the terms of my current lease, ie, one where I'll continue paying £3 ground rent per annum for the remaining term, then nil for the last 90 years. This way, the lease extension premium should be only the reversion part of the valuation, and I (as the headlessee) won't have to deal with the headache of not everyone paying in the same amount.


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