Valuation of the freehold

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    Valuation of the freehold

    We are a conversion of 5 flats that are considering buying the freehold. 4 of the flats have 93 years left plus 50 ground rent, but one has extended the lease to 184 with no ground rent. 4 are 1 bedroom and the garden flat is 2 plus a garden.

    When a valuation is done, are all 5 flats valued independently according to size and lease length and then a figure is obtained for the freehold purchase. Would the flats then pay according to their individual valuation or would it just be split 5 ways?

    If one flat did not want to particiapte, the remaining 4 leaseholders would divide the cost in 4 of this flat and then have the option to sell on the lease extension.

    #2
    If all five take part. Take the price of the freehold and apportion £100 to the flat with 184 years and then divide the balance in the ratio of the enfranchisable price for each of the four flats. In this context enfranchisable price is the price a lessee would have to pay for a statutory lease extentsion

    If four flats take part (assuming the flat with 184 years is a participator ) Take the price of the freehold and apportion £100 to the flat with 184 years and then divide the balance in the ratio of the four flats. The flat that does not take part, that costs is split equally amongst the participators and when in time a lease extentsion is requested you split the proceeds equally.

    As far as legal and valuation fees are concerned I would suggest they are split equally amongst the participators

    Comment


      #3
      To put it another way assume that after purchase all flats will be on the same lease term by granting an extension.

      If the price of the freehold is say £4500 deduct a notional value of £100 per flat to reflect their value, to a freeholder, after new leases are granted.

      £4000 is therefore the amount that reflects the value of selling lease extensions in the future, £1000 per flat.

      So 4 flats pay £1000+£100 each and 1 flat ( who already has a longer lease) pays £100.

      If one flat does not participate, then the £1100 that no one is going to pay in, is split between the four who will.

      3 flats pay £1000 + £100 + £ 275 each

      1 flat ( who already has a longer lease) pays £100 + £275.

      The £275 is best treated as a loan which is repayable when the 4th lease extension is sold.

      This assumes that the freehold price is known and agreed all flats are worth the same and is very much a back of the envelope method

      Here is an example where as I suspect you need to get to the freehold price rather than working with a figure given to you on an offer of first refusal.

      http://www.lease-advice.org/publicat...nt.asp?item=12
      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.

      Comment


        #4
        Thank you for your advice. I am the leaseholder with the long lease who has been approached by another leaseholder regarding purchasing the freehold. I want to obtain a ballpark figure so I can approach the other 3 leaseholders before we get a valuation. Obviously I do not want to pay the same as the others as I paid 5000K to extend my lease 4 years ago so you have answered that question for me.

        I have worked out that a 90Yr extension for the other flats is between 6-7K. However this does not allow for the increase in ground rent which is currently at 100 rising every 30 years so I put in a value of 150GBP. I dont understand how to add a value for the reversion. Currently the flats are worth 350-400K each.

        Costs I estimate at 1000-1500 per flat to include both solicitors and valuers. This is just for the freehold and not for the lease extensions to be done as well.

        If all leaseholders are in agreement. is it best to approach the freeholder informally first? The managing agents of our block are also chartered surveyors - would it be best to approach them first as I am sure the freeholder will use their surveyors.

        Thanks

        Comment


          #5
          As you are not approaching the 80 year mark I would suggest you try informerly at first

          Comment


            #6
            With the variable ground rent its a question of adjusting the value to reflect the right to get additional income at a point in time.

            At this stage I suggest that you approach this as a worst case scenario and explain that on a back of the envelope basis, you in-putted £100, and then higher amounts for the future reviews in the form of an average over the term.

            If its goes up in increments such as £50 then I suggest using £130, it its £100 then £160 and if it doubles, I'd use £220.

            Otherwise you would have to work out the reviews and their current value of the right to receive the increased income in x years which requires tables and a knowledge of the yield to apply. Which you get by paying for a valuation
            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.

            Comment

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