Leasehold valuation is more a science than an art, but it is not a precise science. There are many contributory factors, and many calculations. Some are known at the outset (such as the outstanding term of the lease and the ground rent), but most will require assumptions and estimations (such as the current and theoretical future market values of the freehold and existing lease, and hypothetical investment yields). That’s why the leaseholder and freeholder will usually come up with different figures.
The key to calculating a fair value on the leaseholder’s behalf, that will stand up to negotiation with the freeholder and to possible judicial test by tribunal, is to make sure every factor is included and given due weight.
When you engage us, we will leave no stone unturned to seek and gather evidence that will secure the best possible deal for you.
Report
We will then provide you, as swiftly as possible, with a comprehensive, easy-to-follow report that includes:
- our recommended Initial Offer to your landlord
- our estimate of your landlord’s likely counter-offer
- our estimate of the target premium range to settle within
- all the comparable evidence and calculations we have used
Throughout the process we will provide progress reports to keep you up to date.
Leasehold Valuation jargon-buster
To illustrate the complexity and begin to explain some of the jargon, the following factors must each be considered in most cases.
The Freehold Investment Value
Combines the freeholder’s loss of potential future income from ground rent under the existing lease (the term value) and the loss of right to repossess the property at the end of the existing lease term (the reversionary value).
The term value
Takes into account the total annual ground rent (whether fixed for the period of the lease or subject to upward reviews), the number of years remaining on the lease, and an assumption of the annual yield the freeholder should expect. The valuer will study property transactions in the local open market to calculate the yield, if not yet established by convention.
The reversionary value
Calculation involves the current and theoretical future values of both the leaseholder’s and freeholder’s interest in the property, and takes into account:
- the remaining term of the existing leases;
- if applicable, any current right of the leaseholder(s) to an assured tenancy at the end of the existing lease.
The Marriage Value
Joining (“marrying”) the leasehold and freehold interests in a property will normally increase the property’s value. The law stipulates that this potential increase is shared equally between the landlord and the leaseholder or group of leaseholders. Note that the Marriage Value is deemed irrelevant if the unexpired period of the lease is more than 80 years.
The Hope Value
A form of Marriage Value applicable to collective enfranchisement in calculating the premium payable for non-participating leaseholders in the building (which participants must pay on behalf of non-participants).
The Value of Rights
Takes into account the hypothetical value of the lessee’s right to the lease extension or to take part in a collective enfranchisement, or to acquire the freehold, whichever is applicable.
The Value of Improvements Disregard
Takes into account the contribution to the property’s value from improvements made by the leaseholder (as well as by any predecessors in title), over and above maintenance, repair and renewal obligations.
Prior leases
The property’s history of leases and renewals may be relevant. With flats, one can go back no earlier than the grant date of the existing lease; but for houses, one can go back further, providing that the last-named lessee of the earlier lease is the same named lessee of the subsequent lease, and that the earlier leases were for terms in excess of 21 years. We’ve used evidence from as far back as 1851 to help achieve a better price for our client.
Development Value
Takes into account any theoretical opportunity that the freeholder may be denied to improve the property on future reversion of the lease.
Injurious affection / compensation for other loss
Takes into account any loss of value in the freeholder’s other property that results from enfranchisement, such as reduced potential for development of an adjacent site.