Does increasing Ground Rent increase the valuation?
4:39 PM, 1st December 2020, 5 years ago
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I am the freeholder of a flat and there is one leaseholder. The leaseholder wants to extend the lease.
The ground rent increases every 30 years by £50 and the increase is not due for another 10 years.
Will the increasing ground rent clause in the lease further increase the valuation of the lease or is the current ground rent all that matters when valuing a lease?
Many thanks
Jim
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Member Since July 2013 - Comments: 754
9:39 PM, 1st December 2020, About 5 years ago
From your question, it appears that you know very little about the process of lease extension, and if that’s the case, I strongly recommend that you do not respond to your leaseholder or take further action without taking proper advice.
A starting point would be to read the attached information, provided by the governmental body Lease-advice.org. This is written from the point of view of a leaseholder rather than a freeholder, but should give you a flavour for what’s involved.
https://www.lease-advice.org/advice/find-the-right-information-for-you/?step-option=61
Member Since August 2016 - Comments: 508
11:09 AM, 2nd December 2020, About 5 years ago
I strongly advise that you seek expert legal advice asap! If you go alone, you risk missing a deadline or other technical requirement and your position may become hopeless.
I used ODT Solicitors based in Brighton when I extended a flat lease. The freeholder used her family Solicitors who didn’t know their way round this very technical procedure, got it wrong and I got my extension on the terms we offered. They were worth every penny of their fees.
Member Since April 2020 - Comments: 159 - Articles: 1
12:02 PM, 2nd December 2020, About 5 years ago
I agree with the other replies – don’t respond to the leaseholder until you have advice and understand the territory. This video might assist > https://berniewales.co.uk/short-leases/
In brief though – there are several factors which influence the value of the freehold. Firstly there is ground rent income – so increasing ground rent income increases freehold value.
Secondly there is the ‘present value’ of the future vacant flat at the end of the lease term. By extending the lease, you are making that vacant possession further away – and thus it reduces the freehold value.
Thirdly there is marriage value, if it applies.
In short, the calculation of the lease extension premium is aimed at compensating you for the negative effects of the extension. That’s with a “statutory extension” of course.
But you can increase your overall value by agreeing terms with the leaseholder, outside the statutory rules. However, that needs specialist advice and assistance.
Happy to discuss.
Member Since December 2015 - Comments: 828
2:46 PM, 2nd December 2020, About 5 years ago
it increases value of freehold?