Page 2 - freehold_enfranchisement

A step by step guide to buying the Freehold of your block 1

Step 1 - What's in a freehold enfranchisement valuation?

The first thing you need to understand about buying the freehold of your block, is that while each
lease is valuable to its leaseholder today, at whatever price it would command on the housing
market, each lease is also valuable to your freeholder who:

• Receives investment income from it in the form of the ground rent
• Has the ‘hope value’ of a premium from you (for buying a lease extension)
• Holds the ‘reversionary interest’ (the value of a vacant flat in XX years’ time)
• Probably makes commission from placing insurance on the block
• May have unleashed development potential (roof spaces, rights to build over garage
blocks, disused air raid shelters capable of development)

This is a specialist area of valuation that requires the services of a professional
valuer. The valuation method used involves the following elements:

1. Market value of the flat for properties with less than 80 years unexpired on the basis of
A. a short lease with ground rents payable as covenanted under the lease
B. a long lease with peppercorn ground rent payable
2. The value of the landlord's interest
A. ground rent receivable as covenanted under the lease
B. present value of the reversionary title (a vacant flat) at the end of the lease
3. Marriage value – this is the difference between (a) and (b) above
4. The value of any ‘appurtenant property’ (other interests owned by the freeholder in
the freehold title that are not already demised to leaseholders such as garages, attic
space, land etc)
5. The value of any other income, insurance commissions etc...

Understanding valuation methods
Using industry-standard valuation methods enables us to calculate the present value of the future
right to your vacant flat and to value the ground rent (an income stream for a set term of years).
The valuer will consider market evidence and settled case law to select the appropriate
capitalisation rate upon which to base our valuation of the ground rent. In simple terms this could
be a rate derived from comparables such as gilts yields (gilts are government bonds), interest
rates paid on bank credit balances, the bank base rate and a premium for the perceived risk of
investing in property etc.

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