Page 3 - freehold_enfranchisement

A step by step guide to buying the Freehold of your block 2

The valuer will select the appropriate ‘deferment rate’ by which it is reflected that the reversionary
value to the landlord is some years away.

There are arguments that the capitalization rate for ground rent payable to an intermediate
landlord should be capitalized at a different rate to ground rent payable to a Freeholder. We can
talk you through such arguments, but essentially it all relates to the perceived quality of each as
a provider of investment income.
The valuer will also draw from market evidence and settled caselaw to determine the
‘improvement rate’. This is the percentage by which the value of the flat would increase from
being granted a statutory 90 year lease extension. The valuer will take into consideration the
length of the unexpired lease as opposed to the length of a typical lease in the area. For example,
in Knightsbridge in London, where short leases are commonplace it could be argued that the
improvement rate would be less than where short leases are uncommon.

Remember, since July 2003, the improvement rate is 0% if your lease has more than 80 years
unexpired! This means you compensate the Freeholder for the loss of ground rent but do not
have to pay marriage value.

For an enfranchisement application, the valuer also has to assess any development rights in the
property. This requires an understanding of:
• development potential and development costs (build costs, building regulations. For
example, is a top floor walk-up flat possible without provision for a secondary means of
escape?);
• planning densities for the area and the borough, any local planning precedents and the
likelihood of a planning consent being forthcoming to increase the amount of
accommodation built on the site;
• what is ‘demised’ to (owned by) the lessees and what of value is still vested in the freehold title;
and
• what is ‘allocated’ and what is the permitted use? For example, if a roof space is allocated for
storage purposes, a collective enfranchisement application may release it for potential
development.

What do we need to prepare your valuation?
In order to carry out a valuation of your block, we will need:

• To build an understanding of how many types of lease there are at the block. In an ideal
world all flats would have been sold at around the same time and therefore leases would
all start on the same date and be for the same number of years, with ground rent
typically varying depending on the size of the unit. However, we have been involved in
scenarios where there are up to 10 different types of leases, together with other
complications such as garages on separate titles with a range of ground rents payable.
• A copy of each lease type as this will set out the ground rents covenanted during the
term (unless all leases are the same). From the lease we will derive the ground rents
covenanted during the term (it is common for the ground rent you pay today to rise as
the lease gets shorter). For larger sites where ground rent varies from flat to flat a
schedule of ground rents and review dates/amounts is helpful.
• To inspect t h e flats and understand the context of the building in which they are
situated. Where we cannot gain access to flats, we will request sight of the lease plan to
clarify the layout. Without doing so it would be impossible to carry out the marriage
value part of the valuation
• The Leasehold Guidance Service is part of Ringley Chartered Surveyors
(http://www.ringley.co.uk) and one of our chartered surveyors will carry out valuation for
you.

www.leaseholdguidance.co.uk Solicitors | Surveyors | Accountants | Property Managers

Tel: 0207 428 1977 Presented by the Ringley Group