Page 3 - lease_extensions

A step by step guide to lease extensions 2

There are arguments that the capitalisation 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 case-law 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 where short leases are common place it could be argued that the improvement
rate would be less than where short leases are uncommon.

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.

What we need to do a valuation

In order for us to value your flat we will need:

A. A copy of your lease as this will set out the ground rents covenanted during the term.

B. To inspect the flat and understand the context of the building in which it is situated.

The Leasehold Guidance Service is part of Ringley Chartered Surveyors so one of our
professionally qualified chartered surveyors will carry out the valuation for you.

Our valuation report includes a full commentary on:

• comparable evidence to support our opinions
• analysis of how we select the investment yield
• recent court decisions re: marriage value (the difference in value between a short
lease and a virtual freehold)
• advice on what you should serve as the price on your initial notice

Cases where there is an intermediate landlord
If your flat has an intermediate interest such as a head lease, we are obliged by law to consider
additional valuation factors such as where an intermediate interest receives a profit in ground
rent or has a reversionary interest of more than five days. In this case, your flat may have to
be valued as a wasting asset which would, according to case law, require a sinking fund and tax
to be allowed for. Valuing an intermediate interest adds an additional £150 to our standard fee
structures. Our fees reflect the amount of research necessary to fulfil the valuation methods set
down in law and to enable us to provide you with not only a valuation but also an explanation of
our calculations. From this we are able to price the eventual valuation premium that should be
paid.

www.leaseholdguidance.co.uk Solicitors | Surveyors | Accountants | Property Managers
Tel: 0207 428 1977 Presented by the Ringley Group