Sale of f/r (three flats); what price should I seek?

[fairone]

I am freeholder of 3 flats in SW6, leaseholders would like to purhcase.
I have used the freehold calculator mentioned in this thread.
1. Flat 1 (2 bed flat) is approx. valued at 350K, 76 years left, £200 ground rent for remainder. Yield Rate 6%, reversion rate: 5%. This gives a final cost of £19,864.
If this is done for the other 2 flats with their details, can the sum of the figure for the 3 flats be quoted as the freehold price?
2. Do we have to give individual prices for the flats, for the leaseholders to split costs between them?
3. Are these realistic values? or will they be discounted?
Please advise. Thanks

[jeffrey]

2. NO. The transaction would be a single enfranchisement under which all three of the leaseholders collectively acquire the block's entire f/r.

[Gazou]

I posted the following a short while ago in the other thread where you asked your question. Note at 2. where I say "Yes" the apparent conflict with Jeffrey's reply above where he says "No" is resolved by noting my second sentence where I reflect Jeffrey's point that there is only a single freehold being sold and hence showing the buyers the breakdown of the valuation calculation must not be construed by them as suggesting the freehold transfer itself can be similarly divided: as Jeffrey states, it is a collective (single and indivisible) acquisition of the entire freehold.

My earlier post was: -

1. Yes - the calculations can simply be repeated for each property, varied, clearly, for the factors particular to each. The value of the (single) freehold is arrived at by aggregating the valuations for each leasehold property therein, presuming that there is no other property that comprises the freehold.

2. Yes - for whilst there may not be an absolute obligation to do so there is no purpose in not and the information will be of use to the buyers, the present leaseholders, in working out arrangements between themselves. Whatever those arrangements are, and whether all or only some participate, clearly, collectively they still have to find the same full contract price set for the freehold if they wish to see all of it transferred. In any event, the calculations of the price you seek for the freehold will not be a secret to the leaseholders: they will be able to re-perform your calculations to see how you arrive at the proposed contract price.

3. The values are realistic to the extent that the inputs are appropriate (so those not based upon objective fact of the like the years to expiry of the present lease, but rather on opinion, being the current market value of the leasehold property, therefore must pass a “realism” test) .

Also, as you will have noted, the calculation does include some elements of choice, over the Yield Rate and, more significantly in terms of impact upon the result, over the Relativity (“Present relative value” per the freehold calculator - which a suggested figure is given by the calculator but it is an input field so may be varied).

Further, the values produced do not take account of transaction costs nor of the value of any appurtenant property (typically gardens, parking bays, roadways) that might be included in the present leases and could form part of any freehold transfer.

Accordingly, there should be no need to discount the valuations as calculated. If, for example, the condition of the freehold property were dilapidated, then that ought to be reflected in the current market value of the leaseholds and so would be taken into account in the calculation without need for extra adjustment.

[fairone]

Thank you so much for your response.
From the calculator I get: ground rent: £3,303; Reversion: £9,223; and marriage value:£6,764; total: £19,289.

It also increased the value of the flat from 350K to £376,053.
does this seem right?
Thanks

[Gazou]

My earlier post (in the other thread EDIT - now merged here) had added a separate Note that I did not include in my reproduction above and that I add here now for completeness and consistency, viz: -

“[NOTE - when I use your inputs (£350,000, 76 years to expiry, and £200 ground rent with yield rate at 6 per cent. and reversion rate at 5 per cent), the resulting value I get is less than that you show, being £19,289. ??]”



Also, a more elegant way of explaining my “Yes” at 2. is to note it is stated in reference to providing a breakdown of the contract price for the freehold, hence a different point to the one to which Jeffrey responded with “No”. My second sentence, reflecting Jeffrey’s point “No“, is that the full contract price has to be paid (for the (single) freehold).

[Gazou]

Thank you so much for your response.
From the calculator I get: ground rent: £3,303; Reversion: £9,223; and marriage value:£6,764; total: £19,289.

It also increased the value of the flat from 350K to £376,053.
does this seem right?
Thanks

Yes, it seems right (it is a function of the “present relative value” per the freehold calculator).

The calculation (following Schedule 13, Leasehold Reform, Housing and Urban Development Act 1993 http://www.opsi.gov.uk/acts/acts1993/ukpga_19930028_en_29#sch13) must, inter alia, reflect (per Part II, paragraph 2) “(a) the diminution in value of the landlord’s interest in the tenant’s flat as determined in accordance with paragraph 3,” and paragraph 3 states “(1) The diminution in value of the landlord’s interest is the difference between—
(a) the value of the landlord’s interest in the tenant’s flat prior to the grant of the new lease; and
(b) the value of his interest in the flat once the new lease is granted.”


Note in its “Explanation” below the results, the freehold calculator states (for the figures per your example): -
“If £350,000 represents 93.072% of the value of your home, then with the share of freehold the new value of your home will be £376,053.”

A leasehold with less than eighty years to expiry is assumed by the market, in contrast and relative to leaseholds with a longer term to expiry, to suffer a diminution in market value in consequence. The measure of diminution is the relativity or present relative value, typically expressed as a percentage.

[sgclacy]

I Used the following

Capitalisation rate 6.5%
Deferment rate 5%
Relativity 95.2%
Assumed property value was the value with a long lease

This gave around £15k

The combined value of the three flats is the figure the lessees would have to pay if they really want it and you don’t want to sell.

Remember that if 2 out of 3 exercise their collective rights the marriage value will be reduced to 2/3rds

The MARKET VALUE (if you can show the lessees are interested but unable to organise themselves to buy it can touch over 80% of this enfranchisable price.as an investor would hope to pick up a couple f lease extensions probably fairly soon

At auction 70% seems achievable

[fairone]

Once a freeholder has offered a price for the sale of freehold to leasholders, can he requote a price as he has made a mistake? this new price is much higher.

Thanks

[Corinne Tuplin]

The answer depends on whether your freehold owner served a Section 5 Offer Notice and you accepted within the statutory period. If not, the price can usually be re-negotiated by the parties.

Regards,

CORINNE TUPLIN
SOLICITOR
PRO-LEAGLE
www.proleagle.com

[jeffrey]

Once a freeholder has offered a price for the sale of freehold to leasholders, can he requote a price as he has made a mistake? this new price is much higher.
That depends!

1. If F was offering informally, he/she can always withdraw a subject-to-contract offer.

2. If F was offering by Notice under s.5 of LTA 1987, the position is different. By definition, that offer must be at the price which an outsider prospective P is willing to pay. As a result, the price cannot be changed unless:
a. the first offer has not yet been accepted;
b. F withdraws the Notice; and
c. F reisuues a corrected version corresponding with what P truly offered.

3. Unless there is a binding contract [s.9B(5)], F is always at liberty to serve Notice of Withdrawal [s.9B(1)] in which case F cannot dispose of the protected interest to anyone for the next twelve months [s.9B(2)].

[fairone]

Thank you. This was just an informal telephone conversation with no notices etc served. What would you suggest is the best and most amiable way to re quote the price to the leaseholder? Thanks

[jeffrey]

Are these properties flats? If so, are you offering to the lessees:
a. informally still; or
b. under s.5 of LTA 1987?

[fairone]

yes, they are flats. This is all informal as they have requested interest to purchase collectively.

[jeffrey]

So simply re-offer informally. After all, you're not obliged to offer the freehold reversion at all; and I hope that your first (erroneous) offer was strictly subject to contract. Even if that was not explicit, a contract for sale of land (or an interest in land) is unenforceable unless in writing.

[fairone]

Hi
I am using the freehold calculator to estimate the value of freehold. But the lease increases the ground rent every 21 years. going up to £400 p/a.
How can i put this in the freehold calculator on : http://www.freeholdcalculator.com/calc.php ?

Thanks

[sgclacy]

I posted a thread a little while ago which showed how to calculate the captalised value of a rising ground rent stream in Microsoft Excel

http://www.landlordzone.co.uk/forums/showthread.php?t=11083

[Moderator1]

Three separate threads by same member have been merged here. Do not cause problems by starting continuation threads; use the same one.

[jeffrey]

So simply re-offer informally. After all, you're not obliged to offer the freehold reversion at all; and I hope that your first (erroneous) offer was strictly subject to contract. Even if that was not explicit, a contract for sale of land (or an interest in land) is unenforceable unless in writing.
Best advice: always mark ANY written offer 'subject to contract'.
That way, and even if it would not itself be capable of forming a contract, both parties know where they stand.

[fairone]

Thanks sgclacy for the pointer to the ground rent calculation!

[fairone]

Apologies moderator, this had made it easier - thanks

[fairone]

thanks jeffrey , i will always make sure i use that.

[fairone]

Could you please advise for a lease of 76.5 years, what % should be used to calculate present relative value? The freehold calulator suggest 93.18% and the table in this forum says 97%. (http://www.landlordzone.co.uk/forums/showthread.php?t=11083)

Should I be using 97%? - this makes a difference to the end value.
Thanks

[fairone]

For sale of freehold of 77 yr lease flat at £285K with £200 Ground rent, the freehold value I am proposing is approx £16K.

Can you please tell me is this value reasonable?
and
Can someone please help with the price for
1. lease extension to 125 years and peppercorn rent
2. lease extension to 125 years and ground rent to continue as is
3. lease extension to 99 years and ground rent to continue as is.

Please help
thanks

[jeffrey]

Which (if any) of those is for a statutory extension, adding 90yrs. to existing term and reducing ground rent to a peppercorn?

[fairone]

Hi Jeffrey

This is as the leaseholders have expressed interest in extending lease to 125 years. But I was under the impression that we can offer extension of any term, so could be less than 90 years, and the ground rent could continue as is, if the leaseholder agrees.
Is this not the case? Do an extension have to be at least 90 years plus lease term remaining?
Thanks

[fairone]

I forgot to mention the lease extension is for the same lease in question as freehold i.e. 77 years remaining, 285K current value, 200GR increasing.

we are exploring 2 options and to see if there is a difference in price if they cannot afford share of freehold collectively and want to go for extending their leases instead.

thanks

[jeffrey]

This is as the leaseholders have expressed interest in extending lease to 125 years. But I was under the impression that we can offer extension of any term, so could be less than 90 years, and the ground rent could continue as is, if the leaseholder agrees.
Is this not the case? Do an extension have to be at least 90 years plus lease term remaining?
Yes, L and T can agree whatever non-statutory transaction they wish. The 90yr. stuff applies only if T is using the Statutory Notice route [s.42].
If L is owned by all/some of collective Ts (often its Directors), Comapnies Act 2006 requires an additional enabling Resolution of L (as company).

[fairone]

Thanks, at the moment we are just in stages where they have expressed interest and have asked us to give a quote for sale of freehold and also quote for lease extension.

1. Could you help if my figure for £16K looks right?
2. How much would a lease extension be for extending to 99 years with ground rent staying as is.?

Thanks

[fairone]

hi, Could somebody please advise as to my questions above?

What price should I ask for to extend the lease to 99 years, ground rent to stay as is for the flat details above?

Thanks