Specialist valuations from Enfranchisement and Lease Extension Surveyors
If you are thinking of either extending your lease or exercising your right to enfranchise, contact our specialist solicitors first – not only can we provide you with the expert advice you need from the outset, but our team can then also put you in touch with the right surveyor from our contacts nationwide who really are experts in this complex field, and who specialise in the valuation of Lease Extension and Collective or Leasehold Enfranchisement.
Arranging Your Valuation – Let Us Take the Strain
It’s really important whether you are buying the freehold of your block or extending the lease in your flat, to get the right valuation – and over the years we’ve built up a network of surveyors nationwide who really understand how to value enfranchisement and lease extensions.
So if you instruct our specialists to deal with the legal side of your freehold purchase or leasehold extension, as part of our service we are more than happy, if you wish, to identify, instruct and liaise with a specialist surveyor who really knows what he’s doing and who is based near you. We have a panel of specialist surveyors nationwide, which we regularly review.
How the Right Surveyor Can Help with Your Enfranchisement or Lease Extension
Lease extension and collective enfranchisement work is not everyday work for most surveyors, and the vast majority of surveyors frankly have very little experience of it. That’s why it’s essential that you appoint a surveyor who really knows what they are doing. Rest assured that our specialist enfranchisement team regularly deal with specialist surveyors nationwide and can help you pick the right surveyor.
Amongst the ways in which a specialist enfranchisement surveyor can help you are:
- A lease extension or leasehold enfranchisement valuation report, assessing what it would be reasonable to pay to extend your lease or jointly exercising your right to enfranchise (i.e. buy the freehold) with other leaseholders in your block.
- Surveyors often also help in any negotiations with your Landlord.
- Liaising with us or any other solicitors you appoint.
- Providing expert advice, in writing or in person you (or both) if there is a dispute and if the matter goes to the First-tier tribunal – Property Chamber [previously known as the Leasehold Valuation Tribunal or LVT].
How Is My Freehold Purchase Premium Calculated?
In determining the value of a freehold purchase on a block of flats, 3 main factors must be taken into account.
1. The diminution [or reduction] in value of the freeholder’s interest in the property at the end of the leases. Diminution in value means that loss of the freeholder’s interest in the freehold when enfranchisement has been completed – and this loss of value is included in the premium due.
2. 50% of the ‘marriage value’ [ see below]. It’s really important to note that marriage value is only payable when there are less than 80 years unexpired on a lease), i.e. the increase in the value when the Freehold and Leasehold interests are combined or ‘married together’
3. The loss of the ground rent income. As part of the freehold purchase premium, your freeholder will need to be compensated for the loss of the ground rent
Don’t forget that in addition to the enfranchisement premium you also going to need to pay the Freeholder’s reasonable legal costs, valuation costs and Stamp Duty.
What Is Marriage Value?
Marriage value can be roughly explained as the anticipated rise in a flat’s value once the freehold on the building has been purchased and a 999-year lease granted to the residents.
Essentially, each flat will be worth more after the enfranchisement as it will have a longer (effectively permanent) lease.
The value of a flat drops off sharply once there are fewer than 80 years remaining on the lease. So as the length of the lease decreases, the marriage value correspondingly increases, as the disparity between the values of the short-lease pre-enfranchisement flat and the long-lease post-enfranchisement flat widens.
The good news, however, is that when you exercise your right to enfranchise, you are only liable to pay the landlord half of the applicable marriage value on the flat.
It’s also really important to be aware out that the marriage value only applies to participating flats in the first place (which may only be just over 50% of the block) and only to those which have fewer than 80 years remaining on their leases at the time.
So the owner of any flat which has more than 80 years remaining does not need pay a marriage value as part of their contribution to the freehold premium.
As a result, if you’re considering coming together with your fellow leaseholders to buy the freehold of your block, if at all possible you should do so before the remaining lease terms of those participating flats drop below 80 years – as the day your lease drops below 80 years, you will be liable to pay the marriage value as part of the premium.
How Is Marriage Value Calculated?
Essentially, marriage value is calculated by taking the future value of the flat minus the present value of the flat.
The present value is calculated based on the market value of the flat today (known as the ‘leaseholder’s interest’) and the capitalised ground rent and reversion value (known as the ‘landlord’s interest’).
The future value is calculated based on the value of the flat with an extended lease (‘leaseholder’s interest’) and the value of the flat to the landlord once it’s sold (‘landlord’s interest’), which is zero.
The marriage value is calculated by combining the latter two values and subtracting the first two from it. 50% of this sum is what the enfranchisers must pay the landlord.
Enfranchisement and the Valuation of Intermediate Interests
Just to complicate matters, sometimes your immediate landlord may not actually be the freeholder – but the holder of a head, or intermediate, lease instead.
When your lease was granted by this kind of intermediate landlord, the procedure is a little different.
In particular, the Initial Notice has be served on the head lessee, in addition to the actual freeholder, and that head lessee can insist on playing a part in the process of valuing and negotiating the premium payable.
As part of the freehold purchase process, the title of that head lessee will need to be wound up and he will also be entitled to share in the overall compensation payable.
Don’t worry – in situations where you have an intermediate landlord, the total sum you need to pay to enfranchise is no different. It is simply that the premium will need to be split between the two different landlords – the freeholder and the head lessee – and this split is a simple one, in proportion to the value of their respective interests in the property.
What is development value?
This refers to the freeholder’s claim that by being forced to sell the freehold on the building he or she is denied the right and ability to develop the property further. The freeholder can claim that they intended to add additional floors to the top of the building, build additional flats or develop the building in another way which would have increased its value. In this case, he or she might well demand that this be accounted for in the valuation for it to be fair should the freehold be sold through collective enfranchisement.
Some freeholders have claimed that they had been planning to install a mobile phone signal dish on the roof of the block – which does increased the value of the freehold as the freeholder was then being denied the money they would have been paid by the mobile phone networks in order to have the dish placed on his or her building in the first place. Whilst this isn’t often a particularly large sum, on rare occasions, particularly on high buildings in large cities, it can be significant. This may be genuine but could be an unscrupulous attempt to put off potential buyers or ask for more money for the freehold purchase. This is yet another reason that having a specialist enfranchisement solicitor on your side can prove invaluable.
Hope Value – what’s that?
Hope value refers to ‘lost marriage value’, essentially, in that freeholders have often claimed that although marriage value for non-participating flats is not due, the nonparticipating leaseholders may later wish to extend their own leases and thus the new freehold management company set up by those participating in the enfranchisement, will make money through the future sale of those flats.
The freeholder states that he or she is entitled to a cut of this money, which is known as the hope value. This is a tricky area of legislation, but some freeholders have been successful in claiming this and your enfranchisement solicitor should make you aware of this as well as helping you to guard against it.
When it comes to looking at hope value, you should ensure that the invitation to your fellow leaseholders to participate in the freehold purchase (especially if your block is a large one) is repeated several times and that all acceptances and rejections (and especially repeat rejections) are provided in writing. Why? This can be used to provide strong evidence that those nonparticipating leaseholders have no interest in buying the freehold on their flat. This will help in the court or tribunal hearing to prove that there is no potential loss to the freeholder and thereby no hope value payment due to him or her.
Counter notice include ridiculous premium? Don’t panic
During the purchase of the freehold on a block of flats it is not uncommon for the residents to be asked a much higher price than expected for the freehold purchase. The price may even be far higher than that recommended by their valuer — sometimes considerably greater than the offer price you have put together in the first place. Any large discrepancy such as this can often be because of the freeholder claiming development value in the building.
If an outrageous sum of money is demanded by the freeholder for the freehold purchase, you shouldn’t panic. This is not unusual and the right solicitor will guide you through the process to ensure a fair sum is ultimately paid. Good relationships should be built with the local council’s planning authorities.
For example, if your freeholder claims he or she was going to build and extra storey on the building, would this ever have been legally possible? If not, and there was no chance of it ever having gone ahead, the freeholder cannot claim for this development value. This can be vital if there is a dispute which cannot be resolved and which is referred to the First-Tier Property Tribunal (previously known as the LVT or Leasehold Valuation Tribunal] for a decision.
Need an Enfranchisement Valuation? Can’t Find the Right Surveyor? Call Us Now
For FREE advice on picking the right surveyor for your Lease Extension or Enfranchisement Valuation, contact our specialist team today:
- Call us on FREEPHONE 0800 1404544 for FREE initial advice or
- Complete the contact form below
Comments or questions are welcome.