freehold valuation
📖 What is freehold valuation? Meaning and definition
Freehold valuation is a crucial step when leaseholders decide to collectively enfranchise, which means they purchase the freehold of their building. The valuation determines the price that the leaseholders must pay to the freeholder. This price can be subject to negotiation between the parties, but if an agreement cannot be reached, a tribunal, such as the First-tier Tribunal, will determine the final price.
The valuation process involves considering various factors, including the existing lease values and the relationship between these values and the freehold valuation, often referred to as 'relativity'. Expert evidence from independent valuers is typically relied upon by the tribunal to assess the property's worth. The valuation may also need to account for specific circumstances, such as the property's actual condition in certain types of cases, or potential development value.
In some instances, the valuation might include 'marriage value', which is the additional value created when the leasehold and freehold interests are merged. This can be further broken down into 'ordinary marriage value' and 'development marriage value', reflecting the potential for future development. The freeholder's share of this marriage value contributes to the total price. The tribunal's role is to consider all these elements to arrive at a fair and accurate freehold price.
📋 Requirements
- An application for collective enfranchisement has been made.
- Expert evidence regarding the property's value is presented.
- Consideration of existing lease values and their relativity to the freehold.
- Assessment of potential marriage value, including development marriage value, if applicable.
📝 Procedure
- Service of an Initial Notice by the applicants (leaseholders).
- Service of a Counter-Notice by the respondents (freeholders).
- Parties attempt to agree on the terms and price of enfranchisement.
- If no agreement, an application is made to the First-tier Tribunal.
- The Tribunal issues directions for timetabling and filing of evidence.
- The Tribunal determines the final collective enfranchisement price based on evidence.
💡 Examples
- The First-tier Tribunal determined a collective enfranchisement price of £45,000 for a property after the parties could not agree.
- A freehold valuation might consider the 'relativity' between existing lease values and the freehold value, using research documents from professional bodies.
- The valuation can include a 'development marriage value' if there is potential for future development, with a share of this value going to the landlord.
- An expert's opinion on the residential property market in a specific area was preferred by the Tribunal when assessing the freehold valuation.
📚 Legal basis
- 1993 Act
- 1967 Act
❓ Frequently asked questions
What is collective enfranchisement?
Collective enfranchisement is the legal process where leaseholders of flats in a building collectively buy the freehold of their building from the landlord. This gives them greater control over the management and future of their property.
Who determines the freehold valuation if parties disagree?
If the leaseholders and freeholder cannot agree on the price for the freehold, the First-tier Tribunal (Property Chamber) will determine the final price based on the evidence presented by both sides.
What is 'relativity' in freehold valuation?
Relativity refers to the relationship between the value of existing leases and the value of the freehold. It helps valuers assess how much the freehold is worth compared to the leasehold interests, sometimes using published graphs or research documents.
Can the property's condition affect the freehold valuation?
Yes, in some cases, such as those under the 1967 Act, the property must be valued in its actual condition, and the cost of necessary repairs can influence the relativity and overall valuation.
What is 'marriage value' and how does it relate to freehold valuation?
Marriage value is the extra value created when the leasehold and freehold interests in a property are combined. It is typically shared between the leaseholders and the freeholder, and it forms part of the total price paid for the freehold, especially in cases where the lease has less than 80 years remaining. This can include 'development marriage value' if there's potential for future building wor
Do I need an expert for freehold valuation?
The Tribunal often relies on independent expert evidence for freehold valuations. While not strictly mandatory for initial discussions, having an experienced valuer can be crucial for presenting a strong case, especially if the matter goes to a tribunal. You may wish to consult a qualified solicitor or surveyor for specific advice.