valuation of leasehold properties
📖 What is valuation of leasehold properties? Meaning and definition
The valuation of leasehold properties is a crucial step when a leaseholder seeks to extend their lease or acquire a new one. This process involves expert valuers assessing various factors to arrive at a fair premium, which is the amount payable for the new lease. The First-tier Tribunal (Property Chamber) often becomes involved when parties cannot agree on this premium, and it will consider valuation evidence presented by both sides.
Key elements in this valuation include the valuation date, the unexpired term of the existing lease, the capitalised value of ground rent, and the deferment rate. Valuers also consider the property's gross internal floor area (GIA) and its value relative to a freehold property (FHVP). These factors help in calculating the premium payable, which is determined in accordance with relevant legislation, such as Schedule 13 to the Act mentioned in one case.
In practice, both the leaseholder and the freeholder typically instruct their own expert valuers. These valuers are directed to discuss the case and provide a joint statement, outlining what they agree upon and what remains in dispute. The Tribunal may inspect the property itself before a hearing to inform its decision, especially when there are disagreements on fundamental valuation aspects like the notional unimproved FHVP value or existing lease value/relativity.
The Tribunal's role is to determine the value of the flat with the extended lease, and once this is established, the premium payable automatically follows based on the agreed values. This ensures a structured and evidence-based approach to resolving disputes over lease extension premiums, providing a clear framework for self-represented litigants to understand the process.
📋 Requirements
- Submission of valuation evidence by each party, including a statement of case.
- Expert valuer's report prepared in accordance with Rule 19(5) of the Tribunal Procedure (First-tier Tribunal)(Property Chamber) Rules 2013.
- Valuers to discuss the case and provide a joint statement of agreed and disputed matters.
- Consideration of specific valuation factors such as valuation date, unexpired lease term, and capitalised ground rent.
📝 Procedure
- Parties send electronic bundles with statements of case and valuation evidence.
- Parties may lodge a statement in reply within 14 days.
- Expert valuers discuss the case and provide a joint statement.
- A Tribunal is appointed, and an inspection of the property may be carried out.
- The Tribunal holds a hearing to consider evidence and determine disputed valuation matters.
- The Tribunal determines the value of the flat with the extended lease, from which the premium payable is calculated.
💡 Examples
- A leaseholder seeking to extend their lease might propose a premium of £15,500, which then becomes subject to valuation by expert valuers.
- Two valuers, representing the leaseholder and freeholder, agree on the valuation date, lease expiry date, and the unexpired term of the lease, but dispute the notional unimproved freehold value.
- The Tribunal inspects a Victorian mansion building converted into flats to understand the property's characteristics before determining the premium for a new lease.
- A case where the valuers agreed on the gross internal floor area (GIA) of 55.8 square metres and a deferment rate of 5%, leaving only the value of the flat with the extended lease in dispute for the Tribunal.
📚 Legal basis
- Tribunal Procedure (First-tier Tribunal)(Property Chamber) Rules 2013
- Schedule 13 to the Act
- Schedule 10 1989 Act
❓ Frequently asked questions
What is a 'premium' in the context of leasehold valuation?
The 'premium' is the amount of money a leaseholder pays to the freeholder for a new or extended lease, determined through the valuation process.
Who carries out the valuation of leasehold properties?
Expert valuers, instructed by both the leaseholder and the freeholder, carry out the valuation. If they cannot agree, the First-tier Tribunal may make the final determination.
What factors are considered in a leasehold valuation?
Key factors include the valuation date, the unexpired term of the lease, capitalised ground rent, deferment rate, gross internal floor area (GIA), and the property's value relative to a freehold property.
What happens if the parties' valuers cannot agree?
If valuers cannot agree, the matter is typically referred to the First-tier Tribunal (Property Chamber), which will hear evidence from both sides and make a binding decision on the premium.
Is a property inspection always part of the valuation process?
While not always explicitly stated as mandatory for every case, the Tribunal often inspects the property prior to a hearing, especially when there are disputes over its characteristics or value.
What is the 'deferment rate' in leasehold valuation?
The deferment rate is a percentage used in the valuation calculation to account for the delay in the freeholder receiving possession of the property, typically set at 5% in the provided cases.