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How are properties with a short leasehold valued? I've found calculators for lease extension estimates but I'm struggling with lease valuation.
As an example, how would the value of a 10 year leasehold on a £100k freehold property be estimated?
A good teacher must know the rules; a good pupil, the exceptions.
Martin H. Fischer
I was asking the wrong question! GIYF only if you ask the right question.
The right question appears to be what are the graphs of relativity for leasehold property?
To answer my own question, a 10 year leasehold is generally valued at between 20% and 30% of the the freehold value, although there appears to be little data available for very short leases. 50 years plus gives a more accurate valuation.
The sale value of a leasehold property obviously falls over time - and that fall accelerates rapidly once the remaining lease drops below 80 yrs at which point marriage value increases rapidly for lease extension - compounded by fact that property will not be mortgageable hence only cash buyers would be interested.
The cost of a lease extension for a property with only 10 yrs remaining would be pretty similar to buying same property again but with a new lengthy lease of 90 yrs plus. Any buyer in that situation would effectively be paying a one off lump sum to rent the property for the remainder of the lease.
Yes, a one off payment of 20% is far preferable to 10 annual payments of say 6%. Market value of lease vs market rent.
That is an interesting way of looking at that scenario - though a buyer would also be on the hook for 10 yrs Service Charges plus any major works costs should they arise - and as usual owner is responsible for all maintenance/repairs internally eg new boiler etc.
Buyer would also have legals and maybe SD cost if a LL - though would have 10 yrs tenure rather than typical 6 month AST.
The other day I saw a studio in Chelsea for £200,000, with a 10 year lease, the statutory lease extension (+90years) was quoted £360-380k. Value of flat with long lease:£600k.
That's pretty much in line with the graphs of relativity that I viewed. Outside London was 20% -30% of freehold value for a 10 year leasehold, London was slightly higher.
This may be of interest
If you want to determine the value of a short leasehold property, you will firstly need to estimate the premium the landlord will charge to extend by a further 90 years. Use this lease extension calculator for an accurate assessment. Then determine as follows:
The result is the value of the short leasehold property.
Some may say there is an element of risk, but as long as you have owned the property for at least 2 years and the landlord is not a charity then you have a statutory right to renew for an additional 90 years.
Ashley ConnellLease Extension Solicitor at Hetts