Improvements to the Property
From establishing that the current value of the flats is £150,000 x 10 flats = £1,500,000 (the leaseholders present interest) we now look at what happens if the leaseholder has made improvements to the flat at their own cost which could affect the value.
So, at the valuation date the improvements must be disregarded for the purpose of the valuation so the leaseholder doesn’t pay twice. If the improvements are substantial then the valuer will calculate the additional value they give to the flat but not the actual cost. This additional value must then be discounted from the estimated present value of the flat so the valuer is actually assessing the unimproved value of the flat.
Note: This is potentially difficult area in that redecoration for example, could be deemed as repairing obligations under the lease term and will therefore not be disregarded.
So, in this example the assumption is that the improvement could produce an increase in the market value of each flat of around 10%. Therefore £165,000 x 10 = £1,650,000 so what is the promise of the future £1,650,000 worth today?
- Again a multiplier is taken from the tables to provide an investment value and in this part of the valuation, the multiplier is the Present Value of £1.
- Taken at the same yield rate of 8% and deferred for 68 years is 0.00534. £1,650,000 x 0.00534 = £8,811
- The investment value of the freehold (the freeholder’s interest) – is therefore represented by the sum of the values of the term and the reversion so £6,216 + £8,811 = £15,027 is the sum that the interest is likely to achieve in an open market sale.
Note: If there is an intermediate lease such as a head-lease in existence this also needs to be taken into consideration as it will cease to exist and the head-lessee must also be compensated for his loss.
The next consideration with regard to cost is that of Marriage Value which can be read here.