Do I need my own valuation?

Do I need my own valuation for a lease extension?

First things first, you might wonder why you need a lease extension valuation? The valuation is needed to give you an accurate estimate of what the premium you will pay for the lease extension will be. Usually this is presented as a range i.e. the bottom end being the least you would pay and the top end being the maximum the freeholder can reasonably ask for.

To be able to advise you correctly (and challenge your freeholder should you need to), your valuer needs to specialise in enfranchisement and be up to date with the latest case law. A list of specialists can be found on the ALEP website, and we can provide recommendations with valuers we work with on a regular basis, should you need assistance.

Why each party has their own valuation and why a leaseholder should not rely on a freeholder’s valuation.

The negotiation between the leaseholder and the freeholder usually revolves around how the estimated values should be calculated, and therefore what the premium paid should be. As a result, the important outcome of the exercise is less often the figure that is the premium, but the evidence that justifies the figures used to calculate it. The freeholder will more than likely wish to receive the maximum premium payable and it is unusual that they will outright accept the leaseholder’s proposed premium.

As a leaseholder wanting to extend your lease, you will want to get the best value for money and the leaseholder and freeholder will each take their own valuation advice as the valuer will not only give you an accurate range of the premium payable but they will also advise you on strategy for example as a leaseholder, your chosen valuer may well have experience negotiating with your freeholder.

The leaseholder should not rely on a freeholder’s valuation as there will likely be concessions to make and negotiations to arrive at a figure that both the leaseholder and freeholder will accept i.e. somewhere in the middle of the two proposed premiums from the leaseholder’s and the freeholder’s valuation report suggestions.

It is important to have your own valuation as if an agreement cannot be reached, then you will have to apply to the First -Tier Tribunal to determine the premium payable and they will consider both sides in order to come to a conclusion. It is within everyone’s best interest to come to an agreement beforehand for the sake of time and extra costs incurred but it is important to realise the significance of relying on your own valuation at the outset.

Why you need a specialist valuer.

When it comes to determining the premium payable for a lease extension, it is not as simple as getting an estate agent to do a flat valuation. A lease extension valuation differs from a standard property valuation as it involves complex calculations to formulate the premium that the leaseholder should pay to the freeholder under leasehold legislation.

There are several factors that will affect the lease extension valuation including how many years are left on the current lease, the current ground rent, ground rent review, the value of the property etc and what is relevant to a standard property valuation such as the condition of the property, is not at all relevant for a lease extension valuation. However, if for example there are very high service charges or major works outstanding, the valuer for the lease extension may take this into account.