Profitable Leasehold Management Presentation by Alex Burton BSc(Hons) MRICS | 26th May 2016 Provide a highly professional and personal service throughout the UK and beyond

Profitable Leasehold Management Local Authority Landlords have an increasing proportion of Leaseholders within their stock, for example the London Borough of Lambeth have approx. 30,000 homes of which approx. 10,000 are Leasehold. The introduction of Right to Buy for Housing Associations will mean that Housing Association will also face this challenge. HA’s do not necessarily have the experience or in house resources readily available to manage this process. Local Authority obligations to re-provide HA units “lost” to RtB.

Profitable Leasehold Management Landlords have a number of Challenges: Strategy – This must form part of the overall asset management strategy. (Should we sell the freehold – what are our options?) Understanding – Precise data and accurate Information, Good advice and a full understanding of what is involved Communication – Clear, unambiguous and very importantly timely Engagement – Every effort must be made to build on the communication into a two way engagement process. Procurement – Procurement of Leaseholder works and the use of Qualifying Long Term Agreements are a developing area of Law. Building Contracts need to acknowledge the Leaseholders rights and obligations. Delivery – Leaseholders tend to be very vigilant while the works are being delivered, careful management of the delivery of works is essential. Billing – Interim billing and final billing are key stages towards full recovery. Great care must be taken to get these stages correct. Recovery – A recover strategy needs to be agreed and communicated to Leaseholders from the outset: early payment discounts, interest charges etc.

Profitable Leasehold Management The basic calculation every Landlord should carry out and keep under constant review is: Value of Leasehold Reversion plus any income vs. Cost of maintaining, administering and insuring the property

Profitable Leasehold Management Leasehold Reversions: The Residential Leases are for a fixed term, typically 99yrs – 125yrs High St lenders become less likely to offer a mortgages if the lease is for less than 99 yrs. Few commercial loans are available on leases less than 80 yrs. Often Leaseholders have to negotiate lease extensions before they can sell their lease. The lease extension has a value, which can provide a good income stream to Landlords, if managed correctly.

Profitable Leasehold Management The legislative basis for calculating a leasehold reversion: The premium to be paid for the new lease, according to Schedule 13, Part II of the Leasehold Reform, Housing and Urban Development Act 1993 (as amended), shall be the total of: the diminution in the value of the landlord's interest in the flat; that is, the difference between the value of his interest now with the present lease and the value of his interest after the grant of the new lease with the extra 90 years. the landlord's share of the marriage value; compensation for loss arising from the grant of the new lease. The diminution in the value of the landlord's interest is, effectively: the loss of the income from the ground rent for the remainder of the original term (as the whole term of the new lease will be at peppercorn rent); the loss due to the additional 90 years wait for the reversion (the surrender of the flat at the expiry of the term). The marriage value is taken as the potential for increase in the value of the flat arising from the grant of the new lease; the Act requires that this 'profit' shall be shared between the parties. The proportion of the split of marriage value is fixed by the legislation at 50:50 division between the landlord and the leaseholder. In the calculation of the marriage value the leaseholder's and landlord's valuers will rely on local knowledge and experience to assess the increase in value in the flat arising from the new lease. The compensation is to provide remedy to the landlord for any other diminution in the value of his interest in other property (other flats in the building or the building itself) and any loss or damage arising from the grant of the new lease. It is difficult to find examples of where a landlord could claim compensation since he will, in most cases, retain the freehold. Probably the only possibilities could be a claim for loss of opportunity for redevelopment potential or for a reconversion of a house in flats back to a single dwelling house.

Profitable Leasehold Management Leasehold Management requires specialist skills Long term Leasehold Management can be very profitable Recording of data essential Attention to detail An understanding of lease requirements and obligations Good communication Frequent re-calculation of the leasehold reversion vs long term cost

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