© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
© 2025 News On The Block. All rights reserved.
News on the Block is a trading name of Premier Property Media Ltd.
YOU WILL NEED TO KNOW
The rent payable by the intermediate landlord (‘IL’): at the valuation date and following any increases.
All the rents receivable by the intermediate landlord at the valuation date and the rent receivable from the flat following any increases.
METHOD
1. Apportion the head rent as between the various flats. There is no hard and fast method for the apportionment, but there is one LVT decision on this issue (Regency Lodge - LON/NL/5243/06).
2. Test whether the IL's interest in the flat currently a MILI (minor intermediate leasehold). The profit rent will have to be less than £5 pa both currently and following any increases. Also the reversion must be to a period of not more than 1 month. If either leg of the test fails, it is not as MILI, so go to 4.
3. If the interest is currently a MILI, value the current interest by capitalising the profit rent at the rate derived from 2.5% Consols on the Friday before the valuation date. The ‘Consols rate’ can be found at http://www.dmo.gov.uk/index.aspx?page=Gilts/Daily_Prices. Then go straight to step 5.
4. If the IL's interest in the flat is not a MILI, test for whether the whole interest currently in profit or deficit? If in profit, value per step 6. If in deficit, value per step 7.
5. Now test whether, following the grant of the new lease and the loss of the ground rent from the subject flat, the IL's interest as a whole will be in profit or deficit. If in profit, value per step 6. If in deficit, value per step 7.
6. If the IL's interest as a whole is in profit, capitalise the profit rent from the flat alone using dual rates with a sinking fund rate of 2.25% and no tax. The remunerative rate to be the normal market rate. If the intermediate landlord has a reversion, the present value should be added here.
7. If the IL's interest as a whole is in deficit, capitalise the rent he is left paying in respect of the flat in question using a single rate. If the rent payable is fixed or has fixed increases used the rate derived from 2.5% Consols (see 3 above). If there is any uncertainty as to the rent payable or any other unusual risks, adjust that rate downwards. In the Nailrile decision, where there were two or three reviews to rents based on the capital value of the flat, the rate was adjusted down to 3.5%.
8. The LT has not made a decision on these matters but where the IL’s interest in the flat is a negative amount, you may think it appropriate to add purchase costs and VAT to the negative value as the hypothetical purchase will expect to receive the endowment fund net of costs.
9. Assess the diminution in value of the IL's interest by deducting the value of the interest after the grant of the new lease from the value before the grant of the new lease. This will probably involve deducting a negative figure from a positive figure which, in fact, means adding the two together.
The Lands Tribunal decided that although the interest to be valued was the intermediate landlord’s interest in the subject flat alone, it was to be assumed that it would be sold with the whole of the intermediate landlord’s headlease. Therefore it is the profitability of the whole headlease that is relevant. Where the headlease is in deficit, they accepted that the purchaser would take a more cautious approach and would factor in any uncertainties.
There are other important elements of the Nailrile decision:
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on relativity, valuers must make do the best they can with the such transactional evidence there may be and with graphs of relativity the deferment rate in respect of a medium term leasehold interest should be higher than the Sportelli generic rate of 5%. In the case considered, the reversion was to a 54 year term and a deferment rate of 5.5% was considered appropriate.
Where the lease extension claim is a precursor to an enfranchisement, the freeholder is entitled to be compensated for the loss it may suffer as a result. A loss will arise if, following the reduction in the ground rent income by the rent from the subject flat, the intermediate lease has a negative value. In an enfranchisement that negative value is deducted from the compensation otherwise properly payable to the freeholder, whilst the intermediate landlord is entitled to keep the compensation paid to him as part of the premium for the lease extension.
TIP
If the IL's interest as whole is positive both before and after the grant of the new lease and any reviews are on the same dates, the calculation can be ‘short-cut’ into a single calculation, capitalising only the rents receivable in respect of the flat alone at dual rates including a sinking fund of 2.25%.