Ask The Experts - Negative Equity

	Published:05/10/2007
Question Our 11 year-old surgery is a leasehold property with 60 years remaining on the lease. The last valuation two years ago was for £260,000 and exposed a negative equity for the five partners (each of whom have an equal share of the £360,000 loan). Would extending the lease or surrendering it for a much longer one increase the property's value significantly?

Answer

You have not explained if the lease is held on a peppercorn rent, a fixed rent or some form of geared rent (a percentage of the rental value of the whole building).

I will assume that it is a peppercorn rent. Holding premises on a 60- year long lease will never be as good as holding the freehold. Generally the market treats long leaseholds of 99 to 125 years very similarly to a freehold situation. Having a fixed rent or worse, a geared rent, will increase the differential to a freehold interest.

Usually leasehold values tend to reduce once you get below 60 years and, when you get to 30, there would be a marked drop. If you can renegotiate your leasehold interest to increase it from 60 years back to 90 or purchase the freehold interest, this would undoubtedly improve its value.

Ask The Experts - Negative Equity

Question

Answer