Jargon Explained

Here’s a few of them explained.

Capitalisation Rate

This is the investment yield or rate of return that an investor would place on an income stream or capital sum. Frequently in enfranchisement and lease extension calculations, the capitalisation rate is applied to the ground rent.

Collective Enfranchisement 

This is the right of 50% or more qualifying leaseholders in a particular block or blocks of flats to purchase the freehold interest in the building from their landlord.

Competent Landlord

The Competent Landlord is the freeholder or the holder of a superior lease where that leaseholder has a sufficient interest to be able to grant a new lease 90 years longer than the current lease.

Counter Notice

The landlords’ formal response to the Initial Notice of Claim served by the leaseholder in a lease extension or the participating leaseholders in a collective enfranchisement.

Delaforce Effect

The additional amount that is often paid to a freeholder in lieu of the costs of serving a Formal Notice or taking a matter to Tribunal.

Deed of Variation

The legal document which alters the lease, for example, to extend the lease term without the need to sign a whole new lease.

Deferment Rate

The deferment rate is an annual discount off a future receipt measured as a rate of compound interest that would be needed to be earned on an investment, in order to produce the capital value at the end of the term.

Enfranchisement

The enforced purchase of the freehold interest in a property.

First Right of Refusal

Part 1 of the Landlord & Tenant Act 1987 grants to certain tenants the right to purchase the freehold interest before the freeholder can make a relevant disposal.

Freehold Property

The interest in property which is a life estate or of uncertain or undetermined duration (having no stated end) as distinguished from a leasehold which may have a declining value towards the end of its term. Freehold Ownership represents the broadest ownership interest recognised by law.

Ground Rent

This is the rent paid by a leaseholder to the landlord as compensation for the use of the land by the building in which the leaseholder has an interest. A ground rent can be a nominal amount called a peppercorn or alternatively a significant amount with ground rent reviews.

Head Leasehold

In some instances, there can be a number of leaseholders derived ultimately from the freehold interest in a block of flats. The flat owner usually occupies the property on an underlease where there may be one or more intermediate leaseholder(s) between the freeholder and them. The head leaseholder is the top of the chain immediately below the freehold interest.

Hope Value

This is payable by the leaseholder(s) when they are purchasing the freehold interest of their property. It is the extra value attributable to an interest under the freehold where there is a likelihood of being able to negotiate a lease extension in the future, for example, the participating leaseholders in a collective enfranchisement would pay “hope value” for the non-participating flats on the assumption that they may profit in the future from granting lease extensions to the non-participants.

Intermediate Leasehold

The leasehold interest that sits between freeholder and the under lessees or flat owner.

Leasehold Reform Housing and Urban Development Act 1993

The Act that grants the right to a lease extension or freehold purchase and sets out the requirements, procedures and rules of valuation.

Leasehold Property

Ownership of leasehold property entitles the leaseholder to use and enjoy that property in accordance with the terms of the lease for a defined period of time, for example, 99 years, 125 years or 999 years.

Long Lease

In general, in accordance with the legislation, this refers to a lease granted for a term of more than 21 years.

Marriage Value

Marriage value is the overall increase in the total value of the freehold and leasehold interests in the property before and after the lease extension. Marriage value occurs because a leaseholder’s interest increases in value when they extend the lease. Marriage value is shared 50/50 between the freeholder and the leaseholder but is not payable where leases are more than 80 years unexpired lease term.

Notice of Claim (Initial Notice)

The notice served by the leaseholder(s) on the landlord under Section 13 of the 1993 Leasehold Reform Housing and Urban Development Act.

Onerous Ground Rent

An onerous ground rent is one that otherwise has an adverse effect on the capital value of the existing lease, that is to say, a purchaser will pay less for the interest when compared to the same property on a lease with a nominal rent provisions.

Qualifying Tenant

A tenant is a qualifying tenant of a flat if he is the tenant of a flat under a “long lease”. In relation to collective enfranchisement, a qualifying leaseholder is a leaseholder of a flat under a long lease who does not own three or more flats in the building.

Reversion

This is the value of the flat or house at some future date typically when the lease comes to an end.

Relativity

This is the rate at which a lease devalues over time expressed as a percentage of the extended lease or share of freehold value. Relativity rates are derived from a range of professionally produced indices and comparable transactions.

Right to Manage (RTM)

The right of leaseholders within a block to take control of the management of the building. This is done through a Right to Manage company in which each participating leaseholder is a member/shareholder.

Service Charge

The amount payable by each leaseholder towards the maintenance and repair of the common parts of a block of flats.

Unexpired Term

The period between the date of Valuation and the end of the lease.