THE AGENTS

David Morgan

managing director, Cookseys DMP

The most unfriendly Catch 22 in regard to leasehold values is now cropping up again and again.

A large number of leases are either just about to have their last five-year rent review, or are within five years of the end of the lease with the last rent review far from settled.

In reality, capital values are falling in that five-year (or less) time frame, due both to uncertainty and certainty. Confused? Well, your freeholder is not!

Value or sale price is greatly helped by certainty, ie the number of years guaranteed on your lease. That is how a purchaser raises finance on the certain knowledge of repayment years.

Virtually all leases are governed by either the Landlord & Tenant Act or the Law of Property Act, which guarantee a new lease to an existing tenant - with a number of exceptions - the two most important of which are:

1. The freeholder wants to redevelop the site and has the real possibility of achieving that objective.

2. The freeholder wants the property for his own use and occupation.

What if you wish to extend the lease term in advance of the end of the lease, or if your freeholder offers you that certainty?

Value or sale price might increase, but by not very much if you sacrifice your old brewery lease for a new agreement that is fully supply-tied and has upwards-only rent reviews linked to annual uplifts in retail price index (RPI).

What have you gained? Maybe an increase in sale price and a quicker sale. But if the price is not realistic and there is no sale, your profitability may plummet through increased supply tie and annual RPI rent increases.

Be very careful - an old brewery lease can be very attractive to a new purchaser.

Most freeholders will dump them at the first opportunity. If you tough it out and go for lease renewal, there is every chance that rent can go down, have upwards and downwards rent reviews and no RPI.

Only then will sale prices have the opportunity of tracking upwards by leaps and bounds.