Tagged: buildings

Valuing Freehold Interest

Valuing Freehold Interest
Freehold Interest on Valuations

At Highhouse Insurance we are often asked to quote for Buildings Insurance in respect of property that has been divided in to self-contained flats, either purpose built or converted property. One of biggest areas of confusion relating to this type of cover surrounds who is who is actually responsible for the insurance; is it the freeholder or is it the leaseholder. Generally speaking in most cases, the freeholder is responsible for the buildings insurance and will charge the leaseholders accordingly. In some cases it may be possible for us to provide cover for leaseholders and we are always willing to listen to situations where for whatever reason, the freeholder has not arranged insurance cover.

Many leaseholders chose to buy the freehold of their property to give them control over the building they own, this will then give them the right to make decisions and to manage the property as they feel fit.

If you are contemplating purchasing the freehold of the block of flats that you live in, it will be necessary to get a valuation from a local qualified surveyor before you enter into any negotiations. A surveyor will be able to complete a valuation according to the current legislation; will advise on purchase price and the offer that ought to be made to the freeholder in the Initial Notice and the freeholders response in the Counter Notice. He/She will also carry out negotiations on your behalf with the freeholder, give advice and provide evidence at a leasehold valuation tribunal as well as giving advice regarding repairs and maintenance of the property once the enfranchisement has been completed.

At the first meeting with the surveyor the valuation process should be discussed. According to Schedule 6 Part II of the Leasehold Reform, Housing and Urban Development Act 1993 the price of the freehold should include the income received from the ground rents within the building, the increase in the sale value of the flats due to the freehold being obtained (this is called the reversion value), the marriage value (this is the increase in flat values minus ground rents and the reversion value), the value of other interests e.g. garages and commercial properties, and compensation for losses to the freeholder for the reduction in value of another property resulting from a forced sale (injurious affection).

Freehold property with a long lease is valued on an investment basis, meaning that the property has no other value except for the income from the rent and the reversionary value once the leases have run out. The freehold value is worked out according to the expected future income of the property.

The income received is easily worked out. The annual ground rent is multiplied by the number of flats in the block. This amount is then multiplied by the ‘years purchase’. The ‘years purchase’ may either be taken from a set of tables or the valuer may calculate this for himself/herself. It is done to ascertain what the investor would have to pay to get the same fixed income over the term of the lease. There are often discrepancies to be looked at as the leaseholder’s valuer and the landlord’s valuer will often come up with different amounts for the years purchase figure.

As the lease on a leasehold property gets shorter the value of that property decreases. If enfranchisement is achieved then the new owner will usually increase the time on the leases. The values of the flats within the building are, consequently, increased. The valuer will need to consider other properties in the vicinity to estimate how much the value will increase. Flat leases usually revert back to the landlord once the term of the lease has expired. However, it is most likely that the tenant will be able to remain in occupation as there is statutory protection to ensure the tenant still has somewhere to live.

The marriage value involves both parties and is worked out quite easily. The value of the property with renewed leases is the base figure and from this the current value of the properties are deducted. Then the ground rent and the reversionary value are also deducted leaving the ‘marriage value’. This amount is split equally between the two parties. Legislation states that if a participating leaseholder has an unexpired lease of in excess of 80 years then any marriage value will be irrelevant.

In cases where negotiations do not run smoothly it may be necessary to enter more formal arrangements to bring matters to a satisfactory conclusion. The Leaseholders Valuation Tribunal is of help when trying to decide on matters like the sort of interest to be applied and the price to be paid.

There is a myriad amount of information relating to the value of freeholds available on the internet we believe if you are contemplating the purchase of your freehold, you should always seek professional advise.

Highhouse Insurance will be pleased to quote for buildings insurance for all types of blocks of flats whether owner occupied or rented to tenants.

We look forward to receiving your enquiry.

Home Insurance

A house requiring a home insurance quote
Get a home insurance quote from Highhouse

Coverholder at LLoyds Key Home Insurance Benefits

  • Get a Home Insurance quote with instant no claims discount.
  • Only pay for level of cover needed.
  • Personal possessions, accidental damage and family legal protection optional.
  • Premium Home Insurance underwritten at Lloyds of London.
  • Buildings and Contents Values Indexed linked at no extra cost for the first year.
  • Includes public liability cover upto £5,000,000 as standard.
  • Speak directly to UK staff for all sales, services and claim lines – No automated phone service.

Here at Highhouse we offer comprehensive Home Insurance cover that can be tailored to meet your specific needs and can give you a Home Insurance quote (UK) based solely on the information you provide us on a bespoke basis. We can give you an Insurance quotation that is competitive with other online insurers and we aim to keep our rates consistent year-on-year. Home Insurance can be extended to include Accidental Damage and family legal protection. We are also able to extend beyond our standard level of cover for personal possessions and valuables for added peace of mind. We are a UK based company and our policies are underwritten through Lloyds of London, offering a premium Home Insurance package. Below is a brief summary of cover available for standard House Insurance:

Buildings cover also includes:-

  • Loss of rent due to you and temporary accommodation costs up to 20% of the sum insured for buildings
  • Increased domestic metered water charges up to £750 in all following an escape of water
  • Up to £2,500 to find the source of leaks that are damaging the buildings

Contents cover available also includes:-

  • Property in the open up to £2,500
  • Temporary removal to certain other premises in the United Kingdom for up to 20% of the sum insured
  • Accidental damage to televisions, audio and video equipment including radios, DVD players, video recorders, home computers and satellite decoders
  • Rent you have to pay and temporary accommodation costs up to 10% of the sum insured following a claim
  • Replacement of locks following theft or loss of keys up to £250
  • Increased domestic metered water charges up to £750 in all following an Escape of Water
  • Your legal liability for accidents to domestic staff up to £5,000,000
  • Domestic freezer contents up to £250
  • Office equipment in the home up to a maximum of £5,000
  • Up to £2,500 of cover for your family whilst at university/college

Get a home Insurance Quote

We believe here at Highhouse you should only pay for the level of cover needed, our bespoke policies are designed to create an insurance policy using the highest level of cover at the most competitive rates.
If you would like a home insurance quote then simply fill in a few basic details on our quote form (these are not instant quote forms), we will then call you to discuss your requirements and make sure we offer a policy that prevents you from being over insured or under insured.

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Buildings Insurance

Building in UK
Buildings Insurance for the UK

Buildings insurance covers the structure, fixtures and fittings such as the walls, roof, floors, ceilings, doors, windows, bathroom suites and fitted kitchens, generally speaking anything fixed to the property. This may also include outdoor buildings, fixtures and fittings such as garages, sheds, greenhouses, boundary walls. This is not standard to all insurers so please check with them to ensure they offer the level of cover you require.

Assessing the buildings sum insured for house building insurance
When assessing how much your building sum insured should be, this should NOT be based on the market value of the property but rather the rebuild value of the property itself. Market value includes the cost of the land which in proportion to the value of the building can vary greatly and Insurance policies take all types of risk into account.
For building insurance usually the highest risk is a complete property rebuild. The land proportion of this is very rarely affected and it is often far cheaper to completely rebuild the property, therefore it is advisable to make sure you have a sufficient buildings sum insured to cover the rebuild cost of the property. When assessing the rebuild value there are a number of ways this can be obtained:

1. The first is on your home survey/ buyers report when you purchased the house, however if this is a few years old then the rebuild value should be reassessed. If you have just purchased your home then the rebuild value should be on your mortgage valuation.

2. Get a chartered surveyor to produce a report for you.

3. Use an online home insurance buildings calculator. The Association of British Insurers has an online calculator in association with the Building Cost Information Service (http://abi.bcis.co.uk). It is also important to remember that whenever you have an extension or work done to your property that increases the building sum insured such as an extension, that you incorporate this into your buildings cover. You should also notify your insurer whenever you have any structural work done so they can advise whether this will affect your policy during or after work being done on your property. If insurers are not made aware of an extension such as an extra room being added then your insurance may cover you should you need to make a claim.

Should you require buildings insurance then Highhouse can provide you with a free quote and we offer discount when you combine your buildings and contents covering all the usual perils as well as accidental damage. Our own property policies are underwritten at Lloyds of London and  we issue our own polices “in house” noting lenders interests if required and we can have you on cover, with the documents over to you, your solicitor or lender, in most cases on the same day.