Valuation of Leasehold Interests Flashcards
When does a profit rent arise?
When rent received from the leasehold interest below exceeds the rent paid to the interest above.
How is the profit rent capitalised to create a market value?
At a yield for the length of the lease.
Profit Rent = Market Rent less _____ ______.
Rent Passing
What tables are sometimes used for the valuation of a leasehold interest?
Dual rate sinking funds.
Why is a dual rate sinking fund used?
The leasehold interest is viewed as a wasting asset. The dual rate tables adjust a leasehold valuation to be on the same basis as a freehold by using a sinking fund (which replaces the lease when it ends).
Why does current valuation practice often use a single rate, duly discounted to reflect an additional element of risk for a wasting asset?
Leaseholders do not use sinking funds in practice.
What is a premium?
A capital payment made by one party to another.
