Other aspects of ensuring the freehold asset value is maintained include carrying out an insurance reinstatement cost valuation regularly. The Riyal Institution of Chartered Surveyors 'RICS' 3rd Edition recommended 3 yearly. In the case of a total loss, or in fact any claim, an under insured Freeholder is at risk of 'the principle of averaging' being applied to the claim. This would reduce any claim payout in proportion to the underinsured amount leaving the Freeholder to fund the shortfall.
Our team of RICS registered valuation experts provide commercial, residential and rural property valuations to banks and building societies, property companies, developers, investors and fund managers.
We assist Property Owners throughout the UK acquire, gear up and grow their investment portfolios,including ground rent investment opportunities
Understanding Ground Rent
Ground Rent Meaning: Ground rent is a recurring payment made by a tenant or leaseholder to the owner of the land on which a property stands. This payment serves as compensation for the right to occupy and utilise the land while retaining ownership of the building. Ground rent agreements are often established through lease agreements, where the landowner, or freeholder, grants the leaseholder the right to use the land for an extended period.
The amount of ground rent can vary widely and is typically outlined in the lease terms. It can be structured as a fixed monetary amount or calculated as a percentage of the property's value. The concept of ground rent has historical origins and is most commonly found in leasehold arrangements. It holds most of its significance in real estate transactions, property investment, and discussions about property ownership rights.
Freehold Ground Rent
In the realm of freehold ground rent investment, the landscape has transformed. No longer can a Freeholder simply sit in the background collecting ground rent with little involvement. The modern era is defined by leaseholders as informed consumers. Parliament has rejected ground rents that double every 10 years, signaling plans to outlaw ground rent on all new leases. This marked a significant shift in the legal framework, where the balance of power progressively sided with the leaseholder.
Happy leaseholders who see their service charges as value for money are less likely to buy their freehold or claim their Right to Manage. This along with a predefined strategy on lesse extensons, such as to offer shorter lease extensions, such as offering shorter lease extensions with a modern ground rent will drive the freehold investment value up. The combined expertise of Ringley Law to deal with Lease Extensions and Ringley Surveyors to value premiums and negotiate best prices means that Ringley can uniquely cover all bases.
Employing the services of a reputable block management company, to act as a buffer between the leaseholders and the freeholders or ground rent funds, is a positive opportunity to protect both the ground rent income and to ensure the leaseholders receive a good, professional, transparent and cost effective service.
The risks of being under insured
The penalties if good governance cannot be proven
Legislative changes coming soon...
The must know basics for Freeholders
1. Health and SafetyFreeholders are ultimately responsible for the health and safety within the grounds and common parts of the property or estate. The basics must include:
- broken or shattered glass
- slippery floors or broken stair nosings
- regular rubbish collecting
- pest control
- lift maintenance and statutory inspections
- secure electrical fittings
- lifting pavements and trip hazards
- regular cleaning – visit logs and clear specification
- electrical Safety – EICR testing
- gas safety - communal heating
2. Fire SafetyThe only defence in an insurance or Fire Service investigation is good governance and audit trail. The basics must include:
- fire/smoke alarm test and maintenance logs
- advice for leaseholders on testing and leaning their heat detectors
- 6 monthly inspections of common parts fire doors, checking for integrated smoke seals and self-closers
- widely advertising the fire strategy, i.e., 'stay put' or 'get out'
- adequate signage for all exits routes
- no smoking signs
- magnetic locks set to open doors in case of emergency
- adequate emergency lighting
- regular fire risk assessments
- keep.clear policy well advertised
- no storage in electrical or riser cupboards
- adequate fire protection to riser cupboards
- 30 minutes fire compartmentation between flats including glass and around door frames, electrical sockets and skirting
- keyless exit for residents - ability to exit the building quickly and without using keys
These lists are not exhaustive but provide the basics Freeholders need to consider. Service charges need to provide for all things health & safety, all things fire, day to day maintenance and collecting reserve funds for future big work such as re-roofing or redecorations. It all has to be accounted for, and, the service charge accounts presented to the service charge payers.
Freeholders can make their lives (and of course residents) far easier by employing good managing agent and ideally one who has grown through recommendation by residents whose trust to provide cost effective reliable service, year after year is well founded.
Frequently asked questions
What is a freeholder investor?A freeholder investor is an individual or company that owns the fee simple title to a property. This type of ownership gives the owner all the rights and privileges associated with owning real estate. The fee simple title is the most complete form of ownership and gives the owner the right to use, sell, lease, or borrow against the property. Freeholder investors typically purchase properties for investment purposes and do not live in the property themselves.
What are the benefits of being a freeholder investor?
There are many benefits to being a freeholder investor. One benefit is that you have complete control over the property. You can decide how to use it, who to rent it to, and how much to charge for rent. You are also not responsible for paying any taxes on the property, which can save you a significant amount of money.
Another benefit of being a freeholder investor is that you can earn a significant return on your investment. Because you have complete control over the property, you can make sure that it is well-maintained and in good condition. This will help to attract tenants who are willing to pay higher rents. Additionally, if you decide to sell the property, you can typically command a higher price than if you were not the owner.
What are the risks of being a freeholder investor?
There are some risks associated with being a freeholder investor. One risk is that you may not be able to find tenants who are willing to pay the rent you are asking. Another risk is that the property may fall into disrepair if it is not properly maintained. Finally, if you do not carefully screen tenants, you may end up with problem tenants who cause damage to the property or do not pay their rent on time.
Overall, being a freeholder investor can be a great way to earn a good return on your investment. However, it is important to carefully consider the risks and benefits before making the decision to purchase a property.
What is the process of becoming a freeholder investor?
The process of becoming a freeholder investor is relatively simple. First, you will need to find a property that you are interested in purchasing. Once you have found a property, you will need to negotiate a purchase price with the owner. The next stage will be obtaining the financing for the purchase. After the financing is in place, you will be ready to close on the property and become a freeholder investor!
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