Home » News » Blog » Ground Rent Investments - Following The Maze

Ground Rent Investments - Following The Maze

Blog Featured Image 7

For many years, Strettons have been selling freehold ‘ground rent’ investments by auction, where all or both of the units in purpose built blocks, converted houses or in purpose built pairs of maisonettes have been sold on long leases on ground rents.

Quite often the freeholders have the rights to insure and recover the premiums from the leaseholders and to manage the building which can add to their appeal. Over the last few years, we've seen an increase in demand for such properties and thought it'd be a good time to comment.

As many of you will be aware, landlords are bound by the provisions of the Landlord and Tenant Act 1987 and the Housing Act 1996 before they sell.

These pieces of legislation make it a legal right for notices to be served on the leaseholders giving them the rights of first refusal or the opportunity to purchase their freeholds. In the case of auction transactions, there are specific section 5B notices which must be used and served, between 4 to 6 months in advance of the auction.

As always this is the simplified position as there a number of time periods and criteria which must be adhered to, both by landlord and tenant, to comply with their legal obligations.

If the lessees do protect their rights and the freehold sells in the auction room, the lessees basically ‘step into the buyer’s shoes’ and take over the auction contract.

It is interesting to note that where the lessees have protected their rights, the auction sale price appears to be a little depressed. Indeed a number of our main buyers choose not to bid on these lots. Perhaps they should bid, as one might argue the higher the auction price, the less likely the lessees will take over the contract?

At the moment the market seems strong for such investments, especially where the unexpired terms of the leases are getting shorter.

Of course here the freeholder is anticipating that the individual leaseholder will approach him for an extension to the lease, which should attract a healthy premium.

Some recent examples from numerous freeholds sold in our auctions include:

AUCTION

ADDRESS

UNITS

UNEXPIRED TERM

PRICE

February  2016 

 457 Grove Green Road, Leytonstone E11

 2

 2 with 67 years unexpired

    £61,500          

October 2016

 29 Old Road, Blackheath SE13

 1 with 65 years unexpired

 £41,000

December 2016

 582 Green Lane, Ilford, Essex

 2 with 70 years unexpired

 £41,000

December 2016

 3 Dalkeith Road, Ilford, Essex

 1 with 59 years unexpired

 £29,000

December 2016

 93 Norman Road, Leytonstone E11

 1 with 66 years unexpired

 £27,000

February 2017

 15-26 Hewlett Road, Luton, Bedfordshire

12 

 11 with 81 years unexpired

 £51,000

February 2017

 42 First Avenue, Manor Park E12

 1 with 69 years unexpired

 £24,000

February 2017

 13 Freelands Road, Bromley,Kent

3 long leases w/ rents = £450 p.a.

 £12,000

 

2 3 4
29 OLD ROAD, LONDON SE13 93 NORMAN ROAD, LONDON E11 15/26 HEWLETT ROAD, LUTON

As you can see, it is difficult to analyse the high price paid for Old Road. The other results can be seen to demonstrate a correlation between unexpired lease lengths and sale prices. 

So, something of a “maze” but, provided you get the basics right at the outset and follow procedure, there should be few issues. Certainly, our experience is that ground rent sales by auction achieve a positive outcome and good prices. 

For further information, please contact the auctions team on 020 7637 4000 or email auctions@strettons.co.uk.

 

Ian Mann BSc MRICS is a Chartered Surveyor and Associate Director in the Auction team. Ian and several of his colleagues have wide-ranging experience in ground rent investment sales and will be able to assist in any questions you may have.