Valuation of Ground Rents

( #1

I am dealing with an estate where the deceased received 55.5% of the proceeds from a number of freehold properties which were on long leaseholds (very common in Sheffield). The remaining 44.5% were received by his sister. The deceased received the princely sum of £73 per annum from these ground rents. Shortly before he died he ‘sold’ his share to his sister for £100. Other than letters confirming this to the company who collects the ground rents no formal registration of this sale was completed. In fact, it has transpired that these were passed to the deceased and his sister from their mother in the 1950s and no conveyance was undertaken at that point. The sister would have received 50% under the terms of the Will in any case, unless it had passed by survivorship. I am not party to the terms of mother’s Will.

I have taken the view that this was a legitimate sale especially as the deceased knew he did not have long to live and as such received in excess of 1 year’s income which he would not have otherwise received (he was aware of his terminal diagnosis). If there was any gift element to this then I believe that this would be within his annual allowance. However, I am now curious to know how the correct value of these ground rents should be ascertained. Can anyone point me in the right direction?

Chris Shaw
Graysons Solicitors

(Paul) #2

I believe there are companies around that specialise in acquiring ground rents so you might approach them to see what they would pay. There is also an arithmetic way of calculating the present value of an annuity payable in perpetuity (which I assume this is) which you might use as a guide. You have to establish an appropriate discount factor / cost of capital. The inverse represents the appropriate factor for valuing the annuity. In terms of choosing an appropriate discount factor you can probably use the yield on long dated government bonds as a guide albeit bonds are more readily realisable.

For example if you were to use a discount factor of 2% the annuity is worth 50 times the annual value (i.e. 1 / 0.02) which in your case would be £3,650.

I believe the position for rentcharges (payable out of freehold property) as opposed to ground rents (payable on long leaseholds) would be different because of the provisions in the Rentcharges Act 1977. However I am not a property lawyer so take that with a pinch of salt.

Paul Davies
Clarke Willmott