Ringley Group: Planning deregulation will increase costs for leaseholders

23 July 2020 | General

Planning deregulation to encourage rooftop developments will increase the cost for leaseholders wanting to buy their building’s freehold according to Mary-Anne Bowring, managing director of residential property consultancy Ringley Group.

The government recently unveiled plans to allow building owners to add additional floors without going through the usual planning process. When the reforms come into effect, this will add to the “hope value” of the building and increase the cost of purchasing the freehold. Bowring claims that leaseholders may have to pay to determine if a building is structurally sound enough to support an extra two storeys, with the move making it more difficult and expensive for leaseholders to ‘enfranchise’ or buy the freehold of their building.

Mary-Anne Bowring, managing director of Ringley Group, said: “Under current legislation, the valuation method used when flats owners who want to ‘enfranchise’ and buy the freehold of their block of flats includes ‘hope value’ in its calculation. ‘Hope value’ can include the market value of land or roof or airspace development rights based on the expectation of getting planning permission for development.

“By allowing freeholders to bypass the usual planning process, the ‘hope value’ of the extra flats that could be built on top of a building becomes a positive presumption, which will impact on the valuers’ quantification of the ‘hope value’, which helps determine the ‘enfranchisement premium’ – the cost of buying your freehold.  In theory, the premium for leaseholders would increase.

“Another issue that looks unfairly weighted against leaseholders – and may end up being left for the courts to determine – is whether it is physically possible to build additional storeys in the first place. Some blocks may not have sufficient structural bearing capacity in the original design to do so but it would take flat owners a lot of money to prove that this may be the case and doubtless some leaseholders will suffer.

“It also means that freeholders of purpose-built blocks constructed within the timeframe set out by the government will be in less of a rush to create roof space leases to increase the enfranchisement price by creating a degree of certainty of further development.  Needless to say, for blocks built in the right time period, the weighting of the hope value for enfranchisement purposes will shift significantly.

“There’s only a short amount of time before these planning reforms come into place so leaseholders wanting to buy the freehold of their building need to act now to minimise additional expense because of these changes.”

This post has originally been featured in Property Wire.