What is the difference between an Interim Schedule of Dilapidations, Terminal Schedule of Dilapidations and Final Schedule of Dilapidations?

If a tenant mistreats a property or fails to maintain it according to the terms of their lease, the landlord can issue a Schedule of Dilapidations. This process provides a much-needed failsafe for landlords, helping to protect their investment and clarify a fair, appropriate way forward. And for tenants, it helps to avoid nasty surprises – like being presented with a huge repair bill at the end of the tenancy.

What are the different types of Schedule of Dilapidations?

There are, in fact, three different Schedules of Dilapidations: Interim Schedule of Dilapidations, Terminal Schedule of Dilapidations and Final Schedule of Dilapidations. Broadly speaking, they all fulfil the same goal of setting out the tenant’s obligations to bring the property back up to scratch. The difference is they’re used at different points in the lease period.

Let’s take a look at the three options and see how they’re used:

Interim Schedule of Dilapidations

This first option is issued during the course of the lease, for example, if a landlord is concerned that proper maintenance isn’t being carried out. The idea behind the Interim Schedule is to remind the tenant of their obligations and clarify what’s expected – thereby helping to nip any neglect in the bud and protect the value of the property, while also protecting the tenant from higher repair costs further down the line.

Terminal Schedule of Dilapidations

The rather more ominous sounding Terminal Schedule is used towards the end of the lease, usually within the last 18 months to three years of the lease. It tends to be more detailed than the Interim Schedule, listing items of disrepair that need to be fixed before the end of the tenancy.

Final Schedule of Dilapidations

The Final Schedule is issued after the lease has expired, in the event that required repairs haven’t been carried out. Just like the Terminal Schedule, this one will generally set out in detail what works are needed, but, as the lease has already expired by this point, the Final Schedule may also include the cost of lost rent while the repairs are being carried out.

Professional Support from Leading Chartered Surveyors

Managing dilapidations while maintaining a good tenant–landlord relationship can be especially tricky, so professional support is a must. Perry Hill’s team of chartered surveyors guides both landlords and tenants through the dilapidations process – from carrying out inspections and estimating costs, to issuing paperwork and giving trusted advice.

Why use a building surveyor at the start and end of your commercial lease?

A building survey is not just for properties being sold. In fact, there are many reasons why you might appoint a surveyor to carry out a building survey or inspection on a rented commercial property.

Assessing the condition of the property

All commercial leases have clauses regarding the condition of the property, and how it should be maintained. This wording is designed to protect both landlords and tenants. But when it comes to enforcing these clauses, or ensuring a commercial property is being properly maintained, professional help is often needed.

This is where a trusted building surveyor is worth their weight in gold. They can carry out building surveys and other inspections, and provide detailed reports (including photos) on the condition of the property and any maintenance issues. With this in mind, having a building survey done at both the start and end of any lease is a good way to reduce risk and ensure peace of mind.

As well as a formal building survey, surveyors can also help with:

Schedule of Dilapidations – when a tenant has failed to properly maintain the property, this report outlines the items of disrepair and specifies the work needed to bring the property up to scratch.
Photographic Schedule of Condition – this document sets out the condition of the property in forensic detail, and covers the repair and maintenance obligations for the length of the lease, as agreed between the landlord and tenant.
Rent reviews – setting out the property’s current rental value, this report can be used to support lease negotiations and ensure the rent is set at the proper market rate.

Benefitting commercial landlords and tenants alike

Many commercial tenants choose to have a survey done before they take on a new lease because it can save them a lot of money in unexpected repairs. And for landlords, surveys and inspections are a vital way to protect their investment.

Ultimately, working with a professional surveyor means both sides can be sure the advice given is accurate and fair – which helps to promote positive communications and deepen trust between the landlord and tenant.

At Perry Hill Chartered Surveyors, we support both landlords and tenants with the full range of surveys, inspections and valuations. Discover how we can help you get the most out of your commercial lease agreement.

What is a Home Buyer Report – and is it right for you?

If you’re buying a house or flat, you might be thinking of getting a Home Buyer Report. This inspection report looks at the property’s structure and overall condition, highlighting whether there are any major problems with the property.

The Home Buyer Report tends to be the preferred inspection report for UK buyers, but it’s not the only option. Here’s what you need to consider.

Remember, it’s not a full building survey

Many buyers think the Home Buyer Report is a formal structural survey, when it’s not. A Home Buyer Report gives an overview of the property’s condition, and is designed to flag urgent, visible issues that may affect its value. But it doesn’t look beyond what’s immediately visible. For example, the surveyor wouldn’t lift carpets or look at wiring.

The Home Buyer Report is therefore a sensible choice for conventional, fairly new properties in reasonable condition. For other properties, the Home Buyer Report may not be detailed enough.

How does a building survey differ?

A building survey (also known as a Full Structural Survey) is the most detailed type of property inspection you can choose. Not only does it cover the visible issues that are included in the Home Buyer Report, it also looks for issues that may not be immediately visible, such as woodworm in structural timbers. It also details the apparent cause of problems, how urgent they are, how they should be fixed, and how much it might cost. This information is incredibly valuable for buyers – particularly when it comes to negotiating a reduced price.

As an example, we recently carried out a building survey that found £80,000 of work was needed – a huge cost, and one that the buyer hadn’t factored into their budget. Armed with this advice, they were able to renegotiate with the seller.

Doesn’t a building survey cost more?

In a word, yes. Building survey costs vary according to the property, so each case is different, but in terms of value for money, we think the building survey wins hands down. As the previous example shows, it can save you a fortune in the long run.

At Perry Hill Chartered Surveyors, we’ll discuss your goals before the inspection, so that we can provide the information you need. Say, for example, you want to extend the property in future, we can tailor the report to include this and highlight potential issues. This way, we make sure you get maximum value for money.

Bottom line: a building survey is a worthwhile investment. Get the advice you need to make an informed purchase decision.

How a commercial rent review can help you negotiate with your landlord

If you lease a commercial property, you’ll know that some landlords may inflate a property’s rental value and charge more than the property is really worth. But did you know that there’s a formal way to challenge the landlord’s proposed rent and ensure you’re paying a fair market rent? That formal process is known as a ‘rent review’.

How do rent reviews work?

A rent review can be used for any type of land or commercial building, and is recommended anytime you renew a lease or take on a new lease. In a nutshell, you appoint a chartered surveyor to assess the property in line with professional valuation standards and current market conditions to gain an accurate picture of its rental market value. You’ll then receive detailed information about the value of the lease, which you can use in negotiations.

It’s not just tenants that can request a rent review – landlords may also appoint a surveyor to conduct a rent review. Say, for example, a landlord feels their property is undervalued at present, they may want a rent review to justify a higher rental value when the lease is up for renewal.

Typically, commercial rent reviews are carried out every three to five years, but your lease agreement may outline more frequent reviews. Be certain you know what you’re agreeing to before you sign on the dotted line.

Making sure you’re paying a fair rent

When you understand a property’s correct rental value, it puts you in a stronger negotiating position:

  • You can be sure you’re not overpaying, before you agree to a new lease or lease renewal.
  • In the event of a dispute with your landlord, you can use the rent review as proof of the property’s current market value.
  • You can set out any factors that may lower the property’s market value, such as maintenance issues or external influences – and these factors will be supported by the rent review.
  • You can also budget accurately, and keep your operational costs to a minimum.

At Perry Hill Chartered Surveyors, we act as commercial rent review surveyors for tenants or landlords who need a rent valuation they can trust. Our experienced surveyors are certified by RICS, the Royal Institution of Chartered Surveyors, meaning you will always receive an accurate, fair rent review. Discover more about our commercial rent review service.

Landlords, when did you last do a rent review on your commercial properties?

In our experience, many commercial landlords forget about doing a regular rent review. It’s an easy thing to overlook – particularly when a property is being leased to a stable, long-term tenant – but neglecting the rent review can cost you money in the long term.

What’s involved in a commercial rent review?

In simple terms, a chartered surveyor will assess your property, compare it to other similar commercial properties in the same area, and provide a report on the property’s current rental market value. The rent review can then be used to ensure the rent is set at the proper market rate, and to support lease negotiations.

How often you conduct a rent review will depend on what’s set out in your commercial lease agreement, but every three to five years is a good rule of thumb. Certainly any time a lease is due for renewal, you should carry out a rent review before negotiating the new lease with tenants.

Understanding the benefits of regular rent reviews

A rent review will help you establish the correct market rental value of your property, which means:

  • You’ll be able to increase the rent every three to five years, depending on inflation and market conditions.
  • You’ll have the assurance you need to tackle lease renewal negotiations with confidence.
  • You’ll be enhancing the value of your property and protecting your investment.
  • In the event of a dispute with your tenants, you’ll have proof of the accurate value of the property.

Professional standards for rent reviews

Whenever you’re negotiating a lease with tenants, both you and your tenants will have different objectives in mind; you’ll obviously want to maximise your investment, while the tenant (rightly) wants to make sure they’re not paying over the odds. A professional rent review – one that’s conducted in line with international valuation standards – ensures that the rent is fair and accurate, thus paving the way for smooth, successful negotiations.

At Perry Hill, our team of RICS-qualified chartered surveyors has a wealth of experience helping landlords with all aspects of commercial rent reviews and valuation – including for pension funds, trusts, charities and local authorities. Serving Surrey and the South East, our trusted rent review service can be used for any type of land or commercial building. Ask us about enhancing the value of your asset with a commercial rent review.

What is a Red Book valuation and why is it important?

Professionals who assess the value of properties and land have to work within strict professional standards set by RICS, the Royal Institution of Chartered Surveyors – and the publication that covers these valuation standards is known in the industry as the ‘Red Book’.

So if you’ve ever heard a surveyor talk about the Red Book, and wondered what on earth they meant, they’re referring to the best practice guidelines and rules for professional valuation services.

When would you need a Red Book valuation?

There are lots of circumstances when a Red Book valuation might be needed. Essentially, any time you need a formal valuation for tax purposes or legal proceedings, that valuation must be done by a RICS Registered Valuer, acting in line with Red Book standards.

This might include valuations for:

  • Tax planning purposes
  • Calculating probate, or Capital Gains Tax
  • Transferring assets into a SIPP pension fund
  • Properties being sold by charities (as set out in the Charities Act)
  • Divorce proceedings, or other court proceedings
  • Disputes being resolved through mediation or arbitration

A Red Book valuation can also be helpful for rent reviews and other negotiations.

What’s involved in a Red Book valuation?

In simple terms, a Red Book valuation involves a RICS Registered Valuer assessing the property and providing a formal report on the current market value of the property. To help calculate this market value, the valuer will look at three comparable properties that have recently been sold in the same or similar area.

The valuation is generally valid for three months, but it can be extended in some circumstances.

The mark of quality for your property valuation

When you work with a RICS Registered Valuer, you can be sure you’re getting a high-quality valuation that adheres to strict Red Book standards. In other words, you’re getting a professional, accurate and honest valuation – a valuation that you can trust. Think of it as a seal of approval or quality mark for your property valuation.

At Perry Hill Chartered Surveyors, our RICS Registered Valuers provide formal Red Book valuations for a range of different purposes and properties, for both residential and commercial clients. So if you need a valuation you can trust, talk to Perry Hill about our expert Red Book valuation services.

How an independent property valuation can reduce your Capital Gains Tax liability

If you’re selling a property that’s not your main home, you may have to pay Capital Gains Tax (CGT) on the sale. But did you know that getting a professional valuation could help to reduce your CGT bill, especially if you’ve owned the property for a long time?

What is Capital Gains Tax?

CGT is the tax payable when you sell and make a profit on a property that is not your main residence. Essentially, you pay tax based on the amount you’ve gained from the sale of the property, which means CGT is usually calculated based on how much you paid for the property and how much you sold it for.

Generally speaking, CGT applies to the following:

  • Buy-to-let investment properties
  • Business premises
  • Land sales
  • Holiday homes
  • Properties purchased before April 1982
  • The gift of a property

Why get an independent valuation for CGT?

You’ll need an independent property valuation to get an accurate assessment of the property’s value, so that CGT can be calculated correctly. Because the valuation is being relied upon for tax purposes, it must be carried out by a professional member of RICS, the Royal Institution of Chartered Surveyors, according to RICS Red Book standards. This professional valuation service ensures you get a fair valuation and don’t pay any more CGT than necessary.

The savings can be even more significant if you bought your property before April 1982. In these circumstances, known as ‘1982 valuations’, you can use the market value of the property in 1982 to calculate CGT, rather than the amount you paid for the property – which may have been a lot less than its 1982 market value.

But no matter how long you’ve owned the property, working with a professionally recognised valuer is the safest way to ensure your valuation is accurate, and that your best interests are taken into account.

Reducing your CGT liability

At Perry Hill Chartered Surveyors, our independent, RICS Registered Valuers provide valuations across London and Surrey, helping both residential and commercial clients get the best results with their CGT valuations.

We’ve found that 1982 valuations in particular have saved our clients a considerable amount of money on their CGT bill. Discover whether our expert property valuation services could help reduce your CGT liability, too.

Lease Valuation Methods and Examples

The market for acquiring short lease flats has always been strong, with investors and developers seeking to acquire short leaseholds, to refurbish and to obtain a lease extension. In this blog we look at the methods of valuing a short lease, in respect of obtaining a statutory lease extension.

Lease Valuation Method for Properties

The main accepted method of calculating the existing Leasehold value of a particular property, with less than 80 years unexpired lease term, is to utilise the Graphs of Relativity. However, this is not always appropriate valuing short leases, when they get to sub 30 years.

In cases where a lease term is sub 30 years unexpired, other methods of valuations should be considered. Using an investment calculation would be appropriate in ascertaining an existing lease value in our opinion.

There would be no need for any further allowance for the “no act” world which you would have to consider when using a graph of relativity to calculate the existing Lease value. The statutory assumption to be adopted when valuing the existing lease value is to assume that the property does not have any rights under the act for a statutory lease extension.

For unexpired Lease – “short leases” of say 20/30 years unexpired threshold, the valuation method should consider what a prudent investor be willing to pay to acquire the Lease taking into account that at the end of the term the Leasehold property would revert back to the Freeholder. A valuer would first have to access how much the property would be let out for on the open market, per annum, minus the relevant deductions associated with properties that are let out on an Assured Shorthold Tenancy. Once this has been assessed an appropriate yield would need to be applied. The yield would represent the appropriate rate of return an investor could expect from a property, knowing that it is effectively a wasting asset.

Leasehold Valuation Calculation

We have outlined a leasehold valuation calculation example below; please note the figures used are purely subjective.

A two-bedroom, ground floor flat rents for £1350.00 per calendar month (£16,200 per annum). Unexpired term is 17 years.

Calculation

£16,200 per annum

Less

Ground rent @ £15.00 per annum

Management costs @ 10% of annual rent (£1620.00)

Void period @ 5% of annual rent (£810.00)

Total = £13,755 per annum

Capital Value

£13,755 @ Yield (8%) for 17 years (9.1216 YP) = £125,468.00

Typically, a residential investment would attract a yield of 3-5%, given the inherent capital value associated with residential investments. However, as this asset has a declining value because it is a leasehold wasting asset, an investor may expect a return of 7-8% on sums invested reflecting the capitalised short lease value.

This is an appropriate method of valuation for residential short Leases, as the methodology represents a tried and tested approach for calculating the value of investments across a multitude of different disciplines. The Upper Tribunal has stated that the Graphs of Relativity should only be used when there is a lack of real-world evidence. This method would be considered as real-world evidence, as it is based upon transactions that have been completed. There may be different attitudes to yield and deductions applied to the calculation depending on the location, lease and type of the property.

Lease Valuation Advice from Perry Hill

Our valuers are specialists in appraising Leases and Leasehold premises, in order to provide Clients with realistic assessments, in respect of the premium payable in lieu of Statutory Lease Extensions.

Get in touch with one of our team members today by filling out our contact form. One of our trusty agents will then get back to you.

Why extend your residential lease sooner rather than later?

If you own a leasehold flat, when was the last time you thought about the length of your lease? Many leaseholders don’t think twice about their lease until they come to sell the property – at which point, they may find that a short lease makes it harder to sell or achieve the price they want. The solution is to extend the lease sooner, rather than wait until you’re trying to sell.

Six reasons to be proactive and extend your lease now

  1. When the time comes to sell, if you’ve already extended the lease, you’ll be ready to put the property on the market straight away. No fuss, no waiting.
  2. A flat with a longer lease – the longer the better – is much easier to sell. Buyers don’t want the hassle of having to extend the lease themselves within a few years of buying the place. Most will simply look elsewhere and choose a property with an extended lease.
  3. The majority of high street mortgage lenders won’t lend on a property that has an unexpired lease of 75 years or less. So if you’re thinking of re-mortgaging or looking ahead to a future sale, a short lease may limit your options.
  4. Properties with leases of less than 80 years depreciate faster than longer-lease properties. Extending now is a smart way to protect your investment.
  5. If you’ve owned the leasehold for two years or more, and meet other qualifying criteria, you may be able to extend your lease for an additional 90 years, on top of the remaining lease term. So if your lease has 80 years left, and you extend for an additional 90 years, that’s a new lease of 170 years – making your property more valuable and easier to sell in the future.
  6. Finally, it’s far cheaper to extend a residential lease at 81 years or above. If you wait until the lease drops below that, it’ll cost you more. Is it worth putting it off and paying more in the long run?

When you work with a residential expert, extending your lease isn’t as complicated as you might think. At Perry Hill Chartered Surveyors, we’ve helped many homeowners across Guildford, Surrey and London successfully extend their leases – and have fine-tuned the process to be as quick, painless and affordable as possible. Talk to us today about extending your residential lease.

Selling a Property with a Short Lease – Case Study

Lease Extension in London

Earlier this year Perry Hill were instructed to carry out a lease extension in Isleworth for the leaseholder. Below we explain how Perry Hill was able to save the client a total of £25,000 for a statutory 90 year lease extension at nil ground rent.

Selling Property with a Short Lease

This was job was a low lease and the property in question had circa 16 years unexpired on the lease. The property was inherited recently and the leaseholder wanted to put to sell the property as quickly as possible, this could only be carried out after a lease extension had been completed.

Low leases require a different approach to be used, this particularly due to the large sums of monies expected for the lease extension and the freeholder would be keen to negotiate hard because they know at the end of the term, they will be acquiring the property at no cost.

The executors of the estate served a section 42 notice; this reserves the leaseholder’s right to a 90 year lease extension at nil ground rent under statute.

This was a particularly interesting case due to the nature of the low lease and calculating the existing lease value. There are a number of methodologies that can be used; these methods are the graphs of relativity, real world evidence of similar comparable properties on similar lease terms and investment value.

Lease Extension Outcome

In this particular case the investment value was deemed the most appropriate, as this incorporates both what an investor would pay on the open market for a property with a low lease, providing a certain level of income via rent and a “no act” world.

The investment method is effecting via an experienced surveyor, is valuing the Market Rent for the property assuming an Assured Shorthold Tenancy, deducting an appropriate percentage to include vacancy rate and 10% for management of the property.

This value would be then capitalised at 7%. The 7% represents the rate of return when compared to the Capital Value of the property assuming a short lease. This is an effective away of calculating the existing lease value, as there would be no further deductions for a “no act” world, which is a contentious issue currently in leasehold valuations with the recent Sloane v Munday case. Between the surveyors it was decided that the investment valuation was an appropriate method for calculating the existing lease value as there was no real world evidence available.

Using this way of thinking, Perry Hill are delighted to state that they saved the client a total of £25,000 for a statutory 90 year lease extension at nil ground rent.

Lease Extension Services from Perry Hill

Perry Hill Chartered Surveyors successfully help homeowners each year in extending their residential Leaseholds. Our industry-recognised surveyors save our Clients time and money by helping with the burden of negotiating complex residential Leasehold negotiations.

Find out more about Lease Extensions and contact a member of our team today to discuss your options.

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