RICS Draft Guidance Note: Valuation of residential leasehold properties for secured lending purposes in England and Wales, 1st edition

RICS Draft Guidance Note: Valuation of leasehold properties for secured lending purposes in England and Wales, 1st edition

Glossary

Alienation clause

A clause in a mortgage contract that requires full payment of the balance of the mortgage, at the lender's discretion, if the lease is sold, assigned, sublet or the property is shared.

Assumption

As defined by RICS Valuation - Global Standards (Red Book Global Standards), VPS 4.8, an assumption is made where it is reasonable for the valuer to accept that something is true without the need for specific investigation or verification.

Collective leasehold enfranchisement

The process whereby a group of individual qualifying lessees can acquire the freehold in a building as allowed under the Leasehold Reform, Housing and Urban Development Act1993(as amended).

Commonhold and Leasehold Reform Act 2002

Legislation that amended the Leasehold Reform, Housing and Urban Development Act 1993, introducing the concept of commonhold ownership and effectively extending the rights of leaseholders to purchase and influence management of the freehold.

Comparable

The current edition of Comparable evidence in real estate valuation, RICS guidance note, defines a comparable as

an item of information used during the valuation process as evidence to support the valuation of another, similar item. Comparable evidence comprises a range of relevant data used by the valuer to support a valuation.

Covenant

An agreement, contract, or written promise between two individuals that frequently constitutes a pledge to do or refrain from doing something.

Enfranchisement

A statutory right or privilege granted to a person or group by a government.

Ground rent

Regular payments made by a holder of a leasehold property to the freeholder or a superior leaseholder, as required under a lease.

Lease extension

The process by which a qualifying lessee can extend the leasehold term on a flat under the Leasehold Reform, Housing and Urban Development Act1993(as amended). Under the 1993 Act, the standard extension is 90 years with a peppercorn ground rent.

Leasehold enfranchisement

The process of buying the freehold of a house, where it qualifies, a process enshrined in the Leasehold Reform Act 1967.

Leasehold reform

This term relates collectively to the rights granted to leaseholders under the Leasehold Reform Act 1967 (as amended) and the Leasehold Reform, Housing and Urban Development Act1993 (as amended) to acquire overriding interests, extend their leases or take control of the management of their building according to the circumstances of their ownership and provisions of the relevant legislation.

Market value

As defined by Red Book Global Standards, VPS 4.4, this is the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's-length transaction, after proper marketing, and where the parties have each acted knowledgeably, prudently and without compulsion.

Marriage value

This is defined in the Leasehold Reform, Housing and Urban Development Act1993 (as amended) and by legal precedent, and is the difference in the value of the interests of the owners before and after the exercise of the leaseholder's rights under the relevant statute. The statutes proscribe marriage value for unexpired terms in excess of 80 years. (See Leasehold reform.)

Relativity curve or graphs

Valuers use such graphs to determine the value of a hypothetical leasehold interest in a property, compared to its freehold value. The graphs express the value of a dwelling held on an existing lease at any given unexpired term divided by the value of the same dwelling in possession to the freeholder, expressed as a percentage.

Reserve or sinking fund

An amount of money that is set aside to cover any major work needed on a property in the future.

Service charge

A sum levied by landlords to recover the costs they incur in providing services to a building.