Answer

Your client had wanted to purchase Silicon House, an office building held on a lease for an
unexpired term of 15 years without review at a rent of £350,000 p.a. on FRI terms. The
current rental value is £550,000 and an appropriate freehold yield on a rack-rented property
is 8%. Interest rates on safe long-term investments are in the region of 3%, and the
appropriate tax rate is 30%.
2) Value the leasehold interest.

Leasehold interest £
Rack – rental value per annum 550, 000
Less head rent per annum 350, 000
Profit rent per annum 200, 000
Years, purchase 15 years @ 9% & 3% 5.9949
Capital value 1,198,980
Say £1,200,000