Hi
I am looking at purchasing a lease on a small warehouse.
The lease is a ground lease i.e. I pay ground rent (plus rates as normal)
The GR is set to be 20% of the "rack commercial rent" which is currently set at £20k/year i.e. the GR is £4k/year.
The lease runs for another 90 years.
The lease is costing £125k and I am happy with this value because of special reasons to do with the location, so I am not concerned with getting a commercial return etc.
I have just one question:
What would be the value of such a lease?
With any normal lease, the value is, very roughly, the difference between the actual rent and the market rent, times the number of years before the next rent review.
With this one, there will ALWAYS be a 80% difference between the two, no matter how high they set the "commercial rent". With 90 years to go, this must represent a huge value.
Is this right?