Reversionary interest
Discussion
My mum owns a property that is leased to a big media company. They have been leasing it for over 10 years. They are negotiating a lease renewal which isn't due for a couple of months yet. They have sent a letter (attached) which I don't understand. Please could someone explain what this letter means - in simple terms! Thanks. 
maccboy said:
My mum owns a property that is leased to a big media company. They have been leasing it for over 10 years. They are negotiating a lease renewal which isn't due for a couple of months yet. They have sent a letter (attached) which I don't understand. Please could someone explain what this letter means - in simple terms! Thanks.
It would appear that they want to buy the property from your mum.Looks like the tenant company has a property company, and it's used to acquire freeholds (or long leasehold) from their landlords. for them, there will be a cost benefit to buying in the freehold vis a vis paying rent.
Given the lease is up for renewal, it's an opportunity for them to talk to your mum about acquiring the freehold, rather than agreeing a new lease. The "reversionary" element is the point at which the property becomes vacant (technically).
Be careful, because the reversionary value of a property can sometimes be higher than the value under the present (or proposed) letting. For example, a re-letting to the existing tenant might not generate as high a level of rent than to another tenant and or for different use (planning permitting). It might even have a higher redevelopment value.
The company here might have identified a higher rent achievable from a different user (or tenant) or value opportunity.
For example your Media Co might be worth a yield of say 8%. They then offer your mum the renewed rent x 8%, and once the deal is done, flip it to an NHS tenant or something handy (who they had lined up in the background) at 5%. So your mum loses that gap in value.
I would get a local valuer to take a look - that way you will know if they have spotted vacant possession or other value where you have not
Castrol for a knave said:
Looks like the tenant company has a property company, and it's used to acquire freeholds (or long leasehold) from their landlords. for them, there will be a cost benefit to buying in the freehold vis a vis paying rent.
Given the lease is up for renewal, it's an opportunity for them to talk to your mum about acquiring the freehold, rather than agreeing a new lease. The "reversionary" element is the point at which the property becomes vacant (technically).
Be careful, because the reversionary value of a property can sometimes be higher than the value under the present (or proposed) letting. For example, a re-letting to the existing tenant might not generate as high a level of rent than to another tenant and or for different use (planning permitting). It might even have a higher redevelopment value.
The company here might have identified a higher rent achievable from a different user (or tenant) or value opportunity.
For example your Media Co might be worth a yield of say 8%. They then offer your mum the renewed rent x 8%, and once the deal is done, flip it to an NHS tenant or something handy (who they had lined up in the background) at 5%. So your mum loses that gap in value.
I would get a local valuer to take a look - that way you will know if they have spotted vacant possession or other value where you have not
This is sensible advice. If you are not yourselves commercial property experts you should engaged the services of a suitably qualified and experienced chartered surveyor to advise you.Given the lease is up for renewal, it's an opportunity for them to talk to your mum about acquiring the freehold, rather than agreeing a new lease. The "reversionary" element is the point at which the property becomes vacant (technically).
Be careful, because the reversionary value of a property can sometimes be higher than the value under the present (or proposed) letting. For example, a re-letting to the existing tenant might not generate as high a level of rent than to another tenant and or for different use (planning permitting). It might even have a higher redevelopment value.
The company here might have identified a higher rent achievable from a different user (or tenant) or value opportunity.
For example your Media Co might be worth a yield of say 8%. They then offer your mum the renewed rent x 8%, and once the deal is done, flip it to an NHS tenant or something handy (who they had lined up in the background) at 5%. So your mum loses that gap in value.
I would get a local valuer to take a look - that way you will know if they have spotted vacant possession or other value where you have not
Castrol for a knave said:
Looks like the tenant company has a property company, and it's used to acquire freeholds (or long leasehold) from their landlords. for them, there will be a cost benefit to buying in the freehold vis a vis paying rent.
Given the lease is up for renewal, it's an opportunity for them to talk to your mum about acquiring the freehold, rather than agreeing a new lease. The "reversionary" element is the point at which the property becomes vacant (technically).
Be careful, because the reversionary value of a property can sometimes be higher than the value under the present (or proposed) letting. For example, a re-letting to the existing tenant might not generate as high a level of rent than to another tenant and or for different use (planning permitting). It might even have a higher redevelopment value.
The company here might have identified a higher rent achievable from a different user (or tenant) or value opportunity.
For example your Media Co might be worth a yield of say 8%. They then offer your mum the renewed rent x 8%, and once the deal is done, flip it to an NHS tenant or something handy (who they had lined up in the background) at 5%. So your mum loses that gap in value.
I would get a local valuer to take a look - that way you will know if they have spotted vacant possession or other value where you have not
Thanks for the information. Given the lease is up for renewal, it's an opportunity for them to talk to your mum about acquiring the freehold, rather than agreeing a new lease. The "reversionary" element is the point at which the property becomes vacant (technically).
Be careful, because the reversionary value of a property can sometimes be higher than the value under the present (or proposed) letting. For example, a re-letting to the existing tenant might not generate as high a level of rent than to another tenant and or for different use (planning permitting). It might even have a higher redevelopment value.
The company here might have identified a higher rent achievable from a different user (or tenant) or value opportunity.
For example your Media Co might be worth a yield of say 8%. They then offer your mum the renewed rent x 8%, and once the deal is done, flip it to an NHS tenant or something handy (who they had lined up in the background) at 5%. So your mum loses that gap in value.
I would get a local valuer to take a look - that way you will know if they have spotted vacant possession or other value where you have not
If they want to buy it - which is what I thought it meant - where does the 'reversionary' bit come into force?
The other slight flea in the ointment is that they only lease part of the property so are talking about buying just that part.
maccboy said:
Castrol for a knave said:
Looks like the tenant company has a property company, and it's used to acquire freeholds (or long leasehold) from their landlords. for them, there will be a cost benefit to buying in the freehold vis a vis paying rent.
Given the lease is up for renewal, it's an opportunity for them to talk to your mum about acquiring the freehold, rather than agreeing a new lease. The "reversionary" element is the point at which the property becomes vacant (technically).
Be careful, because the reversionary value of a property can sometimes be higher than the value under the present (or proposed) letting. For example, a re-letting to the existing tenant might not generate as high a level of rent than to another tenant and or for different use (planning permitting). It might even have a higher redevelopment value.
The company here might have identified a higher rent achievable from a different user (or tenant) or value opportunity.
For example your Media Co might be worth a yield of say 8%. They then offer your mum the renewed rent x 8%, and once the deal is done, flip it to an NHS tenant or something handy (who they had lined up in the background) at 5%. So your mum loses that gap in value.
I would get a local valuer to take a look - that way you will know if they have spotted vacant possession or other value where you have not
Thanks for the information. Given the lease is up for renewal, it's an opportunity for them to talk to your mum about acquiring the freehold, rather than agreeing a new lease. The "reversionary" element is the point at which the property becomes vacant (technically).
Be careful, because the reversionary value of a property can sometimes be higher than the value under the present (or proposed) letting. For example, a re-letting to the existing tenant might not generate as high a level of rent than to another tenant and or for different use (planning permitting). It might even have a higher redevelopment value.
The company here might have identified a higher rent achievable from a different user (or tenant) or value opportunity.
For example your Media Co might be worth a yield of say 8%. They then offer your mum the renewed rent x 8%, and once the deal is done, flip it to an NHS tenant or something handy (who they had lined up in the background) at 5%. So your mum loses that gap in value.
I would get a local valuer to take a look - that way you will know if they have spotted vacant possession or other value where you have not
If they want to buy it - which is what I thought it meant - where does the 'reversionary' bit come into force?
The other slight flea in the ointment is that they only lease part of the property so are talking about buying just that part.
If they only lease part they may want to buy the whole, I would still take advice though.
They could technically buy part, but it depends if it could be red lined and stripped out of the wider property, or a flying freehold created or you grant them a long lease (99 years or more).
My advice, is if they only occupy part, then don't sell/let part - you might have an unwelcome neighbour....
maccboy said:
Sorry but I don't understand!
If they buy it, surely the lease becomes meaningless because they would own their part of the property.
I will advise her to speak to someone who is experienced in this, don't worry about that! I'm just trying to get it straight in my head.
The tricky bit is them only occupying part of the property. Without seeing the property it is hard to say, but imagine your lodger asking to buy his room, but you keep the rest of the house. If they buy it, surely the lease becomes meaningless because they would own their part of the property.
I will advise her to speak to someone who is experienced in this, don't worry about that! I'm just trying to get it straight in my head.
Its a badly worded letter. If your Mum might like to sell get a chartered surveyor involved to give you decent advice.
If they only occupy part they can still buy the whole. Their lease can fall away and they become the landlord to the other tenant. I'm not clear if your mum occupies the other part. If so she'll also need to negotiate a new lease over that space.
If they only occupy part they can still buy the whole. Their lease can fall away and they become the landlord to the other tenant. I'm not clear if your mum occupies the other part. If so she'll also need to negotiate a new lease over that space.
OK
The parent company of the firm I work for does something similar with a different asset class. They are looking to purchase not the property, but effectively a longer term right to use what I'm going to guess is an advertising hoarding on a wall.
If it's on a plot of land it's quite easy to do freehold, but on wall I would expect a long lease.
Effectively they are looking to buy out their rent, and give out a pot of cash one off instead.
Take advice from someone who knows what they are doing...
The parent company of the firm I work for does something similar with a different asset class. They are looking to purchase not the property, but effectively a longer term right to use what I'm going to guess is an advertising hoarding on a wall.
If it's on a plot of land it's quite easy to do freehold, but on wall I would expect a long lease.
Effectively they are looking to buy out their rent, and give out a pot of cash one off instead.
Take advice from someone who knows what they are doing...
surveyor said:
OK
The parent company of the firm I work for does something similar with a different asset class. They are looking to purchase not the property, but effectively a longer term right to use what I'm going to guess is an advertising hoarding on a wall.
If it's on a plot of land it's quite easy to do freehold, but on wall I would expect a long lease.
Effectively they are looking to buy out their rent, and give out a pot of cash one off instead.
Take advice from someone who knows what they are doing...
Thanks. It is actually a unit within a building - rather than a hoarding.The parent company of the firm I work for does something similar with a different asset class. They are looking to purchase not the property, but effectively a longer term right to use what I'm going to guess is an advertising hoarding on a wall.
If it's on a plot of land it's quite easy to do freehold, but on wall I would expect a long lease.
Effectively they are looking to buy out their rent, and give out a pot of cash one off instead.
Take advice from someone who knows what they are doing...
So their idea is that rather than pay rent each month for the length of the lease, they want to buy the lease out - at a lower cost but longer commitment. What would happen at the end of the lease period?
maccboy said:
surveyor said:
OK
The parent company of the firm I work for does something similar with a different asset class. They are looking to purchase not the property, but effectively a longer term right to use what I'm going to guess is an advertising hoarding on a wall.
If it's on a plot of land it's quite easy to do freehold, but on wall I would expect a long lease.
Effectively they are looking to buy out their rent, and give out a pot of cash one off instead.
Take advice from someone who knows what they are doing...
Thanks. It is actually a unit within a building - rather than a hoarding.The parent company of the firm I work for does something similar with a different asset class. They are looking to purchase not the property, but effectively a longer term right to use what I'm going to guess is an advertising hoarding on a wall.
If it's on a plot of land it's quite easy to do freehold, but on wall I would expect a long lease.
Effectively they are looking to buy out their rent, and give out a pot of cash one off instead.
Take advice from someone who knows what they are doing...
So their idea is that rather than pay rent each month for the length of the lease, they want to buy the lease out - at a lower cost but longer commitment. What would happen at the end of the lease period?
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