Relevance of the use of YP[Dual Rate] in the Valuation of Leasehold Interests in Contemporary English Practice

Abstract

The purpose of this paper is to: (i) empirically investigate the extent to which the use of the YP [Dual rate] model for leasehold valuation actually reflects market agents' behaviour in England; and (ii) systematically examine its impact on leasehold valuations. The qualitative research methodology was adopted where interviews were conducted face-to-face and via phone with 105 purchasers of leasehold interests in Cressington Heath neighbourhood of Liverpool in 2012. QSR NVIVO 10 was used to code the data for analysis. It has been established that purchasers of leasehold interests do not make provision for an ASF in practice. Indeed, the method adopted is the direct opposite of what the model positspurchasers use debt capital to procure property after which they commence amortising the loan periodically. There are also other approaches that can be used to make provision for a future expense and it is surprising the focus is on only the ASF method. Using the model to value, particularly, short leases leads to significant undervaluation, especially, when taxation is introduced. For very long leases, however, it does not actually matter whether it is YP [Perpetuity] , YP [Single rate] , YP [Dual rate] or YP [Dual rate adjusted for tax] that is used as the resultant valuation will be the same.