Apartment Specialists Podcast No: 101
In this podcast, Andrew Murray talks about leasehold apartments and how much apartment building owners have to pay the landowner. This is an important topic about leasehold apartments that every apartment buyer should know about. Get all the details from this video.
How is it decided how much a leasehold apartment building has to pay the landowner?
This is again a question that I get asked a lot and it’s quite complicated. Andrew Murray here from Apartment Specialists and I’m talking specifically about leasehold apartments, and today about how much a building has to pay a landowner for the use of the land. How it is done especially if there’s nothing on the land but the building. It all comes down to the lease and how everything is done or be put up in points – if I have the latest value, how often it’s valued and that kind of thing.
Because each lease is different and I will talk about this in general terms. So, the number one thing that it really does come down to is the percentage. What is the percentage of the land value all the owners together have to pay each year for the lease of the land? That’s maybe 7, 8, 9 percent and so that’s very important.
The next thing that’s important is how is the apartment or how is the value of the land determined? And that can vary from the best use of land to otherwise. In general terms, it comes down to owners of the land giving evaluation and the apartment owners giving evaluation. The owners of the land wanting it to be higher and the apartment owners wanting it to be lower. Generally, they meet in the middle somewhere and agree and the terms each year is set out.
This is not done every year. As I’ve mentioned it’s done 7 to 21 years. Ideally, you want it to be as short as possible because you’re not having big jumps.
For example, 21 years ago – sorry 21 years, 21 years ago, the land wouldn’t have been worth that much. All of a sudden, it changes in 21 years’ time and it’s going to be a very big difference. And it’s going to change especially the owners with living costs, and things like that. Ideally, you want it to be 6 to 7 years so you can keep up with the market and it’s more, you know, steep. So this is a rough, very general idea of how it is calculated when you talk about specific leases becasue every single lease is different and every single patch of land is different.
That gets quite complicated and so I suggest sending an email and ask me question below about specifics and I can honestly, quite easily, as its something I’m familiar with, evaluate all the leases in the Auckland CBD in particular, or if not find a lease, I can read through it and explain it to you.
I hope this helps. It’s something that you might not be aware of.
Talk soon! Cheers!