Leasehold Valuation

Market Rent refers to the rental value of all types of property, not just land. Renters look to earn income through rent, hence, one should consider the market value criteria before listing. Other questions include the period of the lease, short or long term? Appraising the market rent of the land or land with buildings and improvements that have been utilized in order to use upon the making of the rental contracts, can be done by conducting a market survey of the appropriate market return rate which is also known as ‘Yield’ in the land area. This requires the rental rate in the market that has been offered for rent or even has already been rented and divided by the base of the market price of land which will give you a percentage of the rental yield. If there are numbers of data, it will be a huge benefit in terms of making a comparison regarding the strength/ weakness and it will be much easier to summarize the market rent or the land. On the other hand, for land with buildings and improvements that have been utilized in each form, it depends on the condition of each specific building whether the rent is for both land and buildings or separate as this must be considered in the form of ownership whether it belongs to the renter or landlord. Usually, if we consider the utilization in the form of the building that is ready to be utilized, we will have to look at the potential of generating income for that property by using the ‘Income Method’ as the key valuation method.

Right over leasehold assets according to the RIGHTS OVER LEASEHOLD ASSET ACT B.E. 2562 are assets or properties based on the use in real estate business. The real estate owners are able to establish rights over leasehold assets. At the same time, the right-holder can utilize the benefit in real estate. Therefore, the establishment of the right over leasehold asset seems to be more firm and secure compared to those with general leasehold right under the lease agreement, which benefit both parties between the property owner and renter, gaining more confidence from the 3rd party such as financial institutions, creditors or lenders in the collateral than the leasehold rights. In this case, when we consider the difference between right over leasehold assets and leasehold rights under the current law, it can be seen that right over leasehold assets is another that can benefit both, real estate owner who wants to release their property for other to use with no intention to sell it, as well as for those who wishes to utilize benefits in real estate for more flexibility and clarity in various transactions in their business. Therefore, right over leasehold assets registration has become more popular in these modern days for example, empty landed condominiums, land with buildings and improvements can register right over leasehold assets for a period of 30 years.

In general, the word ‘leasehold’ means the value or right owned by tenants, under lease agreements which will be different from the value of the landlord or owner. The leasehold value usually arises with long-term lease agreements in which the first payment sum or ‘upfront’ has already been paid to the landlord. As for the short-term lease, it will probably be just a deposit or insurance, followed by the rental fee in installments at the market rate. Therefore, there is no leasehold value for a short-term lease agreement. The leasehold value can occur in 2 main factors which are: The first payment sum or upfront has been paid which causes the remaining lease payment that must be paid in installments lower than normal market rent. Development of construction of a building on the leased land which is owned by the tenant. Then what will be the value of the owner or the landlord? This depends on many factors that specify terms and conditions on the contract. Usually, when the owner has rented out the property, they will only receive an income as a rental fee in each installment according to the contract and will be able to have full ownership again once the contract expires. Therefore, the value of the lessor which also can be called “Value to the Owner” will be equal to the price of the property on the expiration date as stated in the lease agreement plus the rental income under the contract which is the future value of the cash flow, by using ‘discount’ to be the present value will result in the value of the owner regardless of whether transferring his/her ownership until the expiration of the lease. The required documents in leasehold valuation are main/sub-lease agreements, building plans, title deed, etc.