Accommodation Test Questions

1. What is meant by the term 'ground rent'?

2. What are the main fixed costs associated with an owner-occupied property?

3. In the case of a house let unfurnished to a short-term tenant, which of the fixed costs are usually payable by the landlord?

4. Name some of the items of variable expenditure associated with the owning of property. Which of these would usually be payable by the landlord in the case of leasehold property?

5. What is a 'service charge' payable by the owner of a leasehold flat?

6. A freehold property that is well looked after does not depreciate significantly in value, even in times of stable prices. Discuss this statement and say whether it would be true in the case of a 900-year leasehold and a 10-year leasehold. If the statement is untrue in such cases, what provision could be made by the leaseholder to ensure he is not homeless at the expiry of the lease?

EXERCISE

Julian Whitehead is offered a flat at a price of £116,000. Enquiry shows that what is being offered is a leasehold with 16 years to run. A ground rent is payable to the landlord of £420 a year, and there is a service charge at present of £25 a quarter. The flat is assessed to rates at £1150 and rates plus water rates are 85p in the £1. Property insurance will cost Julian 0.15% plus a policy charge of £2. Julian is able to pay cash for the purchase out of money received from a legacy, at present earning interest at 15% gross.

What will be Julian's annual fixed revenue expenditure on the property if he decides to take it? Ignore contents insurance. What additional annual amount should Julian notionally add to this outgoing to determine the real yearly cost to him of owning the flat? Will Julian's capital expenditure on the purchase of the lease provide him with an appreciating asset, or a depreciating asset? Explain your reasons for the answer.


Council Property

The terms for tenancy of council property are on a different footing in most cases. In the first place, the standard rent is generally based not on market value of the property but on the original cost, often a very great deal lower, on the grounds that the person who should benefit from the escalation in property prices since the date of construction should be the tenant and not the landlord (the council). From a purely commercial point of view the tenant is obtaining a service from the council at a price subsidised by the general ratepayers of the area, for it is their council that had the good... see: Council Property


Refunds, Personal And Business Finance 2017

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