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

The purpose of this paper is to empirically investigate the extent to which the use of YP[Dual rate] model for leasehold valuation actually reflects market conditions in practice in England. The qualitative research methodology is adopted where interviews have been conducted via face-to-face and phone with 105 purchasers of leasehold interests in the residential Cressington Heath neighbourhood of Liverpool in 2012. The analysis of the data has been facilitated by the use QSR NVIVO 10 to code the data. It has been established that purchasers of leasehold interests rarely make provision for an ASF in practice. Indeed, what actually happens is the direct opposite of what the model posits - purchasers borrow from banks to procure the property after which they commence paying back by instalments periodically. Also, there are other methods that can be used to make provision for future expenses but the use of the YP[Dual rate] model implicitly assumes that ASF is the only approach, which is unsustainable.Using the model for every leasehold valuation leads to undervaluation of such interests where investors do not actually use the ASF method in practice and the undervaluation is even more pronounced when taxation is introduced. The model should only be considered when a valuer is confronted with a practical situation where the ASF method is used or will be used by a leasehold investor. This study is based on empirical evidence and it is the first of its kind in the UK - arguments against or in favour of the use of the model tend to be theoretical or based on personal opinions uncorroborated with any empirical evidence.