Flat management company: how to report Freehold value?

Flat management company: how to report Freehold...

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 Hi all, 

I would need your help to complete the accounts of a small flat management company.

The house I live in is split in 3 flats. Each of the 3 flats owners are equal shareholders in a limited company that has purchased the freehold. I am currently putting together the accounts of this company and I need to know how to report the value of the Freehold.

I understand that, if the flat management company was run for profit (i.e. if it charged a ground rent to the different leaseholders every month), the correct way of reporting the Freehold would be to show it as a tangible asset on the balance sheet, valued at its purchase cost.

However, the flat management company is not run for profit (because it is entirely owned by the flat owners) and it does not charge a grount rent to the different leaseholders. Since the newly-drawned up leaseholds specify that there will be no ground rent paid to the flat management company for the next 999 years, does that mean that the value of the freehold has gone and I should therefore write it off completely in the accounts?

Thanks in advance for the guidance. 

Replies (3)

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Teignmouth
By Paul Scholes
30th Jan 2011 18:56

Can leave at cost

Hi - the property is not used the company's business (obviously) and so it's strictly an "investment property" to be shown under tangible fixed assets.

As such therefore it should, I think, be shown at valuation (directors' valuation is OK) but to be honest, in the early years, most leave it sitting there at cost (and not depreciated).

 

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By diaggs
04th Feb 2011 11:22

Anybody else?

 Thanks for the answer.

Could I get other people's advice? In particular, why is the economic argument that the Freehold has a zero value not correct?

 

Many thanks

 

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Teignmouth
By Paul Scholes
04th Feb 2011 13:15

Up to you

As I said, it makes no difference whether the company is "for profit" or not the disclosures are governed by Accounting Standards so it's correct to show at valuation and so either pay for one or have a stab at it yourself. 

I'm no expert but agree that if the leases are 999 years @ peppercorn rent then you can stick a £10 value in however you have to make sure there is no potential investment value from redevelopment of the house, ie to go up or out.  A formal valuation would take this into account.

At the end of the day nobody is going to kick up much of a fuss one way or the other, they are your accounts.

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