Value of annual sum payable over 125 years today

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Spitfire147

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Hello
So glad I found this site am sure it will help me loads!!
For my first post I am wondering about an interest in Land.
Lets say I have a ground rent sum of £150 per annum to pay on land for 125 years.
I want to sell the land for say £1,000,000.
How do I work out the number to deduct from £1,000,000 to take account of the £150 per annum sum payable for 120 years?
Many thanks!
 
Spitfire147 said:
Hello
So glad I found this site am sure it will help me loads!!
For my first post I am wondering about an interest in Land.
Lets say I have a ground rent sum of £150 per annum to pay on land for 125 years.
I want to sell the land for say £1,000,000.
How do I work out the number to deduct from £1,000,000 to take account of the £150 per annum sum payable for 120 years?
Many thanks!
Click to expand...
Please follow the rules of posting in this forum, as enunciated at:

READ BEFORE POSTING

Please share your work/thoughts about this assignment.

You have included several "say" in your question. Are you paraphrasing another problem?

If you had put 150 pounds per annum in a bank deposit, what would be the value of your deposit after 150 years?

Please show work!
 
Hi
I was trying to simplify the problem but if you want the actual problem then here you go:
Annual rent on Leasehold land payable = £150,000 per annum for 125 years.
I am going to sell my leasehold interest in land for £5,000,000 because there is development upside potential on it.
However, I need to subtract the £150,000 per annum until end of lease liability from this. How do I calculate that figure to subtract from the £5,000,000 purchase price?
Hopefully this clearer?
Thanks
Alex
 
Spitfire147 said:
Hi
I was trying to simplify the problem but if you want the actual problem then here you go:
Annual rent on Leasehold land payable = £150,000 per annum for 125 years.
I am going to sell my leasehold interest in land for £5,000,000 because there is development upside potential on it.
However, I need to subtract the £150,000 per annum until end of lease liability from this. How do I calculate that figure to subtract from the £5,000,000 purchase price?
Hopefully this clearer?
Thanks
Alex
Click to expand...
If you had put 150,000 pounds per annum in a bank deposit, what would be the value of your deposit after 125 years?

Do not forget about the interest-earned. What is the interest rate?
 
Spitfire147 said:
Hi
I was trying to simplify the problem but if you want the actual problem then here you go:
Annual rent on Leasehold land payable = £150,000 per annum for 125 years.
I am going to sell my leasehold interest in land for £5,000,000 because there is development upside potential on it.
However, I need to subtract the £150,000 per annum until end of lease liability from this. How do I calculate that figure to subtract from the £5,000,000 purchase price?
Hopefully this clearer?
Thanks
Alex
Click to expand...
Use the formula for the present value of an annuity. For that you will need an estimate for the risk-free, long-tern rate of interest. I do not know whether "consols" are still traded in the UK; if they are, you can compute the effective long-term rate based on the current market price for a "consol.".
 
I hate to be the one asking the obvious, but you are paying rent on something you are going to sell?

Or are you collecting the rent?

I feel like running to the corner before I get sent there for my slowness.
 
firemath said:
I hate to be the one asking the obvious, but you are paying rent on something you are going to sell?

Or are you collecting the rent?

I feel like running to the corner before I get sent there for my slowness.
Click to expand...
I agree that the question is not well phrased although, due to differences in technical vocabulary and law, it may be slightly clearer to someone from the UK.

Here is what I suspect is being asked. Four or five years ago, he bought the right to use a parcel of land for 125 years in return for an annual payment (a so-called 'ground rent'). He wants to sell that right while simultaneously assigning the obligation to pay the ground rent to the buyer. He thinks he can sell the right for 5 million pounds if he is not released from his obligation to pay the ground rent. He is trying to figure out how much he should reduce the price to use the land in return for assuming his obligation.

If that understanding is correct, we basically need to know the relevant interest rate and whether the payment stream should be treated as a regular annuity or an annuity due.
 
Last edited:
JeffM said:
I agree that the question is not well phrased although it may be a bit clearer to someone from the UK due to differences in technical vocabulary and law.

Here is what I suspect is being asked. Four or five years ago, he bought the right to use the land for 125 years in return for an annual payment (a so-called 'ground rent'). He wants to sell that right while simultaneously assigning the obligation to pay the ground rent to the buyer. He thinks he can sell the right for 5 million pounds if he is not released from his obligation to pay the ground rent. He is trying to figure out how much he should reduce the price to use the land in return for assuming his obligation.
Click to expand...
Aha! Thank you for casting light on that. Much less confusing. Kudos, @JeffM.
 
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