Capital Valuation Implications of Rent‐free Periods Available to Purchase

The treatment of rent‐free periods and other inducements is currently an area of debate within the valuation profession. It has been argued that in determining the real rental value from a headline rent, the valuer must devalue the impact of the inducement. While recognizing the problem, there appears to be little agreement within the profession on either the appropriate methodology or the time period for this calculation. A further problem has arisen due to the near impossibility of divorcing over‐rented property valuations from the determination of real rental values. However, the current debate has centred on rental implications and has not attempted to quantify the effect which the capital valuation has on the letting market, even though it is the effect on the freehold capital valuation which may drive the deal on letting incentives to a far greater extent than any trade off of present rental holiday against higher rent in the future. Addresses the capital valuation question after a review of the basis of the valuation and the present state of the debate on rental issues.