BIM51545 - Builders, property dealers & developers: income recognition: ground rents: improved

The treatment of improved ground rents should follow the lines laid down in BIM51535 onwards, the formula in BIM51540 being modified as follows:

• In the case of improved ground rents, where the parcel of land covered by the sub-lease is a part only of the holding covered by the head lease and the holding is not fully developed, the factor ‘c’ should represent the market value of the reversion estimated on the assumption that the holding had been fully developed.
• In such cases, because of the right of the head lessor to recover the head ground rent out of any part of the holding, the actual market value of the reversions is usually small, and less than the cost of creation, until development has reached the point where the total of the improved ground rents receivable exceeds the ground rent payable in respect of the whole of the holding. In consequence, until that point has been passed, the amount to be brought into the computation will normally be the actual market value and not the cost.