An office unit located on the outskirts of Edinburgh has recently been let to a major accountancy firm on a 15-year lease on FRI terms with no reviews at 225,000 p.a. which is considered to be the market rent.

Shortly after taking possession the property was sublet to HM Customs and Excise for the full term less one day on FRI terms with rent reviews every 5 years, beginning in 5 years time at an initial rent of 225,000 p.a.

Comparable evidence of similar property in the area would indicate that an initial yield of 7.00% would be appropriate for the heritable interest in this type of property.

a) Value the head leasehold interest by the traditional method of valuation. (10% of marks)

b) Value the head leasehold interest by the modern, growth explicit, method of valuation. (80% of marks)

c) Comment on your results. (10% of marks)