Lease renewal - options

[TFP]

Hello

I'm a lessee with about 80 and a bit years remaining on my lease.

I didn't know anything at all about this subject until earlier today [so apologies if anything i say is obviously wrong] when my fiancee, who has been looking after this, pointed out that we might want to do something sharpish because marriage value will kick in soon etc.

I had a quick look at some of the other posts on here, and at the website www.lease-advice.org, based on these sources it looks to me that if i make a statutory application to renew i'll have to cough up a little over £10k including lawyer's fees [assuming a discount rate of 5% for the reversion element of the premium].

To say I was surprised by this would be an understatement. Given that i am getting married this year i am not 100% sure where the £10k is going to come from... but I could probably just about find it if needs be and need to decide something quickly.

I suppose that my options are:

(a) make a statutory application to renew the lease;
(b) decide to do nothing; or
(c) reach some sort of agreement with the lessor, which would probably see us paying out less than £10k but getting a much shorter lease extension and/or ending up paying more ground rent, enabling us to maintain the property value when we sell it in a couple of years' time.

My first question is on (a) vs. (b) - i think we probably plan to sell in about 2 or 3 years' time - is there any sense at all in letting the lease drop below 80 yrs? would we be likely to see the £10k we'd need to spend in extending reflected in the sale price of the flat?

My next question is on (c) - is this a realistic option? how could we reach an agreement that would leave both both sides better off? would i need to get professional advice in putting together a proposal to the lessor? the lessor has hinted that she's having money problems of some sort, and doesn't strike me as terribly shrewd [she owns a few properties but i strongly suspect that this is down to inherited money] i really don't see her wanting to turn down a nice big £10k payment now in return for future benefits [i.e. i'd imagine her discounting future benefits very heavily]

My fiancee says that she's been informally discussing this with the lessor for months, i've got a nagging concern that the lessor might be trying to string us along with delays etc so as to let the lease drop below 80 yrs in order to strengthen her hand in any negotiations.

Any advice gratefully received.

[sgclacy]

Need to post a bit more detail.

The ground rent and does it rise
The term of the lease and when the term starts
The value of the flat if it had a very long lease and a peppercorn rent


The significance of the 80 year mark is not so important following cadogan and sportilli. Because the defferemnt rate is 5% the value of the reversion means that not until about 77 years and below does marriage value apply and if the flat is worth upto £275k the amount is then only in the hundreds.

Unless the flat is worth more than £400k I would be surprised at £10k but in the absence of the info I need do not place any reliance my statement

[TFP]

Hi, yeah, the £10k is only approximate, but I think that it's about right with lawyers and valuers ...

Similar properties in the same street have been selling for about £350k.

The ground rent is, I think, £75p.a. for the first 33 years of the lease, £150p.a. for the next 33 years, and £300p.a. for the final 33. The NPV of the outsstanding rentals starting from year 20 is, near enough, the same as the NPV of a stream of constant £100p.a. rentals.

I had calculated marriage value in the following way (based on my interpretation of stuff i'd read on here):

=IF(years_unexpired<80,share_marriage_value*((Improved_value-SUM(Diminution,current_value))),0)

So is this wrong? You say that marriage value kicks in at 'about 77' years. What determines the exact point at which it applies? Given that this is important stuff do I just need to pay someone to advise me on this? What sort of person would that be?

NB I calculated reversion as:

Improved_value/(1+yield_reversion)^years_unexpired

And term as (using a simplified assumption of a constant £100p.a. rent as discussed above):

(ground_rent_pa/capitalisation_ground_rent)*(1-(1/((1+capitalisation_ground_rent)^years_unexpired)))


*****


Edit - I've just had a play around with my spreadsheet... I suppose that the key variable that I don't have a good feel for is the uplift in property value arising from an extension from 80 to 80+90. My guesstimate at property values is based on a tiny sample of recent sales, and I have no idea of the lease situation on any of those :(.

Maybe I need to think about this some more... mechanistically applying formulas without really understanding what's underlyingthem is probably asking for trouble.

[jeffrey]

Marriage value applies when lease has <80 yrs. unexpired. However, it is minimal until this drops below about 77 yrs., as sglacy posted.