Extending the lease

[Special One]

Hi there,

I would be most grateful if someone could help me with the following.

I own a leasehold flat that has 81 yrs and 2 mnths remaining on the lease (original term 99yrs) and I'm thinking about extending the lease to protect the value of the flat as it is proving difficult to sell in the current housing market and I'm aware of going below 80 yrs avoiding the marriage value charge.

I've tried using the extension cost calculator but seem to be getting confused by the yield amount. Additionally for the first 33 yrs of the lease the ground rent is £70, for the next 33 yrs is £150 and for the residue of the term the cost is £300 provided that the rent hereby reserved shall not rise as to exceed 2/3 of the rateable value of the demised premises.

Here are my figures that I calculated as follows:
i) 81 years left
ii) 90 years extension
iii) 171 yrs new lease
iv) £70 ground rent
v) £130,000 market value
vi) £135,000?! future market value
vii) 8% yield?!
viii) 0% marriage value
= £873.55 possible premium

Obviously there will be additional charges from solicitors and my landlord etc.

I would be grateful if someone could steer me in the right direction and whether my calculation is realistic.

Kind regards.

[tenant29]

You should look at the calculation method shown in a thread dated 10 April 2008 by Razaidi.

[Special One]

Tried searching for the Razaidi thread dated 10 April 2008 but I couldn't find it. Please post the link if possible.

Kind regards.

[tenant29]

http://www.landlordzone.co.uk/forums/showthread.php?t=10654

[sgclacy]

The root of the problem is that you are discounting the revesion at 8%.

Cadogan and Sportilli definded the rate at 5% and although you may be able to argue a higher rate the cost of doing it on a flat in this price range may not be cost effective

Income whilst not that significant probably ought to be discounted at 7.25%

Ground rent at 7.25% = £70 / 0.0725 = £960

Deffered value of reversion = £135,000/ (1.05^81) = £2594

Total = £3,554

[Special One]

Many thanks for your reply sgclacy.

Would you recommend using a solicitor or dealing directly with the landlord?

Kind regards

[sgclacy]

Unless you know that your landlord is unreasoanble I would always advise trying to negotiate outside the Act to begin with. You know what the figures are but be prepared to offer a little more if is happy to do it outside the Act as this will save you money and also make it more worthwhile for him.

The significance of the 80 year watershed is not so relevant now following Cadogan and Sportelli marriage value only starts to appear in the calculation when the term drops below 77 years

If you have a mortage you will need a solicitor to Act for you

[Special One]

Thanks.

Unfortunately my landlord is a company that is a law unto themselves. I wouldn't wish to name them on here.

As there is still 4 years before marriage value kicks in I suppose I have a little bit of time before things become critical. I guess I could write to them asking for a price for the extension but I have a feeling they could pluck a figure out of the air. By the way I have a mortgage on the property.

I may speak with my solicitor who happens to have been involved with the original 99yr lease and is named on this document.

Alternatively I could look into collective enfranchisment with the other 3 leaseholders in the block.

Kind regards

[jeffrey]

We probably know which company you mean (begins with an S?). It's not worth non-statutory negotiations in that case, despite sglacy's otherwise sensible advice, so just serve your Notice (s.13 if collective enfranchisement, or s.42 if individual extension) and press ahead.