Lease extension- 62yrs. unexpired, £30 ground rent

[cj1]

I'm a leaseholder who is in the process of extending the lease and I'm after some thoughts about the below counter offer from my Landlord which I am tempted to accept.

After informal negotiations fell through I employed a surveyor and solicitor to serve notice on the landlord.

Our offer was: £19,200 for a 90 year extension on a Greater London flat, probably worth £220,000 after the lease extension. There are 62 years left on the current lease. Current ground rent is £30 pa.

After receiving our notice the Landlord responded with an informal counter offer.
Lease Terms: substitute 150 year lease.
Ground Rent: £100 per annum, doubling in each successive 20 year period, but with a cap of £1,000 per annum.
Premium: £19,250.
This offer is very tempting to take as the premium is only £50 more than my original offer and the substitute lease is only 2 years less than that of an extension. The only potential issue is the ground rent at £100 a year (with increases) which I know would be nil with a formal extension. However, if I accept this offer I will not have to fork out for the Landlord's surveyor's valuation (at least £750 or 7.5 years of ground rent). Also the premium would probably increase and there is a possibility we could reach tribunal which would be an extra cost.
My current niggle is whether the ground rent could put off any potential buyers? Your general thoughts and gut feelings are most valued.

Many thanks.

[Corinne Tuplin]

Hi CJ1,

Arguably, a reasonable Section 45 Counter-Notice should not adjust either the ground rent or the statutory lease extension term of 90 from the start date of the Lease (on a 99 year lease, you should get 189 years from the start date). As you are also aware, the ground rent should reduce to one peppercorn a year (i.e one pence).

You say you have a lease, presumably for 99 years starting in 1972. I calculate that £19,500 should buy you a statutory leasehold extension of 189 years from 1972 on a peppercorn rent.

Therefore, in my opinion the freeholders' offer is not a good one. In this current property market, following the statutory route anyway may be worth its weight as buyers become more and more particular.

I hope this assists.

Regards,


CORINNE TUPLIN
SOLICITOR AND TOPIC EXPERT
PRO-LEAGLE
www.proleagle.com

[jeffrey]

I'm not even sure that L's counter-offer can validly propose a lease not complying with s.56 which demands that L "shall be bound to grant...a new lease...at a peppercorn rent for a term expiring 90 years after the term date of the existing lease." How can L argue that the Act does not apply to him and his 'informal' counter-offer? 'Informal' means 'not compliant', doesn't it, so L has not yet served a compliant counter-notice at all!

[cj1]

Thanks Corinne and Jeffrey for your comments. I should explain that the response from the landlord is not a formal counter notice but an informal offer based on the provision that I will withdraw my initial notice.

[Corinne Tuplin]

It is advisable that leaseholders do not withdraw Section 42 Notices as there are statutory costs payable to freeholders if they do.

Regards,

CORINNE TUPLIN
SOLICITOR AND TOPIC EXPERT
PRO-LEAGLE
www.proleagle.com

[sgclacy]

If property prices fall, as is predicted, by around 20% plus over the next two years it may be worth you while to stick to your guns. (I think falls of upto 35% could be expected on small flats primarly bought for rental purposes)

The landlords offer is reasonable he clearly knows what the premium should cost and is presumably looking for something extra in return for not making you pay his valuers fees.

A £100 per annum ground rent on a £220k flat will have no effect whatsoever in my opinion on the value of your flat.

A quick deal may well save you on your legal costs. Also if you offer the landlord a quick deal he may well take a few hundred less. Cash in the property game is very much king at the moment.

As a cautionary note to others if you are thinking of serving a Section 42 Notice whilst that freezes the valuation date it also freezes the valuation figure for the property to that date. As we are in a falling market I think you need to explore a negotaited agreeement first. By serving the Section 42 Notice you then become liable for the landlords valuers fees and certain aspects of his legal costs. If prices fall and the premium looks unacceptabale if you pull out it means you have to pay the landlords costs and you will be precluded from claiming a statutory extentsion for {help Jeffrey!} months

[jeffrey]

As a cautionary note to others if you are thinking of serving a Section 42 Notice whilst that freezes the valuation date it also freezes the valuation figure for the property to that date. As we are in a falling market I think you need to explore a negotaited agreeement first. By serving the Section 42 Notice you then become liable for the landlords valuers fees and certain aspects of his legal costs. If prices fall and the premium looks unacceptable if you pull out it means you have to pay the landlord's costs and you will be precluded from claiming a statutory extentsion for {help Jeffrey!}***months

*** It's twelve months from date of withdrawal or deemed withdrawal: see s.42(7)