Cost for Lease Extension

[kafjfr]

I've recently asked for a freehold cost from our freeholder which proved to be far too high for us to afford. the costs he stated, he also siad would be the cost for our lease extension. So for our property which we believe to be wort 145-150k, with 72 years remaining and £15 ground rent p.a. non increasing, he has quoted £12995 for the lease extension.

I discussed this with him and asked for a revised cost as this is totally not what i expected. I am waiting a revised cost, but he said he valued our porperty at £165k for a start and to reduce it to the value we believe it to be worth would not reduce the cost by much.

Can someone advise what they would expect a lease extension to cost for:
1. flat worth £165k - 72 year lease, £15 ground rent (his valuation)
2. flat worth £150k - 72 year lease, £15 ground rent (our valuation)

We have not yet served notice and becuase it would incur solicitors costs etc, we were not going to until we had an idea of the revised cost he is going to offer us so just wanted your thoughts...

Thanks
K

[VikG]

It may be that the property is worth £165k after lease renewal and £140k today without it.

If im correct, you use the figure after renewal to value the cost of the renewal and not todays price.

[sgclacy]

I've recently asked for a freehold cost from our freeholder which proved to be far too high for us to afford. the costs he stated, he also siad would be the cost for our lease extension. So for our property which we believe to be wort 145-150k, with 72 years remaining and £15 ground rent p.a. non increasing, he has quoted £12995 for the lease extension.

I discussed this with him and asked for a revised cost as this is totally not what i expected. I am waiting a revised cost, but he said he valued our porperty at £165k for a start and to reduce it to the value we believe it to be worth would not reduce the cost by much.

Can someone advise what they would expect a lease extension to cost for:
1. flat worth £165k - 72 year lease, £15 ground rent (his valuation)
2. flat worth £150k - 72 year lease, £15 ground rent (our valuation)

We have not yet served notice and becuase it would incur solicitors costs etc, we were not going to until we had an idea of the revised cost he is going to offer us so just wanted your thoughts...

Thanks
K

There are three parts to the valuation:-

1. Capitalisation ground rent

of £15 pa . Assuming we discount it at 7% (a high rate but the collection costs make the collection hardly worthwhile )

£15 divided by 0.07 = £214.

2.Value of reversion.

Assuming the flat is worth £165,000 if it had long lease and a neglible ground rent. Following Cadogan and Sportelli we use 5%

£165,000 divided by 1.05^ 72 = £165,000 divided by 33.54 = £4,919

[ In Microsoft excel type in “=round(1.05^72,9)” 9 = number of decimal places ]

3 Amount of marriage value.

At 72 years Beckett and Kaye graph of graphs indicates that for 72 years the relativity of 92%

£165,000 X (100% - 92%) = £13,200

£13,200 less £214 less £4,919 = £8,067

Take 50% = £8,067 X 50% = £4,034

Premium = sum of each of the three steps = £214 + £4919 + £4034 = £9,167

[James 2009]

Any margin for error in your calculations?

[sgclacy]

Any margin for error in your calculations?

The only important variable is the relativity.

If it was 94% the figures would

3 Amount of marriage value.

£165,000 X (100% - 94%) = £9,900

£9,900 less £214 less £4,919 = £4,767

Take 50% = £4,767 X 50% = £2,384

Premium = sum of each of the three steps = £214 + £4919 + £2384 = £7,517

Realisticly that would be your best result

So the margin of error could be plus or minus £1500 either way because if luck was with the Landlord he might be able to lower it to 90% so you would end up paying £9,167 + £1,500 = £10,667

[kikuyu]

As always, many of us can provide you with our opinions of values but you must not rely on them because after all they are only guestimates for the following reasons:

1. We don't know where the property is located. (Could be next door to Heathrow Airport and on the proposed 3 runway or near a sewage farm)

2. We have not read the lease and established if there are any onerous terms in it.

3. What about the improvements that you may have carried out and that need to be taken into account to reduce the before and after valuations?

There are many more things to be considered before a person can decide what price you should be offering for the extension of the lease. As you have already seen, there are many variable to be taken into account before the end result is achieved.

My advice to you is " Get a local Chartered Surveyor with good knowledge of the area". May cost you a bob ot two but he/she may be able to save you a bit more than you pay out for the professional service.

[James 2009]

kikuyu

I echo what you said. I would say that a surveyor who is a specialist in enfranchisement is what you need more than a local surveyor, but ideally you want someone who is both.

Personally I have got to the point where I try to give 2 ranges and a figure. In this case (assuming sgclacy is correct) I would say £9,167, say £9,200. Range likely to be £7,700 - £10,700, but in could potentially be £6,000 to £12,000. Perhaps for the purposes of notice the lower figure could be used, and for 'budgeting for worst case scenario' maybe go with £12,000 not £10,200.

sgclacy

I always find that giving a figure to the nearest pound whilst there are so many variables up for debate is pointless at best, misleading at worst. Not a major criticism, but the whole "£9,167, say £9,200" thing does at least hint to the client the margins of error.

[kafjfr]

thank you all for your comments. they have all been a great help. I think i will get a surveyor in just to give us an idea of what to expect.

and thank you i did not realise the valuation was meant to be that after the extnesin so that have certainly cleared that up for me.

I will also wait and see what he proposes in my asking for a revised cost.

Thansk
Katherine

[grape1]

http://www.lease-advice.org/calcframe.htm

This is an online calculator.

[Esio Trot]

The other variable is the decline in property values.

In a years time your value of £150K, or even lower, might in fact be the market value after the lease extension if property prices continue to fall.

You might be better waiting for the market to work in your favour.

[kafjfr]

I dont really want to wait for the prices to fall further as we have already paid for the surveyors costs for a valuation, and also the lease would still be reducing so any gains would probably be outweighed by the increase in the marriage value (?? i think ??).

I got a revised cost from the surveyor, the two options are:

£9500 for 99 year lease but £100 ground rent pa.
£8500 for 99 years but £150 ground rent pa.

Now i know that if i issue a notice they have to reduce the gound rent to peppercorn, but this is where he originally got his £13k figure from. Question is, are these good deals? Effectively we will only keep the property for maybe another three years max.

Any advise would be great...

Thanks everyone.

K

[James 2009]

First of all - what are your aims and what are your landlord's aims?

Your aims are probably - get it sorted ASAP or get it sorted as cheaply as possible or, most likely, a combination of the two.

The landlord's? Either get it sorted ASAP for as much as possible or drag it out as long as possible in the hope that you'll give up or only acheive your goal of an extended lease in years to come when the lease will be shorter and other things being equal you'll have to pay more.

Typically landlords seem to work out a fair premium for a statutory extension, add a bit, then try to get away with getting this over the odds premium for a substandard product - a lease of under 100 years with increased ground rent. This means they retain a valuable freehold interest, as opposed to granting you your full statutory rights and seeing their interest descend to a minimal value.

Landlords probably factor in that for you to exert your rights fully could easily cost you £2,000 in surveyors fees if it goes to the LVT, and solicitors fees on top. It MIGHT be as well to just pay over the odds and get it sorted. You'd probably be quids in (of only marginally) if you serve notice, but it will drag out for months (years in extreme cases!)

I have to advise you to get professional help.

Working out all the factors depends on circumstance.

The value of the flat with a 99 year lease at £150 ground rent should be cheaper than one with 162 years at zero ground rent - but the reality is that in the market they may well be worth the same. If you are going to sell in the next few years it MAY be sensible to ignore the theoretical lower value of the flat with the shorter extended lease and just go down the non-statutory route.)

But if you are going to hold it for 30 years you will have the same problem in 30 years time. Unless you go the statutory route in which case your kids will be able to retire having never had to extend the lease that you got done now.

Personally I am tempted to calculate the retained value in the freeholder's interest if you go down the non-statutory route, and then take this off of the cost of a statutory extension. If he will grant you a non-statutory extension at this price (which will probably be a fair bit lower than what he is currently offering) then you should MAYBE go down the non-statutory route.

But you should probably go down the statutory route.

You need proper valuation advice from a surveyor, and you probably need to be prepared to pay a surveyor to negotiate for you.

[kafjfr]

Thanks for the reply...i didn't really understand this para "Personally I am tempted to calculate the retained value in the freeholder's interest if you go down the non-statutory route, and then take this off of the cost of a statutory extension. If he will grant you a non-statutory extension at this price (which will probably be a fair bit lower than what he is currently offering) then you should MAYBE go down the non-statutory route.
".

Could you explain for me??

How long would the lease normally be extended to?

I really am confused with what to do. Being 27 i'm not planning on being here long term, we really are hoping to sell witihn the next few years...

Thanks
K

[jeffrey]

Your STATUTORY right is:
a. 90-year extension of lease; and
b. ground rent reduced to a 'peppercorn' [i..e no money value at all].

[James 2009]

Thanks for the reply...i didn't really understand this para "Personally I am tempted to calculate the retained value in the freeholder's interest if you go down the non-statutory route, and then take this off of the cost of a statutory extension. If he will grant you a non-statutory extension at this price (which will probably be a fair bit lower than what he is currently offering) then you should MAYBE go down the non-statutory route.
".

Could you explain for me??

How long would the lease normally be extended to?

I really am confused with what to do. Being 27 i'm not planning on being here long term, we really are hoping to sell witihn the next few years...

Thanks
K

If you want simple advice then - "employ a surveyor and go down the statutory route. As Jeffery says you get 90 extra years and no ground rent."

The statutory route lays down the valuation methodology.

Non-statutory route means the landlord can charge what he wants - subject to your agreement.

The statutory extension grants you such a good lease that the freeholder's retained value (the right to collect the ground rent, and the right to the reversion - the fla tback at the end of the lease) is practically nothing.

A non statutory extension means the freehold still has value - he has a ground rent income and he has a relatively short time to wait for the reversion.

To my mind if you are offered a non-statutory extension then you shouldn't pay much more than the cost of a statutory extension (which a surveyor will tell you) less the value the freeholder retains with the non-statutory lease (which a surveyor could tell you if you request this at the time of instructing him for a lease extension and he agrees to work it out).

Read up on lease extensions at lease-advice.org and eemploy a professional!

[kafjfr]

Thank you all for your replies and help.

Any ideas how much legal fees are to have the lease extended?? both my fees and the freeholders fees.

Thanks
K

[jeffrey]

Any ideas how much legal fees are to have the lease extended?? both my fees and the freeholders fees.
Ask your solicitors what they will charge you, of course.
They can also find, from L's solicitors, what that firm will charge.
We cannot tell you!