Current Value for Calculating Lease Extension Premium

[id0mrg]

Good evening to all. I'd like to thank the senior members here for the free advice they give to help novices like me!

My daughter bought a flat in SW London some 4 years ago. She and the other two flat owners in her building wish to extend their existing leases, currently with 74 years remaining, by a further 90 at peppercorn rent. One of the other leaseholders has had a desk-top valuation done producing a premium of £14k and advised this to the agent of the freeholder (unfortunately without serving notice of claim under S42). The agent has performed (and charged for) a valuation, offered a premium of £23k, and appears to be unwilling to negotiate.

Before commencing the formal section 42 process, probably leading to an LVT hearing, we are wondering whether to approach the freeholder directly to see whether agreement could be reached at a figure equal or less than the outcome of an LVT plus valuation and LVT professional and legal costs. To prepare for that, it would be helpful to have a better understanding of the way in which a tribumal would be likely to establish the current value of the flats for input to an extension premium calculation. I understand how to make a calculation of the range of outcomes for different relativity values, but would like to be sure that I use a realistic current value. I would therefore like to take a view as to which of the following would be most likely to be accepted by the Tribunal?

a) the purchase (i.e market) price 4 years ago;
b) the purchase price at a) adjusted by movement in the Land Registry index between then now - this would deliver a value higher than the purchase price;
c) the valuation for re-mortgage last year, which was lower than the purchase price;
d) the valuation for re-mortgage at c) adjusted by movement in the Land Registry index between then and now, which would be lower than c) and close to;
e) a lower value mentioned by the agent for the purpose of his valuation.

Views from the experts would be most gratefully received.

Many thanks.

[jeffrey]

It would be better value for all three lessees to serve a s.13 Notice, buy-out L, and only then re-grant leases (one each).

[sgclacy]

Good evening to all. I'd like to thank the senior members here for the free advice they give to help novices like me!

My daughter bought a flat in SW London some 4 years ago. She and the other two flat owners in her building wish to extend their existing leases, currently with 74 years remaining, by a further 90 at peppercorn rent. One of the other leaseholders has had a desk-top valuation done producing a premium of £14k and advised this to the agent of the freeholder (unfortunately without serving notice of claim under S42). The agent has performed (and charged for) a valuation, offered a premium of £23k, and appears to be unwilling to negotiate.

Before commencing the formal section 42 process, probably leading to an LVT hearing, we are wondering whether to approach the freeholder directly to see whether agreement could be reached at a figure equal or less than the outcome of an LVT plus valuation and LVT professional and legal costs. To prepare for that, it would be helpful to have a better understanding of the way in which a tribumal would be likely to establish the current value of the flats for input to an extension premium calculation. I understand how to make a calculation of the range of outcomes for different relativity values, but would like to be sure that I use a realistic current value. I would therefore like to take a view as to which of the following would be most likely to be accepted by the Tribunal?

a) the purchase (i.e market) price 4 years ago;
b) the purchase price at a) adjusted by movement in the Land Registry index between then now - this would deliver a value higher than the purchase price;
c) the valuation for re-mortgage last year, which was lower than the purchase price;
d) the valuation for re-mortgage at c) adjusted by movement in the Land Registry index between then and now, which would be lower than c) and close to;
e) a lower value mentioned by the agent for the purpose of his valuation.

Views from the experts would be most gratefully received.

Many thanks.

As you may already know the valuation is based on the flat having a very long lease and a nil ground rent and the proposed methodology above does not adjust for that as the values are tainted by the shortish lease.

It would help to know the various values you have calculated. At a 5% discount rate for the reversion this equates to 2.7% of the value of the flat at 74 years, I suspect that this may not be where the main argument will be but more likely to be on the subject of relativity. This could be anything from 95% to 90%

If the matter goes to the LVT both parties bear their own costs at the hearing regardless of outcome.

[jeffrey]

On that last point of sgclacy, the legal fees of L on each conveyancing transaction are nevertheless payable by T, as is L's surveyor's fee for a valuation. This is why the three lessees' buying-out L in one go is better value for money!

[id0mrg]

Thanks Jeffery,

I should have said in my original post that there are retail premises beneath which exceed 25% of the combined area of the three flats. I understand this disqualifies an application to purchase the freehold. All three leaseholders will act together in claiming lease extensions, however, in order to reduce legal and valuation costs.

Thanks also sgclacy, I used 7.5% yield for the ground rent calculation, 5% for the reversion and 92.5 % for relativity. Just on the off chance that the freeholder's agent looks at this site (perhaps I'm being paranoid) may I PM you with some figures?

[sgclacy]

Thanks Jeffery,

I should have said in my original post that there are retail premises beneath which exceed 25% of the combined area of the three flats. I understand this disqualifies an application to purchase the freehold. All three leaseholders will act together in claiming lease extensions, however, in order to reduce legal and valuation costs.

Thanks also sgclacy, I used 7.5% yield for the ground rent calculation, 5% for the reversion and 92.5 % for relativity. Just on the off chance that the freeholder's agent looks at this site (perhaps I'm being paranoid) may I PM you with some figures?

yes