35% increase in lease extension quote in 6 months

[kevintite]

Hi, I am in need of some assistance. In 2007 I purchased my flat for £149,995. At the last quote I was told that it was worth between £130,000 - £135,000. The lease remaining is 73 years.

In March I was told that the freeholder was prepared to extend this to 125 years (back dated to 2006) for a premium of £5500. The new ground rent would be £100 per annum doubling every 25 years. I thought this was expensive at the time and as I was a couple of thousand short I started saving my pennies.

I recently approached the freeholder again to find out if the quote was still valid and although i was not surprised to find that it has gone up, I was a little upset to find that the premium has gone up to £7500 and after all my saving i was still a couple of thousand short. I feel a little like I am being held to ransom.

Can anyone tell me whether this is a fair quote? I was given the following reason for the rise:

"Based on your lease having 73 years unexpired term left and a market value of £125,000. We can see from land registry that the flat was purchased in 2007 for £149,995 so taking into account that the market fell last year and then has begun to rise again I see this as a fair market price which could be justified should there be need to."

Is it worth me negotiating the premium or should i just pay the £7500 asap.

(I dont know if it make a difference but I will probably try to sell within the next year).

many thanks

Kevin

[MetropolitanAnthony]

You could take the case to the leasehold valuations tribunal for an adjudication - this body have a new name now I'm not sure of it.

When I last browsed their list of adjudicated fair prices on-line, they mostly seemed to arrive at a fair price roughly half way between the freeholders price and the leaseholders price. So, in your case, you could expect them to arrive at a price around £6500, a saving of £1000 or so.

But your costs in going to to adjudication could easily amount to £1000. So there is a nil sum gain.

I would go back to the freeholder and offer them something over £6500 plus a tripling of the ground rent to sweeten the offer.

[jeffrey]

You could take the case to the leasehold valuations tribunal for an adjudication.
Not yet, you can't. LVT jurisdiction arises only if T has served Notice of Claim.

[sgclacy]

If your current ground rent is around £50 per annum the premium for a 90 ext ie a new 163 year lease at a peppercorn rent is around £6,000 plus the landlords valuation and legal costs. In addition if you go into battle you will have your own legal and valuation fees.

Therefore their offer is tricky; it is not wildly out but I suspect that to save yourself £1500 (ie £7500 less £6,000) will cost a good deal of time and money.

Whether you have a 125 year lease or a 163 lease will make no difference to the value of your flat. As indeed having a small ground rent of around £100 per annum as opposed to a peppercorn.

For all these reasons I would agree with MetropolitanAnthony suggestion

[James 2009]

If your current ground rent is around £50 per annum the premium for a 90 ext ie a new 163 year lease at a peppercorn rent is around £6,000 plus the landlords valuation and legal costs. In addition if you go into battle you will have your own legal and valuation fees.

Therefore their offer is tricky; it is not wildly out but I suspect that to save yourself £1500 (ie £7500 less £6,000) will cost a good deal of time and money.

Whether you have a 125 year lease or a 163 lease will make no difference to the value of your flat. As indeed having a small ground rent of around £100 per annum as opposed to a peppercorn.

For all these reasons I would agree with MetropolitanAnthony suggestion

On the other hand you are playing into the landlord's hands by not exercising your rights and accepting an inferior product.

I take the view that you should work out the difference between the value of the freeholder's retained interest with a statutory and non-statutory extension, and deduct that from the statutory valuation. Then you can work out whether or not the costs justify exercising your rights, taking into account your circumstances (selling next year - just extend and sell, planning on holding long term - be much more careful that you do not ever have to extend again)

[kevintite]

Thanks for the tip MetroplotianAnthony, this would be a good idea but I forgot to say in my original post that my ground rent is currently GBP40 per year but I have been offered: " A lease of 125 years backdated to 23rd June 2007. A ground rent pattern of £100 for the first 25 years, doubling to £200 for the next 25 years, £400 next 25 years etc with a maximum of £800 per annum." - yes, it appears they're doubling my ground rent too.

Is it unusual to contest or negotiate with the freeholder about lease extensions and is it likely to end in tears if I push for a discount?

James 2009 - I'm very ignorant about these things but I don't really understand what you mean by the statutory and non statutory extension and statutory valuation.
If as sgclacy points out it's going to cost me lots of money and time to save £1500, then maybe you're right, maybe I should just pay it.

Thank you all for taking the time to post responses, your information is extremely helpful.

[Gazou]

The price (premium) payable for the extension of a lease term is always a matter for negotiation between the parties but there is a statutory right enjoyed by qualifying tenants (leaseholders) that provides for an extension of the term by 90 years and reduction of the ground rent to a “peppercorn”. There is a requirement that a leaseholder has owned the lease for two years, although provided a vendor of a property so qualifies, it can make a claim and then assign the benefit of that claim to the buyer.

Where such statutory right is exercised, being an Individual Right of Tenant to Acquire a New Lease (per a Section 42 Notice, the Leasehold Reform, Housing and Urban Development Act 1993 - see http://www.opsi.gov.uk/acts/acts1993/Ukpga_19930028_en_1.htm), then pricing is referred to in Section 56 which in turn refers to Schedule 13 which lays out the rules. (Clearly, if some other conditions apply to an extension, one might reasonably expect similar rules to be applied where there is at least the theoretical possibility that they could apply at some stage not too distant, particularly for tenors of near 90 years. The Schedule 13 rules are required by law, however, only following a Section 42 Notice.)

The Schedule 13 rules notwithstanding, there will still be matters to negotiate but the boundaries are constrained. The notable variable will be the then present market value of the leasehold property (perhaps easily verifiable by reference to recent sales of substantially identical properties in the same building), but also to negotiate will be the discount rate to apply to the ground rent valuation and, where marriage value is applicable (less than 80 years to expiry of present lease), the relativity. All of these elements can cause shifts in price, although a Landlord will be constrained by the knowledge the Leasehold Valuation Tribunal can be asked to determine a fair price if one cannot be agreed between the parties.

The deal you have been offered by your Landlord does not look nearly as attractive as the deal you could insist upon were you to exercise your statutory rights through a Section 42 notice. You might look at the lease Advisory Service site at http://www.lease-advice.org/.

[Gordon999]

I agree with Gazou- the statutory extension of 90 years plus peppercorn ground rent is a better choice. It may reduce the cost of any future RTE but I do not know how to calculate this benefit.

When you come to sell your property, you are better able to resist lower offers below your asking price from a prospective buyer if there is no ground rent to pay.

"No annual ground rent to pay" should be a bonus selling pitch.

[quarterday]

The cost of the lease extension is most likely to go up rather than down as the lease diminishes in length. You are not far apart; get a deal done. if you cannot settle your differences, get your solicitor to serve the claim notice formally to bring matters to a head; you can always agree later on to a higher ground rent if the lease extension is done outside the act. Don't fret about the 35% increase in 6 months; I was recently involved in an appeal to the Lands Tribunal against a LVT decision and the Commissioner thought it far too low and raised at a stroke the LVT's award by 43%