Lease- 63 yrs. unexpired- cost of extending term?

[Johne_uk]

Hi,

I currently live in an upstairs flat (block of 4) which is a leasehold.
There are 63 years remaining on the lease and I have been there for
about 3 years. When I purchased the property the remaining length of
the lease was never raised as an issue by my conveyancer,

A couple of people have recently sold their properties and one sale
fell through because of the remaining length of the lease. This raised
an element of concern.

I'm therefore interested in either buying the freehold or extending the
lease. The property is worth about £95,000 and the ground rent is £25
per annum. However, I've recently heard one of my neighbours was quoted
£12,000 to extend the lease.

This seems to be somewhat punitive and I am only imagine that the
leasehold management company is trying it on. Can such leaseholders
charge what they want for these services as it is totally unaffordable?
I believe negotiation is usually the order of the day but there must be some guidelines for people in my position.

I've read up on the law regarding extending leases but I've never actually found any examples of what people have had to pay to the freeholder to extend when there is a 'marriage' to be paid (< 82 years on lease).

Any advice would be greatly appreciated.

Thanks in advance
John

[Poppy]

You have answered your own question. The cost of extending the term on a lease is a matter for negotiation between the freeholder and the leaseholder.

Have a look at the Leasehold Advisory Service website www.lease-advice.org - if you haven’t already done so.

[SteveP]

It is certainly worth looking at enfranchisement if you can persuade other leaseholders to participate. Otherwise you do have the right to extend your lease and the freeholder cannot charge whatever he pleases, he can only charge what it is genuinely worth.

What an extension is worth essentially comprises two elements.

1) As it stands the lease will expire in 63 years and he can sell the flat again. However, nobody knows what the flat will be worth in 63 years time, so a valuer will take the present value of the flat and discount it over a period of 63 years.
2) The landlord gets an income from ground rent. At present he will get it for 63 years, but if you extend he will get it for longer. This additional ground rent, discounted for the appropriate years, goes into the equation.

So one of the most significant matters in valuing is the discount rate that is used by the valuer. That isn't something you can easily work out for yourself, since it requires a good knowledge of the market and comparable transactions.

Essentially your best bet is to look at the leasehold advisory service website, talk to the other leaseholders about enfranchisement and consider that first, but whatever you do you would be best advised to get advice from a chartered surveyor about value. If you cannot reach an agreement with the landlord you will need your surveyor to present evidence to the tribunal so that they can decide what it is worth.

[Johne_uk]

Hi,

Thanks for the reply. I've decided to put the flat up for sale in a few
months (after finishing improvements) and then only purchase a new
(freehold) property when I have exchanged contracts, as there's a high
risk of the buyer pulling out. There are currently 2 owners on the
development trying to extend their lease and I've heard initial offers
ranging from £9,000 to £16,000. If I have problems selling because of
the 62 yrs remaining then i will have to get involved with other
tenants and possibly fund an LVT tribunal to try and get a fair price
(i.e. test case) as this should then provide a precedent for other
tenants to follow in their own negotiations (apparently LVT rulings are
published on the web). The problem is one of tenant apathy as people do
not seem to understand all the inns and outs of a leashold property
(myself included when I purchased).

regards
John

[Johne_uk]

Hi,

Thanks for the reply. I've decided to put the flat up for sale in a few
months (after finishing improvements) and then only purchase a new
(freehold) property when I have exchanged contracts, as there's a high
risk of the buyer pulling out. There are currently 2 owners on the
development trying to extend their lease and I've heard initial offers
ranging from £9,000 to £16,000. If I have problems selling because of
the 62 yrs remaining then i will have to get involved with other
tenants and possibly fund an LVT tribunal to try and get a fair price
(i.e. test case) as this should then provide a precedent for other
tenants to follow in their own negotiations (apparently LVT rulings are
published on the web). The problem is one of tenant apathy as people do
not seem to understand all the inns and outs of a leashold property
(myself included when I purchased).

regards
John

[SteveP]

John,
I think you have misunderstood. Enfranchisement is easy, so long as you can get a majority of the leaseholders to go for it. You end up owning the a share of the freehold and can all agree to grant yourselves new leases for nothing. You are very unlikely to have to go to the tribunal so long as you take advice from a chartered surveyor, and your landlord cannot rip you off. You'll pay a fair price.

It may not be the right thing for you, but your response suggested that you had concluded the whole thing had to be a struggle. It does not, it is your right and there are statutory procedures to follow making it all nice and neat.

[Johne_uk]

Thanks Steve, if I dont get any offers during the summer I may look to do as you suggest. There are 4 flats in my block - does Enfranchisement mean that three of the four need to agree to go ahead. One guy is definitely interested, another probably can't afford it and the third owner is ready to put his flat onto the market (his mother lived in it and just died) but would be interested if he was going to have problems selling (it was him that made me aware of the problem).

I take it the costs of Enfranchisement are still going to be considerable i.e. compensating the current leasholder for the 'marriage' ground rent etc. Still a possibility though.

Thanks again
John

[SteveP]

Only 50% of the leaseholders need participate, of course the more participants the less each has to pay. But remember only those who do participate get shares in the freehold company, so whilst they can (and often do) extend their own leases for free, whereas the other leaseholders have to pay the freehold company to extend.


I take it the costs of Enfranchisement are still going to be considerable

The costs vary, you'd need to get a valuation done to find out. Marraige value rarely amounts to a significant part of the valuation. The shorter the unexpired term of the leases, the higher the cost. The greater the open market value of the flats the higher the cost. The higher the income from ground rent the higher the cost. Any loss of potential development may also add to the cost. Essentially the surveyor discounts all of the income that the freeholder will lose of the life of the lease.

I have valued and seen freeholds on blocks flats change hands at everything from £1000 per flat to six figures per flat. I am afraid it is too complex for me to explain on here, you'll need to ask a surveyor for a valuation. The sooner you do it though, the less it will cost you.

[tenant29]

Johne uK-

If you live near to London, I suggest a day trip to visit to the Residential Property Valuation Tribunal, 10 Alfred St , London ( Near to Goodge St Tube Station. In the entrance lobby are kept the copies of past judgement by th e Leasehold Valuation Tribunal on 90 year extension of leases and for collective purchase of freeholds at below 80 years.. You can go to 1st floor before 4 pm to buy a photocopy of any interested cases at one pound .

[SteveP]

some detail of LVT decisions can be found at http://www.lease-advice.org too, although these are tables rather than the original LVT papers.