Lease extension- 76yrs. unexpired, £60 rising ground rent

[Flatman]

Hi

I would be very grateful for any help/comments on a leasehold extension (surprise). I would like to approach the freeholder and see if they are reasonable as a first step.

My (99 yr) lease currently has over 76 yrs remaining. Ground rent £60 for 1st 33, £90 for next 33, £120 for final 33. I would guess the MV of the flat would be around £100k if the lease was extended. Based on 97% relativity I have calculated the 3 elements of the premium (thanks to Sglacy for the template):

Capitalisation of ground rent: £1,045
Deferred value of reversion at 5% discount: £2,453
Marriage value: negative so nil

Firstly, does this look about right for the 90 yr extension at a peppercorn rent?

Secondly, I am hoping to sell soon so am wondering how a 23 yr extension with a higher ground rent (say £200 per yr) would affect the potential premium? I'm not sure how that alters the calculation.

Thanks in advance.

[Conflicted]

Hi,

I am also thinking about this question, also with 76 years unexpired on my lease.

If anyone has any wisdom on when to use the different levels of relativity, because this seems to be the variable that affects my valuation the most.

The surveyors for the freeholder has used the Gerald Eve relativity scale, which appears to result in a lower relativity (worse for me). I've seen several scales that would be more attractive to leaseholders looking to extend their leases. Elsewhere in these posts it seems to be expected that as a rule of thumb relativity is 1% off from 100% for every year below 80 years subject to a minimum deduction of 3%. So a 79, 88 and 77 years lease would all have a 97% relativity and a 70 year lease a 90% relativity.

Am I getting a rough deal here?

[quarterday]

Marriage value cant be negative. this is related to the increase in value when you put together 76 years and the extension to gain a super-long lease.
In essence this is usually much more valuable than the ground rents forsaken by a lease extension granted by virtue of a claim under the 1993 act.

Regardless of whether you are in negative equity, the "Common Market", the price of potatoes etc it is axiomatic that if you have a 76 year interest there will be a marriage value in acquiring a lease extension to 166 years unexpired

[quarterday]

The theory argued is that in different locations and sectors of the market, relativity varies. Some people seem to think that a buyer in say Worthing would be less bothered by a short lease than in say Westminster. In fact my experience is that with shorter and shorter leases the reverse is true. There were many flats in Central London in Victorian and Edwardian times sold on 99 year leases which come up for sale with very short leases and for which a good two way market exists. However go to the suburbs or the provinces and property is virtually unsaleable if the tenure is too short to be suitable for a mortgage advance.
The various graphs that exist, bizarrely reflect opinion as well as transactional data, and even then the data is skewed because transactions do not reflect the requirement under the act to ignore the rights conferred by the Act; hence the phrase value in a no-act world. (hope I haven't lost you)

The only property where there isnt in reality a right to a lease extension is one which has recently been bought from mortgagees in possession;daftly, mortgagees dont tend to make claims under the act (but just sell for what they can), and you are not entitled to for two years.

Accordingly therefore dont worry if you are buying at the lowest of the low line in the graph. It's still absurdly cheap as compared to what it ought to be!

[Flatman]

Thanks for your comments Quarterday.

The negative figure for marriage value arises from the £100k estimated long lease value at a relativity of 97% i.e. £3k. This is exceeded by the two other figures thus producing a negative, and therefore nil marriage value. I believe that is how the calculation of marriage value works (all theoretical of course).

However, I see the sense in your comments and therefore wonder whether one of my variables is wrong, either MV of long lease (probably, but an increase of say 20k at 97% relativity is only £600), or the relativity. I am going on what I have read on these forums for the relativity of 97%. Perhaps I'm being optimistic.

Does anyone know how to adjust for a shorter lease extension (say 23 years) and a higher ground rent (say £200)?

Thanks all.

[Gordon999]

You can see the LVT judgements and calculation on some lease extensions at www.rpts.gov.uk.

[Conflicted]

Thanks Quarterday,

You lost me exactly as you worried you might:

The various graphs that exist, bizarrely reflect opinion as well as transactional data, and even then the data is skewed because transactions do not reflect the requirement under the act to ignore the rights conferred by the Act; hence the phrase value in a no-act world. (hope I haven't lost you.)

The Act negates the rights of the Act?

This is why I didn't follow a career in the law!

In any case, your argument about the cheapness and not being too concerned about how low (91%) the line is compared to say 97% - can you explain this?

I'm desperately trying to understand!

Thanks! C

[Conflicted]

Just to clarify - I have owned the property for two years and two months now. I am trying to extend the lease, and the relativity scale being used is Gerald Eve which gives a 91% relativity, rather than perhaps a 97% or thereabouts.


It is a flat in the London borough of Lambeth - not a million miles away from Westminster, but boy are they world's apart!

[helenc]

Hi, I have tried to work out the calculation but would appreciate any advice from someone more informed than me on the likely cost to extend my lease.

There are 64 years unexpired on the original 99 yr lease. The ground rent is currently £60/yr, due to rise to £120/yr for the last 33 yrs of the lease. The property value, with extended lease is estimated at £315,000.

If anyone could indicate the likely cost for the extension I'd be grateful. Many thanks

[James 2009]

Marriage value cant be negative. this is related to the increase in value when you put together 76 years and the extension to gain a super-long lease.
In essence this is usually much more valuable than the ground rents forsaken by a lease extension granted by virtue of a claim under the 1993 act.

Regardless of whether you are in negative equity, the "Common Market", the price of potatoes etc it is axiomatic that if you have a 76 year interest there will be a marriage value in acquiring a lease extension to 166 years unexpired

Agreed - the marriage value might be small, but I would argue that by definition if marriage value is negative then you should be using a lower relativity.

[Flatman]

Thanks for the responses everyone. I shall go forth and, hopefully, extend.