Lease extension- 82yrs. unexpired. How much premium?

[Tax Accountant]

I have 82 years remaining on a leasehold flat. The freeholder has indicated that they will charge £7,500, to include their legal costs, to extend the term to 125 years. The relevany property is a flat in Thornton Heath, Surrey, valued at approximately £150,000. I do not believe that extension of the lease increases the value significantly at the present time. However, this will of course become more relevant in approximately 10 years time.

I assume that I need to obtain a professional valuation on the basis of 82 years unexpired and 125 years unexpired. Would a normal high street valuer suffice for this purposes? Would I need valuations from more than one valuer? What sort of costs would I expect to pay?

Do I then need to offer only the increase in value plus the freeholder's legal fees?

Is there any other matter which I need to consider?

Any thoughts on how best to proceed would be welcome.

[Paul_f]

If you don't intent to live there for another 20 years then it is a lot of money to pay for little or no gain. You should look at the Commonhold & Leasehold Reform Act 2002 as your rights have improved about gaining the commonhold (freehold interests) of your property if there are enough leaseholders who want to do it.

[Tax Accountant]

Thank you Paul,

I should have mentioned that the property is let on AST by me and will continue to be let as such.

I have asked the freeholder (an estate agent) if he is agreeable to selling the freehold but he states he has no plans to sell this at the present time.

There are 8 flats in the building and the freeholder owns at least 3 of them. I also suspect that a 4th one may also be owned by his relative. It may not be easy to get all other 4 leaseowners to agree to buy out the freeholder. Even if they agree, the amount required may put off other leaseowners, especially as some of them have longer leases of around 115 years unexpired.

My main concern is that the value of my flat will reduce significantly in say 10 to 20 years time if I do not extend it now. It may also be difficult to sell it to anyone else with a lease term of less than say 75 years.

Any thoughts on the valuation which I could force the freeholder to accept. Is there a fixed formula for this? How is this value calculated? :confused:

[SteveP]

I assume that I need to obtain a professional valuation on the basis of 82 years unexpired and 125 years unexpired.

There is a formula but it doesn't work in the way you suggest.

We need to look at what the landlord loses by granting you an extension.

He loses no ground rent, becuase he gets that anyway.

What he loses is the ability to sell a new lease in 82 years time. So what will a lease be worth in 82 years time? None of us have crystal balls, so we don't know and there is no point in speculating. So what we assume it would be worth then what it is now.

So we would say that this investment is worth £150k in 82 years time and then using essentially discounted cash flows to determine what £150k in 82 years time is worth now. But of course that would mean you were paying for all of the years following the 82nd, so that is no good. So we do similar calculation for 125 years and subtract one from the other.

The problem with doing it yourself is that, although there is a formula, you need to know what discount rate to use and for that you need someone who knows the local market.

I happen to be a Chartered Surveyor local to you, but I don't accept instructions from people I reply to here. If I did so people would think I was just drumming up business and I would rather they heeded my advice.

You need a surveyor and you can search for one here www.ricsfirms.co.uk my firm is Palmer Lim, we are in South Norwood so choose someone else.

Good luck.

[Tax Accountant]

Steve,
Thanks for replying. This is useful. I don't think there is anything wrong in someone using your services if they could see that you are on the ball and know what you are talking about. After all, readers are not forced to use your services. May be you could offer initial free advice and then the querist can decide if you are the right person for them.

How could I contact you?

[SteveP]

Karongo,
My contact details are on the topic experts page. However, I am quite serious about not accepting instructions from people I advise to use a surveyor in these forums.

As you say nobody is forced to use my services. But you will find that I regularly tell people that they need the services of a Chartered Surveyor. Since I do so, accepting instructions from the very people I have advised to consult a suveyor may lead people, as it has done on this site in the past, to believe that my advice is a means of drumming up business for myself. Consequently it does, in my opinion, undermine perceptions of my impartiality. I don't need the work, but I think people on this site need to be in no doubt that when I say use a surveyor I am doing so for their good and not mine.

There are lots of competent surveyors out there, I am the Chairman of the South London Branch of the RICS and know many very good local surveyors. We are all professionals and bound by strict rules that should prevent anyone from accepting instructions to do something he is not competent to do.

I should say that I am quite happy to accept instructions from people I have not advised on this site to instruct a surveyor, just not from those I have so advised. If that disappoints you I am sorry, but I hope you appreaciate that my professional integrity is worth far more than a few hundred pounds in fees.

You could try Stuart Edwards Fullermoon in Croydon, speak to Ian Tolfrey (020 8686 4771) or Quinton Scott in Wimbledon, speak to Richard Sayer (020 8971 3800). By all means mention that I suggested you try them. I am not sure if those people do valuation work, but those firms certainly do. It makes sense to get a couple of quotes anyway.

[TonyH]

Last year I attempted to buy the freehold to my 3 bed semi from the landlords who are a property development company. There was about 69 years left on the lease.
I was quoted £6,900, when I discovered that our next door neighbour was quoted £10,000 and the house a few doors down had already purchased for £2,500.
On ringing to ask if the figure was negotiable, I was told "Oh yes, just send in your offer"
I offered £1500, and received a reply asking for £2900 which I paid.

Amazing !

[Tax Accountant]

Steve,
Thanks very much for your comments. I admire your honesty and integrity. I am myself a professional in another field and therefore aware of the need to consult a professional. I am also aware that I will need to instruct a valuer to get the best results. My query was to fish out issues that I may not be aware of previously, eg, the method of valuation mentioned in your first reply. My quandry always is how to appoint professionals who are good value for the fees charged. I will try the ones mentioned by you.

Tony,
Thanks for your thoughts too. These are helpful and shows that it is worthwhile doing some research before proceedind in these matters.

[Tax Accountant]

Steve,

Tried both contacts mentioned by you. Neither do this type of work; however, one referred me to someone else who returned my call to obtain various details over a week ago but hasn't yet reverted to me.

Ramnik

[Poppy]

Think about the following:

Do you intend to sell the flat once the lease is extended? If you are keeping the flat, why are you spending the money to extend at this point in time?

82 years unexpired sounds like a long time to me. Are you sure if you put the flat on the market in the near future that the asking price will be adversely affected?

Say there were 69 years unexpired and you intend to sell, you may wish to market the flat at a price to reflect that. The buyer would then have the option at the time of purchase extend the lease. The buyer would still ultimately pay full market price and it would not have cost you anything.

[Tax Accountant]

Poppy,

Thank you for your post and thoughts.

In my opinion, if you have a lease which is relatively short, eg 69 years mentioned by you, a lot of potential buyers and lenders are scared off. For one thing, most buyers may not be aware of the ability to obtain the extension, and even if they are aware of this, they are scared of how much it will cost and the paperwork involved in doing so. as a result, the property becomes less marketable than would be the case otherwise.

At least, there is a certainty with a reasonably long lease.

Having said this, I certainly take your views on board and will not pay anything material.

Ramnik

[tenant29]

Karonga,

1. You can get free information on "extending a lease" or "buying the freehold" from the Leasehold Advisory Service ( www.lease-advice.org). You can download the information or write for their booklets.

2. What is the annual ground rent paid by each flat in your block ?

3. The law allows 50% or more of leaseholders to get together to compulsorily purchase the freehold and if the lease has over 80 years to expiry, and the approx price is about 15-16 times the total annual ground rent for the block. Where the leases are under 80 years, the price will include additional cost called "marriage value".

4. When you are faced with possible cost of 7.5K pounds for lease extension for one individual flat, other leaseholder flats may be facing the same problem. It is usually cheaper to collectively buy the freehold of the block compared to lease extension. Even if some flat have extended their lease on individual basis, the owner may agree to participate in the purchase because the annual ground rent collection will be stopped.

5. Before you make any decision, you should spend 20 pounds and find out who owns the freehold of the block and the 8 leasehold flats and the length of leases. using the online enquiry service operated by the Land Registry.

[Tax Accountant]

Thank you Tenant 29 for your thoughts. They are most helpful. I have inserted my replies/thoughts after each one of your comments below:

1. You can get free information on "extending a lease" or "buying the freehold" from the Leasehold Advisory Service ( www.lease-advice.org). You can download the information or write for their booklets.

Answer: Noted - Thank you.

2. What is the annual ground rent paid by each flat in your block ?

Answer: £50pa / £100pa / £150pa for each 33 years for the 99 years lease since 1988.

3. The law allows 50% or more of leaseholders to get together to compulsorily purchase the freehold and if the lease has over 80 years to expiry, and the approx price is about 15-16 times the total annual ground rent for the block. Where the leases are under 80 years, the price will include additional cost called "marriage value".

Answer: Do I understand that the if the total annual ground rent is 8flats x £50pa = £400pa x say 15 times = £6,000 freehold purchase price for each flat? Or is this the purchase price for the whole block ?

4. When you are faced with possible cost of 7.5K pounds for lease extension for one individual flat, other leaseholder flats may be facing the same problem. It is usually cheaper to collectively buy the freehold of the block compared to lease extension. Even if some flat have extended their lease on individual basis, the owner may agree to participate in the purchase because the annual ground rent collection will be stopped.

Answer: An agent has advised the premium for lease extension to be in the range £1,000 to £2,000 plus the landlords legal and valuation fees, not to mention out legal and professional costs. The freeholder has offered to accept £3,000 including their legal costs. I an inclined to accept this but will review this upon receiving your thoughts to point (3) above.

5. Before you make any decision, you should spend 20 pounds and find out who owns the freehold of the block and the 8 leasehold flats and the length of leases. using the online enquiry service operated by the Land Registry.

Answer: I have already done this. It appears that the freeholder owns at least 3 flats and also possibly controls a 4th one. Therefore, all other 4 flat owners will need to agree before freehold purchase could be contemplated. Am I right in thinking that the the freeholder's 3 flats will give him a voting share for each one of the flat he owns?

I would be pleased to receive your further comments.

[damianb]

Hi, I am only 2 weeks away from exchanging on a property which i will be paying 240K for, it is in S Wimbledon. Since the home buyers report, it has been point4ed out that we only have 79 years left on teh lease and we will need to extend it, if we live tehre for 2 or 3 years we may have problems selling it when it may only have around 76 years left. Roughly how much may this cost and can I offer the freeholder a random figure like £6,000 or maybe even less?

[Tax Accountant]

Hi, I am only 2 weeks away from exchanging on a property which i will be paying 240K for, it is in S Wimbledon. Since the home buyers report, it has been point4ed out that we only have 79 years left on teh lease and we will need to extend it, if we live tehre for 2 or 3 years we may have problems selling it when it may only have around 76 years left. Roughly how much may this cost and can I offer the freeholder a random figure like £6,000 or maybe even less?

If the property is right for you in all other respects, I don't think that this should put you off altogether. Presumably your purchase price already reflects the fact that your lease has only 79 years left.

I suggest that it is best to speak to an experienced Chartered Surveyor who can calculate the approximate cost of extending your lease by a further 90 years. Do not just pick out a figure at random as you are likely to end up paying more than the actual value. You could try Steve P who posted replies to my original query in this post.

I can confirm that I followed this route and as a result am in the process of extending my 82 years lease (in South London) by a further 90 years for £1,500 including landlord's costs. In your case, the 'marriage value' kicks in as you have less than 80 years remaining. This will result in a higher cost than would be the case otherwise.

Ramnik

[kevvyb]

Have asked freeholder for options for extending the leasehold on our flat from 77 years (so gain on marriage kicks in!).

We gave valuation to freeholder of 250k which we based on the going price for similar flats in the area (263k less some).

Freeholder has given an offer based on this as follows:
http://[img=http://img379.imageshack.us/img379/3893/untitled18gg.th.gif] (http://img379.imageshack.us/my.php?image=untitled18gg.gif)

We have responded by asking for the options on extending to 125 years and have received the reply that we should add £250 to each of the 99 year options.

I have now asked the freeholder to confirm that the annual rent "reviewable every 15 years to RPI" means that the rent is increased by the RPI in the year of revaluation, for an approximate amount for "Landlord's legals costs" and the cost of the preparation of a plan should we need one and, whether if we proceed it is on the basis of the valuation we have given or if another is sought.

The freeholders are a company related to the managing agents for our property.

We are wondering what to put in as a first offer and we're minded to offer £4500 for a 125 year lease at annual ground rent of £225.

How much might we expect to pay a Chartered Surveyor to give an estimate of the cost of extending a lease?

Does the use of the word "say" before quoting the price mean that offers are expected, or is this just a legal requirement?

Any views on the above gratefully received.

[Tax Accountant]

The agent I used charged £200 + VAT and was very helpful. In fact he gave me a ball park figure of the cost of lease extension and only charged a fee if I required a formal valuation and an approach to the freeholder.

Ramnik

[kevvyb]

Thanks Ramnik.

Was the 'agent' a surveyor? Do you have a contact number/details?

Any views on the other bits of my post?

Kevin

[Tax Accountant]

Thanks Ramnik.

Was the 'agent' a surveyor? Do you have a contact number/details?

Any views on the other bits of my post?

Kevin

Sorry, cannot help with your other bits. Sounds expensive to me but I honestly wouldn't know.

I used a Chartered Surveyor who is based in Cheam, Surrey. His number is 020 8760 0839.

You can also try Steve P who has also replied to the earlier part of my original posting on this thread.

I am paying £1,500, including freeholder's costs, to increase the lease by 90 years at peppercorn rent. My freeholder had originally asked for £7,500.

My lease had 82 years left and therefore I did not pay marriage value.

Good luck.

[kevvyb]

okey dokey but I suppose what I am groping towards is trying to get a feel for the amount we should offer given that gain on marriage is payable as well.

What I need to figure out is if there is any reason why the freeholder should not be as open to accepting a much reduced offer on the figure they have quoted with marriage gain as opposed to without marriage gain.

If you are comfortable doing so it would help a lot if you could give an indication as to the value of the property on which you extended your lease. That would then give me a feel for how to approach the figures we have been quoted (although I know it is also related to the area in which the property is located). Also, did the £1500 include your surveyors costs of £200?

In our case, without the gain on marriage we would be looking at around £5800 as the opening gambit from the freeholder.

Wondering wehther to apply a similar % reduction to the offers we have been given. On that basis we could go for the peppercorn rent with lease extended to 77+ 90 years with an offer of £2380. Is there anything to loose? I suppose that they can only say no and then we could increase the offer if we didn't want to get into a tribunal situation.

Kevin

[Tax Accountant]

Rather than beat around the bushes, why don't you simply telephone the expert on the number I gave you and hear it straight from the 'horse's mouth'. He is an expert and I am sure will give you an indicative value without any charge. Whether you then wish to proceed with a formal valuation and pay a fee is upto you.

You could of course consult any other professional, eg Steve P of this furm, if you wish. On the other hand, there is nothing stopping you picking any figure from thin air as you seem inclined to do.

But it helps if you know the ball park figure before making any counter offer. Better still, as I did, get the Chartered Surveyor make the offer on your behalf. I am sure the freeholder will take an offer coming from a Chartered Surveyor more seriously than if it came from the likes of you and me.

Ramnik

[tenant29]

Have asked freeholder for options for extending the leasehold on our flat from 77 years (so gain on marriage kicks in!).

We gave valuation to freeholder of 250k which we based on the going price for similar flats in the area (263k less some).

Freeholder has given an offer based on this as follows:
http://[img=http://img379.imageshack.us/img379/3893/untitled18gg.th.gif] (http://img379.imageshack.us/my.php?image=untitled18gg.gif)

We have responded by asking for the options on extending to 125 years and have received the reply that we should add £250 to each of the 99 year options.

I have now asked the freeholder to confirm that the annual rent "reviewable every 15 years to RPI" means that the rent is increased by the RPI in the year of revaluation, for an approximate amount for "Landlord's legals costs" and the cost of the preparation of a plan should we need one and, whether if we proceed it is on the basis of the valuation we have given or if another is sought.

The freeholders are a company related to the managing agents for our property.

We are wondering what to put in as a first offer and we're minded to offer £4500 for a 125 year lease at annual ground rent of £225.

How much might we expect to pay a Chartered Surveyor to give an estimate of the cost of extending a lease?

Does the use of the word "say" before quoting the price mean that offers are expected, or is this just a legal requirement?

Any views on the above gratefully received.


What is the name of the managing agent and the freeholder company ?
How many leasehold flats are under this freehold ? Do other flats have same lease of 77 years ?
How urgent are you wanting to extend the lease ?

[tenant29]

Have asked freeholder for options for extending the leasehold on our flat from 77 years (so gain on marriage kicks in!).

We gave valuation to freeholder of 250k which we based on the going price for similar flats in the area (263k less some).

Freeholder has given an offer based on this as follows:
http://[img=http://img379.imageshack.us/img379/3893/untitled18gg.th.gif] (http://img379.imageshack.us/my.php?image=untitled18gg.gif)

We have responded by asking for the options on extending to 125 years and have received the reply that we should add £250 to each of the 99 year options.

I have now asked the freeholder to confirm that the annual rent "reviewable every 15 years to RPI" means that the rent is increased by the RPI in the year of revaluation, for an approximate amount for "Landlord's legals costs" and the cost of the preparation of a plan should we need one and, whether if we proceed it is on the basis of the valuation we have given or if another is sought.

The freeholders are a company related to the managing agents for our property.

We are wondering what to put in as a first offer and we're minded to offer £4500 for a 125 year lease at annual ground rent of £225.

How much might we expect to pay a Chartered Surveyor to give an estimate of the cost of extending a lease?

Does the use of the word "say" before quoting the price mean that offers are expected, or is this just a legal requirement?

Any views on the above gratefully received.


What is the name of the managing agent and the freeholder company ?
How many leasehold flats are under this freehold ? Do other flats have same lease of 77 years ?
How urgent are you wanting to extend the lease ?