Lease- 71 yrs. unexpired- extension cost?

[Sharon]

I notice that on some of the threads people have offered estimations of what it would cost to extend a lease given the inquirer's particulars, and I was wondering if someone would be able to do the same for me?

The value of the flat is £200,000, the ground rent is £60 per annum, there is 71 years left remaining. I am wondering what it would cost to add the 90 years to the existing term for a peppercorn rent, and am also wondering how much less it would likely be if I was to simply extend to a total of 99 years.

I do know that another tenant paid roughly £6,500 to extend to 99 years two years ago (same terms as me but the property value was £250,000 and there was then obviously a 73 year lease in place). When I purchased the flat I assumed that given the higher value of their property, it would probably cost me no more than that to do the same.

HOWEVER! I've heard of this new landmark case in London of October 2007 (Sportelli vs. Cadogan), that has apparently changed the way in which calculations are done, and is resulting in MUCH HIGHER FEES for lease extension, in some cases DOUBLE (for properties outside London - London properties have apparently benefitted from the new calculations). Does anybody have any information or views on this? It seems very disheartening that after years of leasehold reform things may have taken a great step backwards for leaseholders as a result of this case.

Thanks!!!

[Sharon]

Sorry, one more thing for the purpose of calculations (above), that I forgot to mention:

Although the ground rent is £60 PA currently, this rises to £85 PA at year 2030, and then £100 PA at year 2055, at which point it remains at £100 for the remainder of the lease! I know I'll most likely be pushing up daisies by then but I realise it's all relevant to what is negotiated now!

[sgclacy]

If you were to apply under the 1993 Act the cost of a lease extension could be of the order of £12,580

This is calculated as follows:-

1) Capitalisation of ground rent at 7.25% would be £900 (taking into account future rises)

2) Deferred value of the reversion. Assuming the flat is worth £200k with a new long lease at a negligible ground rent this discounted back at 5% equates to £6,260


3) Calculation of marriage value. If the flats is worth £200k with a long lease then applying Beckett and Kays graph the relativity at 71 years is of the order of 91%. Hence 18,000 is deemed to be the differential. From this take away the figures in step 1 and 2 and you ariive at £18,000 - £6260 - £900 = £10,840. This is the marriage value and take 50% of that figure and you get £5,420.


The premium payable is the sum of all three steps and equates to £12,580 (£900+£6260+£5420). and if you apply under the Act the ground rent falls to a peppercorn. In addition you would be liable to the Landlords legal costs of checking the validity of the notice and their costs of drafting and agreeing the deed. In addition you would be liable for the Landlords surveyor’s costs in valuing the property. You are not liable for the landlords legal and surveyor’s costs in arguing over the value. I would suggest you allow around £1,000 to cover the landlord’s costs.

Cadogan did not change the formula for the valuation of a lease extension or enfranchisement. What is established was a recommended starting point for the discount rate to be used in the deferment of the reversion. Hitherto rates had become rather high in our relatively low interest rate environment and a more up to date rate was required. Also it was felt that landlords were being unfairly disadvantaged in that the discount rate also took into account the quality of the area. It was felt that as the market price of the property already reflected the quality of the area to then adjust the discount rate again resulted in doubling counting. Much of the resentment over Cadogan would be alleviated if lenders did not regard a 71 or 57 year lease as un mortgagable. If they did regard them as mortgagable then we would see a much wider range of property for sale with various lease lengths and prices to match and thus alleviating some of the problems for first time buyers.

In my calculation above are referred to relativity however this is the value that applies in a no act world. In the real world the Act obviously exists and the differential between a flat with 71 years and 999 years would probably be about £12-£15k similar to the price necessary to extend the lease

I would strongly advise that you try to negotiate outside the Act to begin with and see I the Landlord will take a lesser premium for a higher ground rent. Whether your flat has a £60 year ground rent or £200 will make no difference in my view to its market value. Also many landlords want to deals as some believe that house prices may fall over the next three years and therefore wish to capitalise now while prices are still high

[tenant29]

All leasehold titles are written on unfair terms for the leaseholders but not enough leaseholders are willing and active to fight for a fairer system. The Labour Government introduced the Commonhold system as an alternative to Leasehold system but failed to deliver the benefit to the public because the Labour Housing Minister didn't understand what are "unfair terms for home buyers " and allowed the leasehold title system to remain in use.

You should consider joining CARL ( see www.carl.org.uk and sign the
e-petition ).

Dont extend your lease back to to 99 years only as it just creates the same problem which you now face in 18 years time. Best to extend to additional 90 years at peppercorn ground rent.

[jeffrey]

1. No leaseholder/tenant (T) ever has to accept unfair terms. The deal negotiated with reversioner/landlord (L) is never forced upon T. Failure to agree terms is resoluble by LVT and County Court hearings.
2. What is noteworthy, however, is the unfair attitude taken by rogue L in many cases- but that's simply a function of greed and not amenable to legislation.
3. Tenant29 has forceful views from which others sometimes differ.

[Sharon]

Thanks so much for all the advice!!! I'm a bit shocked at the figure, whew! Has this Sportelli case resulted the total cost being higher for me than it would've been prior?

When you say to negotiate outside the act to try and get a better premium by agreeing higher ground rent, do you mean to try and negotiate just an extension to 99 years with higher ground rent, or do you mean try and negotiate the additional 90 years with higher ground rent?

And what is the figure likely to be if I merely extend to 99 years instead? As I mentioned before another leaseholder in the building negotiated around £6,500 18 months ago for a property valued at £250,000 - £50,000 more than mine! This was for just extending to 99 years.

Thank you!

[jeffrey]

Yes- Sportelli effectively reduced the discount for accelerated payment of whole term's ground rent so increased total premium payable by T. The shorter the new term now to be granted, the more value that L retains (and therefore the premium payable by T is lower).

[Sharon]

I hear what your saying Tenant 29, I only wish I could afford to add another 90 years on but my mortgage company will only allow me another £6K for this purpose, so I'm afraid L has me by the proverbials. :mad:

How much is extending to 99 instead likely to be? As much as half maybe? Is there any legislation that enforces a ceiling on what it 'should' be, or is it just an arbitrary figure that L decides upon?

[jeffrey]

Try working the sum backwards: how long could the new lease be if the answer is £6000?

[Sharon]

I'm sorry, those equations and sums completely flummox me, I wouldn't know where to begin! Maybe sgclacy will help me out with that one when he or she pops back. :confused:

[sgclacy]

Yes- Sportelli effectively reduced the discount for accelerated payment of whole term's ground rent so increased total premium payable by T. The shorter the new term now to be granted, the more value that L retains (and therefore the premium payable by T is lower).

On this very rare occasion Jeffrey I think you may have made a mistake.

Discount rates are used in two parts of the calculation

There is the CAPITILISATION rate and this is used for income and will vary with short term movements in interest rates depending on the size of the rent and the rent review pattern rates vary between 6.75% to 8%. A high rent rising regularly will attract a rate nearer to 6.75% whereas very small fixed rents may attract rates of 8% although it is usually not worth getting to involved in arguing over such sums

There is the DEFERMENT rate that is used to value the reversion and this will vary much less often and is to do with the markets perception of real rates of return i.e. stripping out inflation. Whereas income will be effected by inflation the reversion to a certain extent provides a hedge against inflation and that is why a much lower rate is used in the discounting of the reversion as opposed to income. Cadogan and Sportilli was about that rate (to be more exact about the rate used for Leasehold Houses where they concluded that it should be 4.5% for houses and 5% for flats). It is not cast in stone and handed down on top of a mountain, but it is a starting point and the Landlord cannot simply quote it as a magic spell he has to justify it. A tenant would need to argue why it should not apply. It is felt a higher rate is applicable if there are doubts as to the adequacy of the lease to enable a landlord to enforce repairing covenants. The area should not make a difference as the market value already takes into account the quality of the area.

The difference in the price you would pay between a 99 year lease and a 90 year extension to the existing term in this case will be less than £1,000.

I would informally ask what the freeholder is looking for. The alternative of doing it under the Act would make you liable for his valuation and legal fees in checking the validity of the notice. As you can imagine it is totally dependent upon how up to speed the freeholder is on values

[Sharon]

Less than £1,000 difference for an extension to 99 years?! I'm shocked! How can it be justifed that there is only less than £1,000 difference between an additional 28 years (in my case) and an additional 90 years with no ground rent???!!! That is something of a rhetorical question as I imagine "it is what it is", however surely it is very much in the landlord's interest for me to just extend to 99 then to add on 90 with a peppercorn rent. The value of the lease to the landlord in the former scenario is so much more. Wouldn't the landlord want to make it significantly more desirable to me to simply extend to 99 years and keep the ground rent in place? I don't get it? :confused:

And how is the figure of an extention to 99 years arrived at?

[Sharon]

footnote: The landlord will be very up to speed, they are represented by the biggest managing agents in Brighton & Hove! Oh I despair...

[sgclacy]

Less than £1,000 difference for an extension to 99 years?! I'm shocked! How can it be justifed that there is only less than £1,000 difference between an additional 28 years (in my case) and an additional 90 years with no ground rent???!!! That is something of a rhetorical question as I imagine "it is what it is", however surely it is very much in the landlord's interest for me to just extend to 99 then to add on 90 with a peppercorn rent. The value of the lease to the landlord in the former scenario is so much more. Wouldn't the landlord want to make it significantly more desirable to me to simply extend to 99 years and keep the ground rent in place? I don't get it? :confused:

And how is the figure of an extention to 99 years arrived at?

I appreciate it must at first glance look odd, I will try and explain it.

If you extended the lease under the Act the landlord will going forward receiving nothing as the ground rent is reduced to a peppercorn but he will have the right in 161 years to the reversion (i.e. 71 years plus 90 yrs). The ongoing value of this is as follows:-

Ground rent a peppercorn therefore capitalised vale nil
Value of the reversion of £200k in 161 years time at 5% = £77
(200/ 1.05^161)
Value of your lease to freeholder would be just £77


If you went for a 99 year new lease again at a peppercorn the landlord position is

Ground rent a peppercorn therefore capitalised vale nil
Value of the reversion of £200k in 99 years time at 5% = £1,596
£200k/(1.05^99)
Value of your lease to freeholder would be £1,596

Therefore mathematically speaking the freeholder would be prepared to accept £1596 - £77 = £1,512 for you taking a 99 year lease as opposed to a 161 year lease.

HOWEVER one of the fundamental problems I feel with the valuation method is that there is no adjustment for very long period of time. In other words the same discount rate of 5% is used on 30, 40 and 50 year leases as for 100 plus years I don’t think a freeholder will necessary want to use 5% to discount something over 99 years if you are going to go outside of the Act. Mention of this was made in the judgement of Cadogan and Sportilli.

A 99 year lease becomes valuable again in 20 years time and the freeholder may possibly value that right at something up to £1,000. As an investor I probably would value it at a few hundred but certainly no more than £1000. Hence why I believe the difference between a 161 year lease premium and a 99 year lease premium will be fairly close

[Sharon]

Therefore mathematically speaking the freeholder would be prepared to accept £1596 - £77 = £1,512 for you taking a 99 year lease as opposed to a 161 year lease.

Forgive the dumb question, but if the value of my lease to the freeholder is £1,512, why am I paying something in the region of £12,000?

I think the maths is completely flummoxing me! I can't follow it. Never mind, I appreciate your help. I had no idea it would be this much, I'm just going to have to sell and downscale this year, as I never had any idea it would cost this much. The other leaseholder only paid £6,500 last year and his property was worth £50K more than mine, so I figured it was safe to budget for £6K. I only bought this flat last year, so I'll have to discount the £12K from the asking price. Oh well, it stinks and is utterly depressing.

[sgclacy]

Forgive the dumb question, but if the value of my lease to the freeholder is £1,512, why am I paying something in the region of £12,000?.

If you went under the Act, after you have paid for a lease extentsion at say circa £12k then the valuie of your flat to the freeholder would be £77 as advised earlier.

If you are able to do a deal outside the Act and the landlord gave you a 99 year lease instead of 161 years (ie if you went under the Act) and it had a peppercorn rent then it would be worth theoritically £1,596 to the freeholder but that is after you have paid the premium you are able to negotiate

You may well be able to get the price down for the lease extentsion if you were prepared to have a higher ground rent and less than a 90 year extentsion to your lease. But it would be the ground rent tat would push the premium IF the landlord is prepared to go outside the Act.

The difference between the figure I have suggested and your expectations is £6k and it may be possible to narrow the gap as outlined above. Your costs on buying and selling in this market would eclipse almost the £6k you are trying to save. In any event you need a firm figure for the lease extentsion if you are to sell it in this market which I suspect is going to turn into a buyers market if it already has not done so.

18 months ago your neighbour paid under the odds for the lease extentsion. Cadogan and Sportilli would not have had that much an effect on your flat. Its the 79-85 year lease which had the greatest uplift.

[Sharon]

Thanks for that explanation - I actually do understand now, thankfully!

I take your point on the cost of buying/selling eclipsing the additional £6K, however it's more a matter of accessibility than affordability - I can't get borrowing for more than £6K on top of the mortgage as things stand.

I'll see how I get on with negotiations, and as you say suggest a higher ground rent to keep costs down. Finally, can the formula be used to determine what a lease extension WITH £200 PA ground rent would cost?

Thank you.

[sgclacy]

Thanks for that explanation - I actually do understand now, thankfully!

I take your point on the cost of buying/selling eclipsing the additional £6K, however it's more a matter of accessibility than affordability - I can't get borrowing for more than £6K on top of the mortgage as things stand.

I'll see how I get on with negotiations, and as you say suggest a higher ground rent to keep costs down. Finally, can the formula be used to determine what a lease extension WITH £200 PA ground rent would cost?

Thank you.

The value of the ground rent of £200 will depend on whether it rises and if so when and by how much.

As an investor I would value a ground rent that rises every year by the RPI at about £4,000. in which case the premium may drop to £8k. They may very well be interested in doing a deal. Its all very well owning reversionary investments but they do need to be turned into cash from time to time and cash will be king I suspect in the next couple of years

Firstly approach them to find out what they are seeking before offering the £200 ground rent

[Sharon]

OK thanks ever so much for your help. :)

I will approach them and see what they say, and will pop back here once I know the figures to get some views!

[jeffrey]

On this very rare occasion Jeffrey I think you may have made a mistake.

Discount rates are used in two parts of the calculation. There is the CAPITALISATION rate and...there is the DEFERMENT rate...
Yes. Sorry for ambiguity: I meant to refer to the latter.

[Sharon]

By the way I just wanted to express my thanks again for your time in doing these complicated calculations for me. I'm sure I would have had to pay a professional to do this for me in the real world, so I feel very fortunate to have come upon this web site. I will tell everyone I know about it. :)

[conor]

Like Sharon, I would like to extend my lease this year.

I would really appreciate your assistance with my indicative calculations.

The details are as follows:

1. there are 80 Years and 5 months remaining of the Term;

2. the ground rent is payable as follows:

a. 9 years and 5 months remaining at £25;

b. the following 33 years at £50; and

c. the last 38 years at £100.

3. the value of the flat is approximately £425,000

Please would you let me have an indicative premium for a new 90 year lease at a peppercorn or a 99 year lease at a ground rent of £150 for the term.

I would really appreciate some assistance.

Many thanks

David

[WizWard]

Going back to SGLACY's post of 20th January he, or she(?), has inserted the following assumption that appears to have been erroneously adopted and assumed right throughout the subsequent posts. I quote:-

"3) Calculation of marriage value. If the flats is worth £200k with a long lease then applying Beckett and Kays graph the relativity at 71 years is of the order of 91%. Hence 18,000 is deemed to be the differential. From this take away the figures in step 1 and 2 and you ariive at £18,000 - £6260 - £900 = £10,840. This is the marriage value and take 50% of that figure and you get £5,420."

The error is with the relativity percentage of 91% whereas this should, more correctly, be 84% by applying the "Savills 1992" curve plotted on the "Graph of graphs". SGLACY appears to have used the "Moss Kaye 2005" curve.

It is quite clear from the guidance given in the Arbib and then Sportelli [note: not Sportilli] cases at the Lands Tribunal, and reinforced when the latter was taken to the Court of Appeal, that market evidence can only be used where it is not tainted by the Act i.e. a no-Act world.

Therefore the only eligible "evidence" that can be used must be based upon transactions that occurred well before the first so-called "enfranchisement" Act of 1993. Indeed, even evidence gathered in 1992 will have been impaired by the impending passage of the 1993 Act.

Clearly the Moss Kaye 2005 curve does not appear to cut the mustard in this regard.

The "LEASE: All LVT determinations" curve on the Graph of Graphs (which is similarly purveyed on LEASE's website as "Relativity Graphs - based on LVT decisions up to January 2007") could not seriously be regarded as worthwhile "evidence". This data is doubly flawed since:-

a) Most of any underlying 'evidence', such as there might be, will be tainted and Act-impaired - see Arbib para 99 & 109.
b) The "evidence" is merely based upon a series of earlier LVT decisions where any underlying facts (if facts have been used rather than LVT Panel members' undisclosed "knowledge and experience" ... ref Arrowdell?) and circumstances are unknown. This results in a veritable Tower of Babel and was specifically proscribed in the Arbib decision at paras 115 & 116.

It is highly recommended that the calculation advice provided in these posts should be amended to reflect more realistic relativity assumptions and not build false hopes.

[sgclacy]

Going back to SGLACY's post of 20th January he, or she(?), has inserted the following assumption that appears to have been erroneously adopted and assumed right throughout the subsequent posts. I quote:-

"3) Calculation of marriage value. If the flats is worth £200k with a long lease then applying Beckett and Kays graph the relativity at 71 years is of the order of 91%. Hence 18,000 is deemed to be the differential. From this take away the figures in step 1 and 2 and you ariive at £18,000 - £6260 - £900 = £10,840. This is the marriage value and take 50% of that figure and you get £5,420."

The error is with the relativity percentage of 91% whereas this should, more correctly, be 84% by applying the "Savills 1992" curve plotted on the "Graph of graphs". SGLACY appears to have used the "Moss Kaye 2005" curve.

It is quite clear from the guidance given in the Arbib and then Sportelli [note: not Sportilli] cases at the Lands Tribunal, and reinforced when the latter was taken to the Court of Appeal, that market evidence can only be used where it is not tainted by the Act i.e. a no-Act world.

Therefore the only eligible "evidence" that can be used must be based upon transactions that occurred well before the first so-called "enfranchisement" Act of 1993. Indeed, even evidence gathered in 1992 will have been impaired by the impending passage of the 1993 Act.

Clearly the Moss Kaye 2005 curve does not appear to cut the mustard in this regard.

The "LEASE: All LVT determinations" curve on the Graph of Graphs (which is similarly purveyed on LEASE's website as "Relativity Graphs - based on LVT decisions up to January 2007") could not seriously be regarded as worthwhile "evidence". This data is doubly flawed since:-

a) Most of any underlying 'evidence', such as there might be, will be tainted and Act-impaired - see Arbib para 99 & 109.
b) The "evidence" is merely based upon a series of earlier LVT decisions where any underlying facts (if facts have been used rather than LVT Panel members' undisclosed "knowledge and experience" ... ref Arrowdell?) and circumstances are unknown. This results in a veritable Tower of Babel and was specifically proscribed in the Arbib decision at paras 115 & 116.

It is highly recommended that the calculation advice provided in these posts should be amended to reflect more realistic relativity assumptions and not build false hopes.

I am offering an indictive value not an exact figure and I have extensive experience as a freeholder in dealing with lease extentsions and I am very much aware of the LVT decisions and all the various relativity graphs produced over teh last few years.

If you refer to the published decisions of the LVT the relativity determined has not been in line with Savills Graph of 1992. Therefore if I am giving an indicative value of what a lease extension might cost (with all the various caveats) I am hardly going to base my calculations using a graph which appears not to be reflected in the current decisions of the LVT.

The reasons for using the Savills graph are of course compelling and would have course suit landlords such as you and I but the current approach of the LVT does not show that they respect it.

Many lessees who post on this forum have no idea what to expect in the way of a premium for a lease extentsion and I am happy to spend a few minutes trying to give a ball park figure with an explanation as to how the figure is arrived at. I would also point out that in the 70 plus range relativity does not play that significant part in the make up of the premium.

[WizWard]

The lucrative enfranchisement "industry" seeks to perpetuate its tenant-centric myths in the form of various dubious and confiscatory valuation practices and, unfortunately, by continuing to dispense advice based on these practices to tenants you may be inadvertently adding to that unfairness and injustice.

Similar nonsense surrounded the deferment rate issue for many years lead hapless tenants into over-paying for their leases on the assumption they could purchase their lease extensions/freeholds for a song.

When cold and rational analysis was applied to determine the correct and fair[er] rate [Arbib, Sportelli etc], superseding the former myth and nonsense peddled by the enfranchisement "industry", lessees might well have wished to question the valuation advice for which they had paid valuation "professionals" prior to purchase - leading them to overpay for their leasehold interest.

Indeed, if I had been in their situation then I would have immediately filed a claim against the surveyor/valuer's PI insurers for supplying negligent and inaccurate valuation advice. It amazes me that we have not yet seen a raft of such claims.

Your rationale that, for pragmatic purposes, the tenant is likely to accept the flawed LVT relativities has some resonance. However, you may be well advised to caveat enquiring tenants that the relativities determined by the LVT are plainly wrong (as you agree!) and may well be corrected within the coming year or so when this matter is likely to come under the same rational scrutiny that was applied to the deferment rate.

Any tenant who subsequently had overpaid to acquire their lease due to flawed relativity assumptions should then meet with a litigation lawyer to file their claim against their valuer to recover the difference.

Tenants now seeking valuations should specifically question their valuer on this matter prior to instruction so that this matter is clearly understood by both parties - before the chicken comes home to roost!

[sgclacy]

Like Sharon, I would like to extend my lease this year.

I would really appreciate your assistance with my indicative calculations.

The details are as follows:

1. there are 80 Years and 5 months remaining of the Term;

2. the ground rent is payable as follows:

a. 9 years and 5 months remaining at £25;

b. the following 33 years at £50; and

c. the last 38 years at £100.

3. the value of the flat is approximately £425,000

Please would you let me have an indicative premium for a new 90 year lease at a peppercorn or a 99 year lease at a ground rent of £150 for the term.

I would really appreciate some assistance.

Many thanks

David

A relatively staright forward case as marriage value is not applicable:-

1) Capitalisation of Ground rent at 7.25% = £554

2) Value of reversion at 5% (425K/(1.05^80.4) = £8405

Premium for a lease extentsion under the Act ie a 90 extentsion and peppercorn rent = £8,959

Plus landlords valuation costs and legal costs in accepting the notice and approving deed of variation/deed of surrender

Even if it dropped below 80 years marriage value is unlikely to impinge on the valuation until the term is below about 77 years

[jeffrey]

Like Sharon, I would like to extend my lease this year. The details are as follows:

1. There are 80 Years and 5 months remaining of the Term...

Please would you let me have an indicative premium for a new 90 year lease at a peppercorn or a 99 year lease at a ground rent of £150 for the term.

Note: ensure that your statutory Notice of Claim is served before you reach the 80-year point.

[sgclacy]

The lucrative enfranchisement "industry" seeks to perpetuate its tenant-centric myths in the form of various dubious and confiscatory valuation practices and, unfortunately, by continuing to dispense advice based on these practices to tenants you may be inadvertently adding to that unfairness and injustice.

Similar nonsense surrounded the deferment rate issue for many years lead hapless tenants into over-paying for their leases on the assumption they could purchase their lease extensions/freeholds for a song.

When cold and rational analysis was applied to determine the correct and fair[er] rate [Arbib, Sportelli etc], superseding the former myth and nonsense peddled by the enfranchisement "industry", lessees might well have wished to question the valuation advice for which they had paid valuation "professionals" prior to purchase - leading them to overpay for their leasehold interest.

Indeed, if I had been in their situation then I would have immediately filed a claim against the surveyor/valuer's PI insurers for supplying negligent and inaccurate valuation advice. It amazes me that we have not yet seen a raft of such claims.

Your rationale that, for pragmatic purposes, the tenant is likely to accept the flawed LVT relativities has some resonance. However, you may be well advised to caveat enquiring tenants that the relativities determined by the LVT are plainly wrong (as you agree!) and may well be corrected within the coming year or so when this matter is likely to come under the same rational scrutiny that was applied to the deferment rate.

Any tenant who subsequently had overpaid to acquire their lease due to flawed relativity assumptions should then meet with a litigation lawyer to file their claim against their valuer to recover the difference.

Tenants now seeking valuations should specifically question their valuer on this matter prior to instruction so that this matter is clearly understood by both parties - before the chicken comes home to roost!

I am not so arrogant to think that as the LVT does not accord with my view as to what relativity should be that this make the decisions of the LVT wrong.

Have you taken a case to the LVT on this particular point and if you have what was the result?

[conor]

Many thanks for your advice.

Would you be able to do an indicative calculation for me for the premium payable for a surrender and re-grant of a lease for 99 years at a ground rent of £150 for the whole of the term.

Many thanks again.

[sgclacy]

A freeholder who invests in ground rents would probably regard the £150 per annum ground rent as being worth around £2,000 and therefore might offer to deduct £2,000 from the figure I gave you. If the freeholder does not hold a large portfolio he may regard the £150 a year as meaningless and would rather have the capital so may not make a reduction.

By going for a 99 year lease and a ground rent you are of course going outside the Act and therefore the terms are based on negotiation and not be reference to any formula.

[Jueyclaire]

Rather than start a new thread asking the same thing, i'll put my situation in here too....

lease has 66 years to run
ground rent currently £70pa for next 16yrs, then £140 25yrs, £280 25 yrs
value at 66yrs £285k
value with new lease likely to be £300k (according to est agts valuers)

valuers I've spoken to seem to 'think' that £12-15k would be reasonable to extend back to 99yrs
freeholder has come back with an intergalactic figure - with no workings out (this has been requested) and new ground rent of £200pa doubling every 33 yrs.
Maisonette in Finchley N3 (if it makes any difference)

rule of thumb figure would be nice to give me some ammunition once their workings out arrive


Thankyou in advance of your wisdom:)

[jeffrey]

Jueyclaire: for how long have you owned leasehold? If > 2 years, you have a legal right to add 90 years to term and to eliminate ground rent.

[Jueyclaire]

owned for 6 yrs, planning to get the ball rolling then assign to new occupants (assuming freeholder in agreement) as wanting to move.
thankyou

[jeffrey]

owned for 6 yrs, planning to get the ball rolling then assign to new occupants (assuming freeholder in agreement) as wanting to move.
thankyou
In that case, serve statutory Notice (s.42 of 1993 Act) so that you can ensure validity before assigning its benefit.

[Jueyclaire]

ah ok,

the burning issue at present is cost of extending - as it's the first question anyone is going to ask when they view and at present things are very woolly - between 12k and 30k. Resulting in no point of putting it on the market.
some idea of what it 'should' be would be very handy.

[jeffrey]

BUT you do not need to pay it yourself- you're just facilitating your P's leasehold extension without needing to wait two years more.

[Jueyclaire]

That's right, but nobody is going to buy a property with an ongoing lease extension, that they'd need to pay for, without knowing how much the lease extension is going to cost.
if you see what i mean?
I don't yet have a purchaser, and am unlikely to find one if I can't tell them how much the lease extension is likely to cost - hence me starting negociations with my freeholder.

so really my initial enquiry remains........how much should the lease extension cost ?- as a rule of thumb, using the details posted above, assuming I'm doing it and i'm not selling.:confused:

[sgclacy]

Rather than start a new thread asking the same thing, i'll put my situation in here too....

lease has 66 years to run
ground rent currently £70pa for next 16yrs, then £140 25yrs, £280 25 yrs
value at 66yrs £285k
value with new lease likely to be £300k (according to est agts valuers)

valuers I've spoken to seem to 'think' that £12-15k would be reasonable to extend back to 99yrs
freeholder has come back with an intergalactic figure - with no workings out (this has been requested) and new ground rent of £200pa doubling every 33 yrs.
Maisonette in Finchley N3 (if it makes any difference)

rule of thumb figure would be nice to give me some ammunition once their workings out arrive


Thankyou in advance of your wisdom:)


Based on the above I would estimate the cost of a lease extension under the Act to be as follows:-

1) Capitalisation of the rent @ 7.25% = £1,352

2) Value of the reversion discounted back at 5% = £300k / (1.05^66) = £11,985

3) Value of Flat with long lease = £300k value derived using relativity tables around 85% at 66 years therefore marriage value = £300k X (100% - 85%) = £45,000 less £1,352 less £11,985 = £31,663 take 50% = £15,832
Total premium would be of the order of £1,352 + £11,985 + £15,832 = £29,169 with a peppercorn rent in addition you would under the Act be liable for the Landlords legal and valuers costs but only certain elements of it.

[Jueyclaire]

Thanks for that, I think (gulp).

so it'll cost £30k to increase the property value by £15k.

why would I do that?

[jeffrey]

Because no-one might buy it otherwise?

[Jueyclaire]

Using those figures, it looks like we'll be better off just trying to sell as it is for a lower figure.

How on earth an average man in the street is supposed to comprehend all this in the midst of buying a home is beyond me.
Way too many variables in the whole long lease system for it to be even vaguely transparent to the public.

reversion tables - i'll find those in my local paper, will I?
value of reversion discounted back at 5% - is that in English?

All seems very smoke and mirrors to me

Just as well there's some clever people out there for hire.

Needless to say my next purchase will be freehold:rolleyes:

Thanks all

[WizWard]

I have every sympathy with Jueyclaire being confused that by the £30k extension cost only appearing to add £15k value to the existing lease. This is simply because the existing lease is, or has been six years ago, overvalued where estate agents, ill-informed valuers and others have undervalued the true reversionary (i.e. extended lease value) interest.

In the case of estate agents, they are acting for the vendor and are unlikely to want to draw your attention to the real cost of extending the lease (would you take advice from a second-hand car salesman for the cost of fixing a knocking sound from the engine of a car he is selling to you?).

In the case of valuers, whilst they are normally very experienced and knowledgeable in their chosen area of study (property valuation), they are less well-trained in the time value of money which is what leases are all about.

Finally, the assumptions quoted are dangerously optimistic in my view. The capitalisation rate is far too high at 7.25% (if anyone can tell me where I can get a rock-safe 7.25% p.a. LONG-TERM investment return - other than Northern Crock(!) - then I, and half the world, would jump on it - the starting rate for UK l/term gilts is less than 4.5% - check it in the FT).

Also, the assumption of the relativity for marriage value "using relativity tables around 85% at 66 years" is seriously flawed since it relies upon data which was not gathered in a no- Act world and is thus seriously impaired. BTW, there are no accepted "relativity tables". The best fit, but not perfect, data comes from the Savills 1992 graph which indicates about 81% rather than 85%.

You may wish to rework these estimates?

[sgclacy]

A a 1% variation on the capitilisation rate in this case for the income is less than £100. Most reversionjary leases will have very small rents and is not usually the subject of any meaningful debate

Relativity. review the current LVT cases in the public domain and show me cases that support your view that the figures in the Savills graph of 1992 is being used. I agree the graph is more logical as it provides a picture of the last days of the "no Act world", unfortunatly it is not used by the LVT

You appear to be angry that the LVT are not using the figures you would like them to use and appear to undermine my efforts and others on this forum who wish to help others

[Jueyclaire]

now now folks - toys back in prams please, you're better than that.

definatley seems best to cut and run, as no doubt the longer it goes on the bigger the cost expodentially(sp?)

wizward; it seems as though they still are underestimating the cost by quite a margin, resulting in our best move being to sell without extending.

It seems our dear freeholders aren't too far out of the ball park afterall:rolleyes:

[Jueyclaire]

I've recd their idea of a breakdown today.

They see the long leasehold value as £250,000
curr 66 yrs £212,500
Is it the difference in these 2 figures that goes to make up the extension cost or just the long value? ....a difference of £37,500 seems grossly inflated.
Local valuers see the difference in value of £15k

They have used totally wrong figures for the ground rent. they think curr £160 rising in 33 years to £320.
It's actually £70 for 16 yrs, then £140 for 25 yrs, then £280 for 25 yrs.

They now make their figure £23k (down a couple of grand already) with lower actual ground rent and less difference in the 2 lease values, how much should it reduce further, based on their own calculations?

Thanks again

Julian

[jeffrey]

You wanted to pay £15 000.
They wanted £30 000, then £25 000, now £23 000.
Clearly, they are entirely clueless.
Try offering £17 000 for a quick completion? They might settle at £18 000 to £20 000.

[Jueyclaire]

Quite,
They've always seemed to behave pretty shadily to be honest.
The letter from the surveyor states 23k and clearly has incorrect ground rent figures.

If we can get it negociated to under £20k it will be worth getting in writing to be able to show any prospective buyer.....and perhaps get the ball rolling for them.

We shall table our offer and see what happens.

Thanks again

ps think I've worked out how the calculations work now so i can mix and match the different figures offered by the freeholder.

[sgclacy]

The flat is worth £250k with a very long lease and a peppercorn rent

Before 1993 ie in "the no act world" ie in a world where you do not have a right to a lease extentsion it was believed that the value of your flat with a 66 year lease could be of the order of 84% of it value if it had an unpaired lease. There are some who believe based on Savills graph complied in 1992 (ie before the ACt came into existence) that 75% may be right.

The calculation makes use of these relativities based on a "no Act World" I believe that the figure to extend your leases is of the order of £30k

However as a result of the Act knowing you can extend for £30k the flats market value becomes something of the order of £250k less £30k = £220k

Hence this is why you may not find spending the money on the lease extentsion worthwhile and why the figures used in marriage value differ from current market evidence

[polo2000w]

My situation is a little odd. I think the value of a lease extension is quite straightforward for my case (lease remaining 87 years, ground rent is £90 for next 21 years, then £180 for next 33 years, then £270 for last 33 years, value of flat about £330k - I valued it at just over £7000 for another 90 years at peppercorn (is that reasonable?). However, I wrote to the freeholders for a rough idea of how much they would expect it to cost but they have come back asking for an advance payment of £1000 to represent their legal and valuation costs. If I pay it, I'm worried they could just turn around and quote a ridiculous figure! I'm not in a particular rush to extend - I'm quite happy to wait another 5 years or so which I understand will still avoid marriage value. Any ideas?

[jeffrey]

My situation is a little odd. I think the value of a lease extension is quite straightforward for my case (lease remaining 87 years, ground rent is £90 for next 21 years, then £180 for next 33 years, then £270 for last 33 years, value of flat about £330k - I valued it at just over £7000 for another 90 years at peppercorn (is that reasonable?). However, I wrote to the freeholders for a rough idea of how much they would expect it to cost but they have come back asking for an advance payment of £1000 to represent their legal and valuation costs. If I pay it, I'm worried they could just turn around and quote a ridiculous figure! I'm not in a particular rush to extend - I'm quite happy to wait another 5 years or so which I understand will still avoid marriage value. Any ideas?
They are:
a. entitled to demand that you pay their fees; but
b. not entitled to demand payment of those fees in advance, at least not if you use the statutory Notice procedure under s.42 of 1993 Act.

[Jueyclaire]

My saga continues:
We wrote to the freeholders with our offer (£15k) and pointing out totally incorrect figures used.

We now have a letter from the freeholders surveyor saying he's on holiday for a month and will get back to us on his return.
I've spoken to the freeholder to ask him to use a different surveyor - he refuses.

Anything I can do? - this all started in November and it looks like it won't be going anywhere for another 3 weeks. AAAARRRRGGGGGHHHHHH

Also my lease states 2 different start dates

first page says
this lease is made on the 23rd of Feb 1976
later it says
99 years from 24th June 1975

which date would be right and if the feb date, I guess a statutory right to extend letter could be wise to stop the clock running before another year ticks off?????

[jeffrey]

1. Statutory procedures bring with them some specific time limits. Take advice on these, to minimise f/r delay.
2. Lease was dated/completed on 230276, BUT term is from 240675.
3. For most purposes, use the latter date (other than if a form asks for date of lease itself, obviously).

[sgclacy]

Once you serve the Section 42 Notice that fixes the valuation date, however bear in mind that once you issue the notice then you will become liable for the landlords valaution costs (not however the surveyors fees in arguing over values) and the landlords costs of checking the validity of your cliam and the costs of approving the deed of surrender and regrant (or deed of variation) .