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Apr, 2014

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  1. #1

    Default How to calculate increasing ground rent for lease extension?

    hello

    I have a one bedroom victorian conversion flat in north London with 81 years remaining of a 99 year lease.

    The ground rent on the flat is:

    £75.00 PA for the 1st 33 years
    £150.00 PA for the 2nd 33 years
    £250.00 PA fo rthe 3rd 33 years

    Am I correct in thinking that, for the purposes of the lease extension calculator, I should average the ground rent against the years remaining on the lease?

    Hope someone can help!

    Thanks

    Evelynf

  2. #2
    Join Date
    Dec 2006
    Posts
    1,076

    Default

    CAPITILISATION OF GROUND RENT INCOME (taken from a thread I started some time ago)

    Firstly work out the term remaining and express it as a decimal. So in this case we are told 81 years and 0 months = 81 years plus 0/12 months = 81.00

    Then produce a list of the ground rent pattern. We are told the lease initially had a £75 ground rent for the first 33 years then rises to £150 for the nest 33 years and then £250 for the final 33 years it would be expressed as follows:-

    £75 for the next 15 years
    £150 for the next 33 years but delayed for 15 years
    £250 for the following 33 years but delayed (15 years + 33 years = 48 years)

    This is actually THREE streams of income and we need to calculate the PRESENT VALUE of that stream of income using a CAPITILISATION rate. In Microsoft excel there is the formula for doing it :-

    Assuming we are using 7.25% (in the formula we express this as 0.0725) for capitalisation of income the formula would be

    =PV(0.0725,15,75) for the first of the three streams

    =ROUND(PV(0.0725,33,150)/(1+0.0725)^15,9) for the second of the three stream

    =ROUND(PV(0.0725,33,250)/(1+0.0725)^48,9) for the third of the three stream

    The figures will be negative but present them as follows in your report. The figure 9 is the number of decimal places


    £75 for the next 15 years. Present value at 7.25% = £672.44

    £150 for the next 33 years but delayed for 15 years. Present value at 7.25% = £652.20

    £250 for the following 33 years but delayed (15 years + 33 years = 48.00 years). Present value at 7.25% = £107.92

    Capitalised value of ground rent = £1,432.56 (ie the sum of the THREE STREAMS £672.44+£652.20+£107.92)

  3. #3

    Default

    Thank you to sgclacy for the information supplied in response to my question.

    Unfortunately, I don't have sufficient understanding of the terminology to really understand what you've told me. What I'm trying to find out is what figure I should give for the box marked annual ground rent on the Lease Extension Calculator so that I can get an idea of how much it will cost to extend my lease to 99 years.

    Would it be possible for you also to give me a little clarification on your response.

    Thank you.

    Evelynf

  4. #4
    Join Date
    Dec 2006
    Posts
    1,076

    Default

    Quote Originally Posted by evelynf View Post
    Thank you to sgclacy for the information supplied in response to my question.

    Unfortunately, I don't have sufficient understanding of the terminology to really understand what you've told me. What I'm trying to find out is what figure I should give for the box marked annual ground rent on the Lease Extension Calculator so that I can get an idea of how much it will cost to extend my lease to 99 years.

    Would it be possible for you also to give me a little clarification on your response.

    Thank you.

    Evelynf

    I guess the calculator you are being asked to populate is not sufficiently precise to handle the concept of rising ground rents.

    I would suggest you put in the hybrid figure of £104. The programme will then capitilise this one rent rent at whatever rate it uses and the value of the capitilised rent will be sufficiently accurate for your purposes

    If the rent was fixed at £104 a year throughout the term its capitilised value would be at 7.25% the sum of £1,434


    £104 / 0.0725 = £1,434

    It will under value the rental income at interest rates above 7.25% and over value at interest rates below 7.25% but the difference is not to significant

  5. #5
    Join Date
    Sep 2006
    Location
    Sheffield
    Posts
    39,411

    Default

    Quote Originally Posted by evelynf View Post
    ...so that I can get an idea of how much it will cost to extend my lease to 99 years.
    No. Your statutory right (established by serving a s.42 Notice of Claim) is to obtain:
    a. a new lease (Deed of Surrender and Regrant);
    b. adding 90yrs. to your existing lease's unexpired term; and
    c. also reducing ground rent to a peppercorn (= no-money rent).
    JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
    1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
    2. Telephone advice: see http://www.landlordzone.co.uk/forums...ad.php?t=34638.
    3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
    4. *- Contact info: click on my name (blue-highlight link) or use Topic Expert page.

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