Lease extension: 57yrs. unexpired, low ground rent

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    Lease extension: 57yrs. unexpired, low ground rent

    Hi everyone,

    There seems to be lots of example calculations given on the forum on how to work out a reasonable premium for extending a lease - but unfortunately I cannot get my head around it.

    Would anyone care to work out what the premium should be for my property?.

    The relevant details that are needed I think are:-

    unexpired term of current lease: 57 years
    ground rent: £17.75 per year/increases to £22.05 in 2031
    value of flat: £120K (this was purchase price in '07 but following my refurb is now more like £145K .. and more with a longer lease )


    Many Thanks,
    patrick

    #2
    Originally posted by PGannon View Post
    Hi everyone,

    There seems to be lots of example calculations given on the forum on how to work out a reasonable premium for extending a lease - but unfortunately I cannot get my head around it.

    Would anyone care to work out what the premium should be for my property?.

    The relevant details that are needed I think are:-

    unexpired term of current lease: 57 years
    ground rent: £17.75 per year/increases to £22.05 in 2031
    value of flat: £120K (this was purchase price in '07 but following my refurb is now more like £145K .. and more with a longer lease )


    Many Thanks,
    patrick


    1) Capitalisation of the ground rent at 7.25% would equal approx = £250

    2) Deferred value of the reversion at 5%. First need to establish what the flat would be worth with a long lease say £170k

    £170k / (1.05^57) = £10,535

    3) Marriage value: Relativity at 57 years can be in the range of 82% if we accept the decisions of the LVT over the last 10 years or 75% if the landlord is able to argue that the Savills graph of 1992 is correct (I think it is but the LVT do not support it nad this is of course rather important). We will assume 80%

    £170k X (100% - 80%) = £34,000 less £250 less £10,535 = 23,215 X 50% = £11,608

    Premium for a 90 year extension could be of the order of £250+£10,535+£11,608 = £22,393 the ground rent to be a peppercorn. In addition you would be liable for teh landlords valuation fee plus certain elements of his legal costs. Budget for another £1,000

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