Doubling of Ground Rent on lease

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    Doubling of Ground Rent on lease

    Hello to you all,

    I'm in need of some help and advice please.

    I'm in the process of buying a leasehold flat for £109,000 with 110 years remaining and looking at doing a statutory lease extension in order to take out the doubling rising ground rent. Does anyone have an idea how much this would cost along with solicitors and valuation fees.

    Do I go on the calculation based on the current ground rent of £150 pa or do I add them all up and divide, eg 150, 200, 400, 800, 1600 = 3150 / 5 = £ 630. Or it something completely different :/

    The ground rent is set at £150pa at the moment and is set to mostly double every 25 years, as follows :-

    £150 first 25 years ( 10 years left at this rate)
    £200 next 25 years
    £400 next 25 years
    £800 next 25 years
    £1600 next 25 years

    Another concern I have will the property be mortgageable if I don't do anything about the ground rent?

    I've been on a lease extension calculator http://lease-extensions.org.uk/calculator.html and there is a huge cost difference depending on what figures I put the figures in. I also assumed it would not make a huge difference in the marketing value even with the added lease extension.

    Any help would be appreciated as seems very complicated.

    Thanks

    Gareth

    #2
    How much do you expect it to increase every 25 years?

    I think you are wasting your time and money.

    And why do you think a statutory extension would remove the doubling without additional cost to that extension?

    Comment


      #3
      Get vendor to extend contemporaneously otherwise you'll have to wait 2 years and pay through the nose.

      Comment


        #4
        Thanks for the prompt reply, I realise the possibility of increase ground rent but, my main concern is the cost to increase the lease based on the doubling will be in access of £30,000 including costs. based on my calculations. I was hoping to be wrong!

        Comment


          #5
          Unfortunately the current vendor has only lived there for 18 months not over 2 years.

          Comment


            #6
            I realise there would be additional costs, but at least it would be a peppercorn and mortgageable in the future, that was my thinking.

            Comment


              #7
              Originally posted by AndrewDod View Post
              How much do you expect it to increase every 25 years?

              I think you are wasting your time and money.

              And why do you think a statutory extension would remove the doubling without additional cost to that extension?
              I put the increase every 25 years in the details, can you please elaborate why you think it is a waste of time.

              Comment


                #8
                So how much do you expect it should increase every 25 years, if not double?

                You want to spend £30K in today's money (or any amount) to save a pittance?

                There may well be good reasons to want a lease extension, but this is not one of them.

                Comment


                  #9
                  Originally posted by GarethB View Post
                  Unfortunately the current vendor has only lived there for 18 months not over 2 years.
                  That doesn't prevent them negotiating an informal extension. You are right in thinking it may be hard to sell with the doubling terms so just don't buy it if there is any chance you will want to sell quickly.
                  Otherwise hang on to it and hope for new legislation to make it cheaper and easier to extend.
                  And ask the freeholder how much they want......

                  Comment


                    #10
                    Section20z,

                    Great advice, much appreciated.

                    Comment


                      #11
                      Hi.

                      Sadly I learnt the statutory formula for original 99 year leases - that's the graphs of relativity what I've seen.

                      Whether extending even in two years is a financially sound priority is for you to decide. I wouldn't go the informal route at any event - that's not going to remove the GR.

                      If you do extend after waiting two years, and assuming uplift is small (I've no idea how much a 108 year lease uplifts in value after an extension)...

                      There is no marriage value in the formula to worry about anyway.

                      On the figures you supply and assuming you extended the statutory route now, the ground rent as described...

                      capitalises to £3650 if yield assumed to be 6%.
                      capitalises to £4870 if yield assumed to be 5%.
                      capitalises to £6990 if yield assumed to be 4%.
                      capitalises to £10969 if yield assumed to be 3%.

                      The reversion depends on the discount rate applied...

                      If discount rate 5% = reversion £508
                      If discount rate 4% = reversion £1500
                      If discount rate 3% = reversion £4220

                      Add capitalisation to reversion to get premium. Then add fees for both sides (you pay).

                      Where did you get £30K from?

                      You can't know what the yield or discount rate will be until the 'experts' tell you. That is why everybody hopes for a fixed formula.

                      It's all theological codology anyway.
                      Do not read my offerings, based purely on my research or experience as a lessee, as legal advice. If you need legal advice please see a solicitor.

                      Comment


                        #12
                        I did an average for the the ground rent over the period of the lease and put it into the lease extension calculator, plus £5000 for costs as will need to pay for their surveyor and solicitor as well as mine. Plus if it goes to first tier tribunal there would be added costs.

                        Comment


                          #13
                          Section20z,

                          I tried to ask the freeholder for an idea of the cost but no joy, only the current owner can ask. Also the current will have to wait 30 days before they have an answer. The owners want to sell quickly and not prepared to wait 30 days! so the situation is I buy without knowing or I walk away.
                          The intention was to keep hold of the property but not really sure how much the new legislation will impact on lease extensions, if any at all!

                          Comment


                            #14
                            Originally posted by AndrewDod View Post
                            How much do you expect it to increase every 25 years?
                            The point that Andrew was making is that, in most cases, these doubling ground rents really aren't the issue that they are made out to be - unfortunately mortgage companies don't seem willing to understand this.

                            Even with the ground rent doubling ever 25 years, the 'real terms' cost will almost certainly fall.
                            For example, if the lease instead linked the ground rent to inflation it is unlikely that anyone would question the increases (whether yearly, ten yearly, every 25 years, or whatever).

                            Try putting the initial ground rent of £150 into the Bank of England 'Inflation Calculator' linked below, to see what a £150 ground rent in 2005 would be now if it had increased annually in line with inflation (it would have reached £225.66 in 2019 - so would already be higher than the rate that won't start to be charged for another ten years).
                            https://www.bankofengland.co.uk/mone...ion-calculator

                            Comment


                              #15
                              It is not the cost of the ground rent that is bothing me, it is the huge possible cost to extend the lease.

                              Comment

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