Lease extension question - please help with valuation.

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    Lease extension question - please help with valuation.

    I am selling a flat to a first time buyer, agreed price £110,000 - the buyer has a mortgage offer but her solicitor is concerned that the lease has only 75 years left to run and wants me to serve a section 42 notice which can be assigned before completion. I am happy to do this but research indicates extreme variances in the figure to arrive at depending on which website I visit.

    ground rent £60 for 9 years
    ground rent £90 for next 33 years
    ground rent £120 for remaining 33 years

    The variances seem to revolve around the yield rate, for the deferment rate I have used 5% (Sportelli)

    location Warwickshire, please advise a realistic figure to notify on the section 42?

    ​​​​​​many thanks

    Tom


    #2
    As long as you enter a realistic figure it will be a legitimate Section 42 notice which is all you need in this instance, so pick the lowest amount.
    Be prepared for your buyer to knock this amount of your 'agreed' price :-(

    Comment


      #3
      You can find a rough guide to calculating the cost at :

      http://lease-extensions.org.uk/calculator.html

      Comment


        #4
        you can put something in 'notionally', ie £4500. Nowadays even 75 years is considered far less than satisfactory; whereas ten years ago when the lease calculator was "programmed" it was less of an issue; in other words the relative value of a 75 year unexpired term has fallen by comparison to the long lease value as a result of a series of decisions as to shorter lease value.

        In a modern calculation, therefore, the shortness of the lease is just as costly than the buying out of the ground rent.

        Professional costs can be high, proportionally, to a low value claim because you've got to pay your own and certain of those of your landlord.

        There is no harm once the formal s42 claim is served getting your solicitor to write on a without prejudice basis to the solicitors of the landlord and ask if the lessors will settle at say £9,000 inclusive of their costs- and be prepared to go to £9,500 or thereabouts.

        I have valued this case, desktop, do dozens of these every year in normal times and would value the claim at £8480 plus costs. Needless to say what you will then have to sell will be a new lease on 165 years and nil ground rent, a considerable enhancement on the tenure at present. Buyers like certainty.

        It is quite not unusual to put in a suggested figure on s42 notice at as little as half of the real value of the lease extension.

        Comment


          #5
          Originally posted by Gordon999 View Post
          You can find a rough guide to calculating the cost at :

          http://lease-extensions.org.uk/calculator.html
          Actually this calculator is pretty accurate, better than the one on the LEASE website; I haven't come across it previously. |I cant tell who are the people behind this one

          Comment


            #6
            Originally posted by Gordon999 View Post
            You can find a rough guide to calculating the cost at :

            http:/<a href="https://freeholdcalcu...hoose.php</a>l
            Interesting.

            It looks like this Calculator uses a very different method for calculating the Reversionary Interest than others such as https://freeholdcalculator.com/leasehold_choose.php .

            In particular the one that Gordon999 points to (http://lease-extensions.org.uk/calculator.html) has the Reversionary Interest varying considerably with the Ground Rent, whereas the more "traditional" ones assume Reversionary Interest is independent of Ground Rent.

            Can anybody point me to the mathematics behind it and/or the LVT precedents that http://lease-extensions.org.uk/calculator.html relies on? The note underneath the calculator seems to suggest that it is based on LVT rules as the difference is a bit of a game-changer..

            Comment


              #7
              At this exact moment the value of the flat may be some 70% of its previous market value - at present it is almost impossible to sell other than at auction with a very realistic reserve - unable to have viewings would make a sale in the normal sense nigh on impossible

              I would agree that the normal enfranchisement premium would be circa £9k but as the market is so devastated you could advance a figure of around £7k and as the date you are serving is the valuation date then if and when the market recovers will not effect the valuation

              I would suggest a without prejudice letter to the freeholder outlining this point and suggesting say £7000 to £8000 with no valuation fees but just covering the landlords legal costs

              Comment


                #8
                OP doesn't want a lease extension. Buyer wants section 42 notice served, this will freeze valuation.

                Comment


                  #9
                  My post/question got held up for a bit awaiting Moderation and the thread had moved on before it appeared. So asking again now. Is anyone able to help out please?

                  Originally posted by ATC View Post

                  Actually this calculator is pretty accurate, better than the one on the LEASE website; I haven't come across it previously. |I cant tell who are the people behind this one

                  It looks like the Calculator that Gordon999 points to (http://lease-extensions.org.uk/calculator.html) uses a very different method for calculating the Reversionary Interest than others such as https://freeholdcalculator.com/leasehold_choose.php .

                  In particular Gordon999's calculator has the Reversionary Interest varying considerably with the Ground Rent, whereas the more "traditional" calculators assume Reversionary Interest is independent of Ground Rent.

                  Can anybody point me to the mathematics behind it and/or the LVT precedents that http://lease-extensions.org.uk/calculator.html relies on? ]The note underneath the calculator seems to suggest that it is based on LVT rules].

                  The difference between the two methodologies could be a bit of a game-changer..

                  Comment


                    #10
                    You can see a free guide for "calculation of the cost for statutory lease extension" to download from www.lease-advice.org

                    Comment


                      #11
                      In my experience the lessees surveyor will use the method that gets the lowest possible premium while the freeholder's surveyor will choose the highest.
                      They will then have a cosy chat (paid for by both parties) and agree to meet in the middle.

                      Comment


                        #12
                        Originally posted by Gordon999 View Post
                        You can see a free guide for "calculation of the cost for statutory lease extension" to download from www.lease-advice.org
                        Thanks, Gordon. This is actually the reason for my question.

                        The calculation methodology at lease-advice.org has the Reversion Value as dependent only on the market value of the flat and the discount rate. However, https://freeholdcalculator.com/leasehold_choose.php has the Reversion Value also dependent - and to a significant extent -on the Ground Rent. Only one of these can be correct! So which one is it?

                        I agree with Section20z's point about negotiation, but the difference between the two methods is fundamental and if it is true that LVT decisions have been supporting a "Ground Rent does affect Reversion Value" route, that would mean a big difference to many cases in the future.

                        Comment


                          #13
                          Micky,

                          The lease-advice .org website is backed by LEASE ( and funded by Government ) and I think you should trust their calculation method is more correct or they would be sued for giving false advice. The method relies on applying the correct market value which only a RICS surveyor can give and they are "the professionals" qualified for giving property valuations, accepted by the Courts and Tax Office.

                          You could ask a RICS surveyor working at a local estate agent if they use 5% deferment rate and you could ask what they charge for giving you their calculation.

                          I assume your 99 year lease started at 24 years ago ( 1996 ) with ground rent at £60 p.a and first sale price was done at around £60,000.? Please advise if what sale price is shown on first page of your lease, your town and the builder's name (( by private message ) . Just doing some private study and collecting info on how builders set the annual ground rent ?

                          Comment


                            #14
                            Originally posted by Gordon999 View Post
                            Micky,

                            The lease-advice .org website is backed by LEASE ( and funded by Government ) and I think you should trust their calculation method is more correct or they would be sued for giving false advice. ?
                            I think at present there may be a fault with the Lease-advice.org calculator as the premium for a Prime Central London Property produces a lower figure than one for outside Prime Central London

                            As the lease-advice.org is a free calculator you would not ordinarily be able to sue them for damages and in any event there is a disclaimer you have to agree to before the result is produced and shown

                            It appears to capitalise the ground rent by 20 times regardless of the length of the lease remaining

                            The reversion appears to be 5% for PCL and for outside PCL they use 5.5% to just under 5% (very odd)

                            Relativity immediately below 80 years is 91% for Prime Central London and around 83% for outside Prime Central London

                            These figures based on my experience of valuation are very odd

                            Comment


                              #15
                              Be wary of placing too much confidence in advice from Lease, there are many who question their independence and sources of funding, and I can personally attest to seriously inaccurate information on their website.

                              Comment

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