Lease extension with rising ground rent

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    Lease extension with rising ground rent

    Hi there,

    My partner and I are in the process of buying our first flat, a London maisonette from 1930s. The current lease is 99 years from September 2009 approx 88 years left.

    We were told that the ground rent is £200 pound pa but only during conveyancing process did we find out it doubles every 25 years.

    Would anyone be able to advise what would be the cost of statutory extension by 90 years with peppercorn rent once we qualify?

    We were taken aback a bit by it and we are not sure if we should still proceed.

    Any help would be greatly appreciated

    #2
    Have a look at www.lease-advice.org . There is a calculator on there.

    Comment


      #3
      Originally posted by Tipper View Post
      Have a look at www.lease-advice.org . There is a calculator on there.
      Hi thanks for your reply. I did have a look but the problem is that it doesn't factor in increasing ground rent

      Comment


        #4
        Up to you but I'd buy something else instead.

        Comment


          #5
          The issue is the attitude of mortgage providers who are not keen on lending on properties with doubling ground rent clauses. Every 25 years may not be an issue, it depends upon your lender. There may be scope for negotiating with the freeholder before purchase and entering into a deed of variation of rpi increase every 25 years.

          Comment


            #6
            Originally posted by pawkaldn View Post

            Hi thanks for your reply. I did have a look but the problem is that it doesn't factor in increasing ground rent
            The ground rent is £200, £400 , £800 and £1600, so try inserting £400 and 86 yrs in the calculator and for £500000 property value , the cost is roughly about £15,000 or 3%.

            For getting a more accurate figure, pay a chartered surveyor to calculate the cost and give it in writing.

            Comment


              #7
              I found this https://freelee.co.uk/do-it-yourself.php
              £25 for a three month subscription and takes into account increasing ground rent. Well worth it even if you are just doing one.
              Assume I know nothing.

              Comment


                #8
                No one can calculate the answer without having a figure for the value of the flat if it were held with a very long lease. Assuming the answer is say £300,000 it would cost I calculate £10,000 including costs to have a statutory lease extension adding 90 years and reducing the ground rent to zero. Hence if you like the flat the route is to get the seller's solicitor to serve a s42 claim after exchange and before completion and perhaps you might get a contribution to this amount from the seller, because increasingly rising ground rents, even though anodyne are apparently shunned by lenders, making this flat in our crazy world a little more difficult to sell. This is rather ridiculous as a ground rent that doubles 25 yearly is equivalent to no more than 2.32% compound annual growth rate but he who pays the piper calls the tune

                Comment


                  #9
                  The premium would be £5,675 plus 1.35% of the value of the flat

                  This assumes the ground rent is capitalized at 6% and the reversion at 5% in line with Sportelli

                  As the term is above 80 years I would be very confident on that formula I have given you

                  Here is my valuation model for this type of ground rent

                  https://1drv.ms/x/s!AlBweWAdo6ygm9cE...-29fw?e=cHbHSQ




                  Comment


                    #10
                    I would add that the RFL on a Ford Mondeo is over £200 and that for sure will rise by inflation if not more each year. Yet the sale prospects of such a car costing 1/10 or less than the value of the flat are not troubled by such a cost. Yet a flat costing 10 times as much has now a cloud of concern hanging over it because of the obligation to pay £0.55 per day - the cost of two cigarettes a day

                    I was digitally attacked on this forum for suggesting that a near hysteria on the subject of ground rents has backfired on those lobbying for reform as a ground rent such as this is now blighting homes up and down the land. The rent is of course very benign, to say the least and should not be feared

                    The depreciation on my new TV in my front room is more than £200 in the first three months of ownership - we need to get grip on what is a subject worth fighting for. There is abuse in leasehold but not on a ground rent of £200 doubling every 25 years.

                    Comment


                      #11
                      Amazing how similar my valuation of the cost of the lease extension is to SGL's even though we calculate it in different way

                      The premium would be £5,675 plus 1.35% of the value of the flat

                      This assumes the ground rent is capitalized at 6% and the reversion at 5% in line with Sportelli

                      As the term is above 80 years I would be very confident on that formula I have given you

                      Here is my valuation model for this type of ground rent

                      https://1drv.ms/x/s!AlBweWAdo6ygm9cE...-29fw?e=cHbHSQ


                      No one can calculate the answer without having a figure for the value of the flat if it were held with a very long lease. Assuming the answer is say £300,000 it would cost I calculate £10,000 including costs to have a statutory lease extension adding 90 years and reducing the ground rent to zero.

                      Comment


                        #12
                        Originally posted by flyingfreehold View Post

                        No one can calculate the answer without having a figure for the value of the flat if it were held with a very long lease. Assuming the answer is say £300,000 it would cost I calculate £10,000 including costs to have a statutory lease extension adding 90 years and reducing the ground rent to zero.
                        That is why I express the premium as £x plus a percentage of what the flat is worth

                        I find that in trying to quickly agree a valuation that if the exact calculation is shown it enables any discussion on the ground rent to be closed down quickly so you can then move on to the value of the flat and if under 80 years relativity

                        Calculation where the term is above 80 years is hardly rocket science and as a landlord I can fullly see where cost savings can be achieved for lessees - surveyors charging £1200 plus vat is not uncommon for a statutory lease ext is for a flat above 80 years in the shires.

                        Comment


                          #13
                          Originally posted by sgclacy View Post
                          I would add that the RFL on a Ford Mondeo is over £200 and that for sure will rise by inflation if not more each year. Yet the sale prospects of such a car costing 1/10 or less than the value of the flat are not troubled by such a cost..
                          You must have a V12 4x4 turbo Mondeo as none of the current range is over £150 and albeit a strange comparison I would say the £500 road tax on a range rover most definitely impacts it's saleability, especially when a few years old.
                          There is a distinct difference with ground rent to be paying out for no tangible return on something you've already bought. Doubling was fine in the last 80 years of inflation but who knows what the future holds..

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