Leasehold extension quotation - is it reasonable?

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    Leasehold extension quotation - is it reasonable?

    In 2005 I bought a 2 bed flat for £78000. There are now 58 yrs remaining on the lease (ground rent £15 p.a.). I have decided to extend the lease and my freeholder has given me the following options:

    a. A new 100 year lease for a premium of £8500. Ground rent to continue at £15 p.a. to be reviewed every 10 yrs in line with the RPI.

    b. A new 100 year lease for no premium. Ground rent increases to £400 p.a. reviewed every 10 yrs in line with RPI.

    c. A new 100 year lease for a premium of £6000. Ground rent increases to £200 p.a. reviewed every 10 yrs in line with RPI.

    OR

    d. 90 year extension to current lease for £9250.

    In all cases the freeholder's legal fees would be £400 + VAT.

    I have commissioned an independent valuation from a chartered surveyor and he has advised me to go ahead with Option D. Given that I intend to sell the flat at some time within the next 8 yrs could I expect to recoup the significant outlay when I sell? I would appreciate the thoughts of any other members before I commit my hard earned cash!

    #2
    d is a statutory right. It's much better value than a or c.

    b is:
    i. better in short-term (no premium to pay on completion); but
    ii. probably worse in long-term (as it suffers from the same indexation as do a and c; and it gives only 42yrs. extra- like those two- as against d).

    I'd opt for d. However, await more valuation expert members [esp. sgclacy, if he's around] and their views.
    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/showthread.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).

    Comment


      #3
      Firstly the offer form your freeholder and the range of options shows you are dealing with a reasonable person and clearly amicable egotiation would be the best way forward. If the flat is worth £100 k with a very long lease their offer of £9250 for a lease extentsion under the ACt is reasonable my claculations suggest £10.25k to £12K

      As you are selling in the medium term my advise would differ from Jeffreys because of that

      Option b - is very good...but £400 ground rent is too much on a flat worth probably around £100,000

      A modification to Option C in my view would be preferable if you are selling. Whether the flat has a ground rent of a peppercorn or any rent upto £150 would make no real difference to its asking price. The lease term would still be in the 90's

      Therefore offer an alternaive of a rent of £150 per annum (indexed linked every 10 years with a premium of £7,000 I suspect that would probably be acceptable based on the other options they have offered you

      Let us know how you get on

      Comment


        #4
        Thanks

        Thanks sglacy and jeffrey for your initial responses. I've spent the last hour calling local estate agents (there are currently 8 identical flats for sale in the immediate area) with asking prices ranging from £80k to £95k (v optimistic). The majority seem to have 99 yr leases, indicating that they went for options a to c, and I strongly suspect that most people went for the £400 p.a. option as it is quick and there are no upfront costs. Only 1 flat has a 150 year lease but it is one of the cheapest at £80k!, although it does require modernisation (about £7k).

        Armed with this information I need to decide whether I want my flat to stick out as one of the few with a long lease at peppercorn rent (£15 p.a.). Although option d makes most sense over the long term (20 yrs +) I'd kick myself if my flat didn't command a premium of at least £6k over others when I sell up in 8 yrs or so. Should I dare to be different or follow the crowd?

        Comment

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