Lease extension: 71yrs. unexpired, rent of £30 (rising)

[stuey]

Hi all,

Been reading your forum and decided to plunge and make a post.

I have a flat that I live in in Kent with a lease that started in 1981 and as of today, expires in 71 years.

The first 33 years are at £30 ground rent pa
next 33 years are at £50 ground rent pa
and remainder at £75 ground rent pa

The valuation of the property currently is £240k or £250k

I would like one of you kind souls (sgclacy ) to let me know what I should be expected to pay to extend my lease by a further 90 years. The lease holder has offered to extend the lease to 125 years for a cost of £17k. Now my maths isn't brilliant, however this seems a little steep and after research, have found out that 90 years on top of what I have already is a possibility.

The leaseholder is also a money oriented person and will likely dig heels in. If there is a best/worst case scenario - you advise on this would be greatly appreciated.

Thanks in advance

Stuey O'Brien

[jeffrey]

In dealing with a greedy L, always take the precaution of serving a statutory Notice of Claim [s.42 of 1993 Act].

[stuey]

Thanks Jeffrey for the heads up. I will definitely factor this into the process!

OK, I've had a play with the calculator @ http://www.tenancy-agreements.co.uk/lease.php

Putting in the figures as follows;

Unexpired lease: 71 years
Lease extension: 90 years
Total length of new lease: 161 years
Ground rent per annum: £75 (a worst case scenario of figures already given, is this correct?)
Present market value with existing lease: £240,000
Future market value with extended lease: £Guessed this at £245,000 (Does this sound about right? - I thought that unless the property had less than 70 years then it shouldn't affect value)
Yield: 5% (based on previous posts I've seen, is this right?)
Landlord's share of marriage value: 95% (based on previous posts I've seen, is this right?)

This comes out at

Term = £1,453.05
Reversion @ 71 years = £7,668.77
Marriage value = £0.00
Possible premium £9,026.83


My concerns are my speculative figures in the following;

Ground rent calc
The Future value
Yield
Landlords share of marriage

Any help appreciated

[Gazou]

At first glance, your input data and figures suggest there would be marriage value payable.

If I am not distracted, I will look at your calculation later today. In the meanwhile, some information that might provide at least a background to the Schedule 13 rules is shown at my posts here - http://www.landlordzone.co.uk/forums...ad.php?t=22580 .

[sgclacy]

Hi all,

Been reading your forum and decided to plunge and make a post.

I have a flat that I live in in Kent with a lease that started in 1981 and as of today, expires in 71 years.

The first 33 years are at £30 ground rent pa
next 33 years are at £50 ground rent pa
and remainder at £75 ground rent pa

The valuation of the property currently is £240k or £250k

I would like one of you kind souls (sgclacy ) to let me know what I should be expected to pay to extend my lease by a further 90 years. The lease holder has offered to extend the lease to 125 years for a cost of £17k. Now my maths isn't brilliant, however this seems a little steep and after research, have found out that 90 years on top of what I have already is a possibility.

The leaseholder is also a money oriented person and will likely dig heels in. If there is a best/worst case scenario - you advise on this would be greatly appreciated.

Thanks in advance

Stuey O'Brien

You advise the flat is currently worth £240k to £250k and I assume that value is with the short lease, and therefore its market value may be around £270k if it had a long lease and a nil ground rent

The premium is the sum of three components calculated as follows:-

Capitalisation of the ground rent

Capitalised value of £30 for the next 5 years at 7.5% = £142
Capitalised value of £50 for 33 years but deferred for 5 years = £421
Capitalised value of £75 for 33 years but deferred for 38 years = £58

Total value for Capitalised Ground rent = £621

Deferred value of the reversion

£270,000 deferred for 71 years at 5% = £8,451

Marriage Value

At 71 years this would be around 8% to 10% (i.e. 92% to 90% relativity)

£270,000 X 9% = £24,300 less £621 less £8,451 = £15,228 X 50% = £7,614

Premium payable = £621 + £8,451 + £7,614 = £16,686 but say £16,700

If the value of the flat is slightly different just use 6.2% of its value with a long lease and nil rent. It will be accurate enough

If the relativity was 93% the premium would be £14,000
If the relativity was 90% it would be £18,000

If the ground rent proposed for the 125 year lease is very low, the offer may be reasonable based on the facts given. Technically for 17k you should get a 161 year lease at a peppercorn, but 125 years is still very long and if teh rent proposed is very small the savings in having a protracted negotiations on the cost of a lease ext could well dwarf and savings achieved.

I would go back and try and nibble a couple of grand off for a very modest ground rent going forward

If you detect any akwardness it would be wise to follow Jeffreys advice and issue a Section 42 Notice

[Gazou]

I was not distracted and have performed a calculation that broadly agrees what that sgclacy has provided above.

The marriage value, if the post-deal market value is some £270,000 and the relativity just shy of 92 per cent., might be calculated a little lower, at some £13,300 in total, if in accordance with the Schedule 13 rules as interpreted by the Leasehold Advisory Service.

In that case, the indicative premium payable would be some £15,650.


If the relativity were set at 91.744 per cent., and the present market value were taken to be £240,000, thus giving a post-deal market value of some £261,600, then, on that same Schedule 13 rule basis, the indicative premium payable would be some £15,150. (It is, of course, to your advantage to assume as low a present market value for the leasehold as is reasonable.)

Clearly though, valuation is an art not a science and what ends up as the agreed upon amount in any case will reflect the particular facts and circumstances thereof, including relative negotiating power.

[stuey]

Thanks SGclacy,

Can you please advise me of how you get the figure here;

Deferred value of the reversion

£270,000 deferred for 71 years at 5% = £8,451

The flat would not be worth £270k with the lease extension. I'm quite certain that it would be worth £255k max in this area. When I paid £280k for it in the peak April 2007 the lease of 73 years (I don't think) was not factored into the value. Since then prices have dropped by 15% being very realistic making it's current value £238k.

If you could let me know the calc I can re-plug in and work it out.

EDIT:
No problem: Found link here http://www.landlordzone.co.uk/forums...85&postcount=3
Thanks again!


Thanks so much for your help so far.

[stuey]

I was not distracted and have performed a calculation that broadly agrees what that sgclacy has provided above.

The marriage value, if the post-deal market value is some £270,000 and the relativity just shy of 92 per cent., might be calculated a little lower, at some £13,300 in total, if in accordance with the Schedule 13 rules as interpreted by the Leasehold Advisory Service.

In that case, the indicative premium payable would be some £15,650.


If the relativity were set at 91.744 per cent., and the present market value were taken to be £240,000, thus giving a post-deal market value of some £261,600, then, on that same Schedule 13 rule basis, the indicative premium payable would be some £15,150. (It is, of course, to your advantage to assume as low a present market value for the leasehold as is reasonable.)

Clearly though, valuation is an art not a science and what ends up as the agreed upon amount in any case will reflect the particular facts and circumstances thereof, including relative negotiating power.

Thanks for your thought process on this Gazou, I will be mindful of this in my negotiations. Much appreciated.

[Gazou]

Glad to be of help, Stuey.

Keep in mind that if you opt to proceed based upon a Section 42 Notice (Notice of Claim, S. 42, 1993 Act, as per Jeffrey’s post second above), then your negotiating position is considerably strengthened over some freeform stance as the calculation of the premium due by you to the Landlord must be undertaken in accordance with the provisions of Schedule 13 of the 1993 Act, the Leasehold Reform, Housing and Urban Development Act.

Best wishes with concluding your deal.