Discrepancies between online lease extension premium calculators.

Collapse
X
  • Filter
  • Time
  • Show
Clear All
new posts

  • Discrepancies between online lease extension premium calculators.

    Hello everyone.

    We are in the process of trying the extend the lease on our flat. To get an idea of how much it would cost, I used some of the online lease extension calculators such as the one on www.lease-advice.org. These calculators came up with a range between £9000-£11000 for adding 90 years on. (The current lease has 78 years left, ground rent £100, and value of flat £250000).

    However, when I try more 'sophisticated' calculators such as http://www.tenancy-agreements.co.uk/lease.php that let you enter the yield etc, they come out with significantly higher premiums. This is unless I enter yield values of 8% and above. Do the standard/simple calculators have a high built in yield value? Or is there some other reason for the discrepancy?

    I ask because, following their valuation, the landlords have given us an offer of a 99 year lease with ground rent doubling every 25 years. But, this offer is 25% above what the calculators like the ones of lease-advise.org say they the premium should cost for adding 90 years with no ground rent.

    Any advice on this would be much appreciated.

    Cheers,
    Jim

  • #2
    ... and to make matters more confusing, I've just done the calculation using the methods provided by SGCLACY on this forum and that brings the total out to about 7500, which is lower than the result that all the online calculators give. If anyone could shed any light on these discrepancies, that would be a great help.

    Thanks,
    Jim

    Comment


    • #3
      There are three elements to teh valuation

      1) Capitalisation of the ground rent.Assuming the ground rent is fixed at £100 per annum and using a rate of 7% this gives £1,400

      2) Deferred value of the reversion. The flat is worth £250k and discounted back at 5% gives £5,600

      3) Marriage value. This has been growing in the last few years and at 78 years the amount is around 5.5% or otherwise expressed as 94.5% . I derive my figures from a study by John D Wood. Therefore 5.5% of £250,000 = £13,750 less the capitalisation of the rent and less the value of the deferred value of the reversion you get £6,750 landlord claims 50% so £3,375

      Therefore premium would be the sum of the three steps ie £10,375 plus of course the landlords valuation and legal costs. budget for a further £2,000 plus your own. For this you get a new 168 year lease with a peppercorn rent

      Whether sum of the online calculators include the landlords cost I don't know The only really contentious point is relativity and even then the most that can move around by is a couple of percentage points giving a variation of about £1k to the total premium payable.

      Comment


      • #4
        Thanks! Yes, the growth in the marriage value explains why when I used your previous post from 2008, the figures came back lower.

        I have one more question that it would great if you, or someone else, could help with.

        In comparison to the premium that gets calculated for adding 90 years to a lease with a peppercorn rent, how do you then calculate what an appropriate discount is when offered a lease extension to 99 years with ground rent (and periodic ground rent increases)?

        Thanks,
        Jim

        Comment


        • #5
          Take the statutory figure and deduct the value of the new ground rent income and then deduct a figure for the benefit to the landlord in granting a 99 year lease as opposed to a very long lease. However by going outside of the Act the Landlord cannot roll over the gain for CGT purposes and this would need to be factored into by the landlord

          So in your case if the ground rent doubles every 25 years this is worth around 14.5 years purchase so £250 pa is worth around £3,600 to the landlord.


          A 99 years lease is worth about £2,000 to the landlord as opposed to a 125 year lease when the flat has a value of around £250,000

          As to what the tax benefit lost to the landlord in not going under the act you would be unable to calculate but say half the gain would be taxable and assume a tax rate of say 30% then the landlord would lose £10,375 X 50% X 30% = £1,550

          Therefore is the landlord was to offer a new 99 year lease with a ground rent of £250 doubling every 25 years then a reasonable premium should be of the order of £6,300

          Comment

          Latest Activity

          Collapse

          • Ground rent rpi base
            landforce
            Hi.

            Hopefully an easy question but does anyone know if when the ground rent is rpi linked is it from when the leasehold was set up or when you purchased the property. I.e if leasehold was set up in dec 12 but the property was purchased in Sept 13 is the base from dec12 or Sept 13?...
            20-08-2017, 08:48 AM
          • Reply to Ground rent rpi base
            landforce
            Thanks for the above . V useful knowledge there
            21-08-2017, 07:42 AM
          • Clarification on lease and recovering costs
            jerome_sw
            Please can someone clarify the meaning of this section of the lease;

            "to indemnify the landlords against all costs charges and expenses (including legal costs and fees payable to any surveyor) which may be incurred or be borne by the landlords
            (a) in or in contemplation of any...
            20-08-2017, 11:45 AM
          • Reply to Clarification on lease and recovering costs
            jerome_sw
            We are due to attend the FTT on the breach of covenant so if they deem the breach to have occurred then I am thinking (b) could apply. In any event I think (c) would apply as the costs have been incurred in pursuing the leaseholder to remedy the breach and repair the property back to it's original state....
            20-08-2017, 20:37 PM
          • Reply to Ground rent rpi base
            sgclacy
            The 1993 Act did not regard ground rents of little signicance - the full value had to be reflected in the valuation

            by having a nil ground rent it was deigned to make it a complete formality for a lender to agree to the deed, originally it was intended that mortgagees consent would not...
            20-08-2017, 15:31 PM
          • Reply to Clarification on lease and recovering costs
            andydd
            Yes generally accepting the lease as continuing (by demanding and accepting rent/services charges) means you have waived any right to forfeit and so any right to costs, Im really not sure what b) and c) mean, a|) is the standard clause in most leases, Im not sure b) or c) cover breach of a covenant...
            20-08-2017, 14:16 PM
          • Reply to Ground rent rpi base
            MrSoffit
            "Two properties exactly the same one with a ground rent of a peppercorn and the other with a rent of £250 per annum will attract two differing sale prices. The one with a ground rent will clearly sell for less and the discount in the price is in effect a loan and the interest on that loan is in...
            20-08-2017, 13:39 PM
          • Reply to Ground rent rpi base
            sgclacy
            Rents linked to the RPI protects both the landlord and the tenant. From the landlords perspective it protects the rent from the adverse effects of inflation and from the Tenants point of view protects them from the consequences of the estimate of future inflation being wrong. For example if inflation...
            20-08-2017, 11:53 AM
          • Reply to Ground rent rpi base
            MrSoffit
            I ran some capitalisations assuming an original 99 year lease worth £100K when new with 79 years term left to run using the following variables:-

            Increment rate (years): 15, 20, 25, 33
            Method: RPI% @ 2.5%,3.5%,4.5% versus fixed doubling
            Initial amounts: £100, £150, £200,...
            20-08-2017, 11:08 AM
          • Calling a meeting
            surreygirl
            We have not had a meeting for about four years and know nothing about the accounts or what is happening as I am not notified about a thing. When I asked for information about the accounts I was told to go to the Companies House web site but that doesnt tell me a thing.

            I have sent out a...
            19-08-2017, 19:37 PM
          Working...
          X