Ground rent doubling in 10years

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    Ground rent doubling in 10years

    I am trying to determine the cost of either a lease extension or purchasing the freehold. Flat value 89k.

    Ground rent at 500pa for 10years
    Ground rent at 1000pa for 10years
    Ground rent at 2000pa for remaining years

    The lease is for 250years...I am 8 years into the lease. My objective is to extend the lease reduce ground rent to nil
    Or
    Collective purchase of freeholder. 80 apartments. Broadly same values for apartment.

    I have been browsing the net and trying to get a plan of action. Advice appreciated.

    #2
    To extend the lease it will cost around £23000 plus costs. For the freehold the cost would be around £1.9 million

    Comment


      #3
      Originally posted by Clayton View Post
      Ground rent at 2000pa for remaining years
      Pretty hefty. I would have seriously considered whether to buy this or not.

      Comment


        #4
        4% 5% 6% 7% 8% 9% 10%
        2014 £33,144.47 £24,360.46 £18,774.34 £14,978.21 £12,272.96 £10,274.48 £8,755.57
        2015 £33,970.25 £25,078.48 £19,400.80 £15,526.69 £12,754.79 £10,699.19 £9,131.12
        2016 £34,829.06 £25,832.40 £20,064.85 £16,113.56 £13,275.18 £11,162.11 £9,544.24
        2017 £35,722.22 £26,624.02 £20,768.74 £16,741.51 £13,837.19 £11,666.70 £9,998.66
        2018 £36,651.11 £27,455.22 £21,514.87 £17,413.41 £14,444.17 £12,216.71 £10,498.53


        This is my estimate by doing a NPV on all future ground rents due and discounting at the interest rate in the table. If I choose to buy in the following 5 years what the cost seems to be depending on the discount rate.

        A bit of an explanation around your calculation would be welcomed.

        I understand I am not a valuer (but would like to think I am numerate) but before approaching one I am trying to get a good understanding of the variables that determine the price.

        What other costs should I be adding to these figures? How does the discount rate get determined? Further advice on my calculations would be appreciated.

        Comment


          #5
          I wonder if this weblink on deferment rates can help you :

          http://www.newsontheblock.com/buying...nt-rates.thtml

          Comment


            #6
            To value the ground rent stream pleas refer to my thread

            http://www.landlordzone.co.uk/forums/showthread.php?11083-More-precise-valuation-for-lease-extentsion&p=322055#post322055


            In this post it is the Capitalisation rate used to value the ground rent stream that is important. The deferment rate is used to value the reversion. I suspect that a rate of 6.25% could be applied to this development as the size and growth of this ground rent income would be attractive to large investors. If the whole development of 80 flats are all held on long leases such as the author of this thread holds then the ground rent income will be £80000 in 2 yrs time rising to £160,000 in just 12 yrs time from now. A number of investment funds would find this a very attractive investment indeed bearing in mind how secure the income is. The freehold could be worth in excess of £2 million.

            I think therefore the chances that the residents would be able to raise these funds bearing in mind the modest value of the flats is very remote

            You need to concentrate on dealing with your own position and seeing what terms you can agree with the freeholder to alter the terms. If this fails it may be better to sell at auction in the hope that a careless buyer may stumble into it or consider a statutory lease extension and brace yourself to having to find circa £25,000 by the time you take your own costs and that of the freeholder.

            Comment


              #7
              Originally posted by sgclacy View Post
              A number of investment funds would find this a very attractive investment indeed bearing in mind how secure the income is. The freehold could be worth in excess of £2 million.
              In other words - the freeholder here was extremely clever, by installing relatively short and cheap leases with massive downsides of huge ground rents. His plan was probably all along that most people would carelessly buy the lease and once it is getting close to the reversion time the cost of extending would be too high for those buyers, so a number of the flats would probably return to the ownership of the freeholder once the 99 years are up.

              Lesson learned - be aware of the terms of your lease!

              Comment


                #8
                Thanks for the replies

                Just to clarify the ground rent started at £250 10 yrs, £500 10 yrs, 1000 10 yrs, 2000 10yrs

                I am in the 8th year.

                An investment fund owns the ground rent. This is a block of 262 apartments split in 3 blocks each one containing 80 apartments. The ground rent for the whole block was acquired for 2.7m in 2013

                What's my best plan of action?

                Comment


                  #9
                  Originally posted by Clayton View Post
                  What's my best plan of action?
                  You should seriously consider extending the lease, otherwise you are the owner of a rapidly depreciating asset so at some point your lease will not be worth much. This also means that unless you can offload it onto someone who's stupid, you wouldn't be able to sell it at anywhere near market value.

                  Take it as a lesson learned - next time be aware of what your lease says.

                  Comment


                    #10
                    I cannot stress enough you have got to do something now the cost of a statutory lease extension is around £25000 and this will be growing by around £1000 per annum in the next few years. You will need to increase your mortgage to whatever you can and the rest you will have to take from savings or borrow unsecured.

                    Don't waste time and effort trying to get a collective enfranchisement the sums involved are far to large and if you did, and a year down the road it all falls out if bed, you are in a worse position

                    Comment


                      #11
                      Clayton,

                      What year did the lease actually start ? Do you mean the your lease commenced 8 years ago and you are paying 250 p.a ground rent ?

                      Do the other 79 leaseholders in your block of 80 flats know or are aware of their poor situation and keen enough to join forces with you ?

                      If they are not interested , then your only course of action is to seek a 90 years statutory lease extension at peppercorn ground rent.

                      Sgclacy has estimated the cost at 25,000 which is a lot ( 100 x 250 annual ground rent ?) . Have you complained to OFT and your local MP ?

                      OFT are conducting a study of leasehold problems.

                      Comment


                        #12
                        if it is in the lease then really,unless it is very obscurely written why should the freeholder be criticised if the purchaser or his legal advisors fail to evaluate the implications of such a clause. It could be that the effect of such a clause was adequately reflected in the selling price

                        Comment


                          #13
                          I would agree, I don't think those lease terms are unfair. In the end there's something called caveat emptor for a reason

                          Comment


                            #14
                            Clayton,

                            Most leases will call for ground rent to double after 25 years or 33 years. When it increases by doubling after 10 years , it hurts you as leaseholder double because the rapid rise of ground rent will cause rapid increase of cost of statutory 90 years lease extension. I think that most legal advisors involved in the property purchase are conveyancing solicitors and expert on transfer of property title but know little about lease extension costs ( which is an area for specialist RICS surveyors ) .

                            Its your problem and damaging your personal economic life, so make your complaint to OFT. http://www.oft.gov.uk/OFTwork/market...ty-management/

                            Comment

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