Leasehold extension advice

always_sunny wrote: »

Also, would I need to inform my lender before doing any negotiations?

You don't have to inform them that you are going to start negotiating, but you will probably need their consent before extending.

The only issue they are likely to have is the ground rent.

You could try asking your lender in advance what their guidelines are on acceptable ground rents, to save you negotiating a deal which they then reject.

(Their concern will be that a high/increasing ground rent might reduce the value of the property or affect it's saleability.)

always_sunny wrote: »

What about calculating how much the freehold would be? It's 2 flats converted house so I guess I am 50% of the share? Is there a calculator for that?

Same as above except for both flats.

As explained, you can't force sale of the freehold to one flat so the price is what the freeholder wants - not a wise deal.

To force the sale of the freehold using the Leasehold Reform Housing & Urban Development Act 1993 (as amended) you need both flat owners to participate in Collective Enfranchisement and ensure your building qualifies. If the freeholder doesn't live in it the fact it is a conversion isn't an issue.

Check the guidance on the Lease Advisory Service website as it is fairly intense.

You have to pay for the freeholder's costs too once the Initial Notice is served, so get all professional advice/valuation ducks quacking in tune before you start.

The formula is as I gave above - except both flats need to be valued for their term of lease etc. They both share the professional fees.

For each flat: you need the remaining term and the periods for each ground rent increment as stated in the lease (you say £1 but for how long?). You then need a professional valuation of the present value of both flats. (For now you can guess but that won't cut it). You then need a future valuation of what the flat would be worth after the deal: the 'uplifted' market value. Use the Savills 2016 relativity graph tho' be aware the graph is not binding on the freeholder. Google "pdf.euro.savills.co.uk/uk/residential.../leasehold-enfranchisement-june-2016" for the free pdf and check the table for your lease term.

All you need then is a yield rate for the ground rent (use 8% for estimate) and a discount rate (use 5%).

To make it even easier for you, here is the above statutory formula without frills - just stick it into a spreadsheet in one single column using the following cell references and your data for each flat (if the GR goes up more than three times you need a bigger formula!) (you might need semi colons instead of commas)...

a1: The remaining term in years
a2: First ground payable for in years
a3: Second ground rent payable in years
a4: Third ground rent payable in years
a5: First GR increment in pounds
a6: Second ground rent payable in pounds
a7: Third ground rent payable in pounds

(All above from the lease, now it gets interesting)...

a8: 8 {This is the yield rate as an integer}
a9: 5 {This is the discount rate as an integer}
a10: Present market value in pounds
a11: Savills 2016 relativity % for your remaining term
a12: =(A10/(A11*100))*100
a13: =-PV(A8/100,A2,A5)
a14: =-PV(A8/100,A3,A6)/POWER(1+(A8/100),A2)
a15: =-PV(A8/100,A4,A7)/POWER(1+(A8/100),A2+A3)
a16: =SUM(A13 : A15)
a17: =-PV(A9/100,A1,,A12)
a18: =PV(A9/100,A1+90,,A12)
a19: =SUM(A16 : A18)
a20: =(A12-A10-A19)/2
a21: =A19+A20

[ a21 reports the premium per flat. Obviously not guaranteed. Fees on top. ]

The beauty of knowing the formula is that you can get a tighter estimated premium than online generalisations - just change the market values to see how these affect the premium. The freeholder will want the highest uplifted value and the lowest current value to max out the marriage value share. That's why you need a good local valuer.