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  • FIRST POST
    • always_sunny
    • By always_sunny 2nd Jun 16, 3:21 PM
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    always_sunny
    Leasehold extension advice
    • #1
    • 2nd Jun 16, 3:21 PM
    Leasehold extension advice 2nd Jun 16 at 3:21 PM
    for those of you who have extended the leasehold on a flat before... I'd like to ask some advice.
    I bought and moved in a flat with a short lease (less than 80 years*) and I am wondering whether I am best to stay put for the statutory 2 years before extending or to informally get in touch with the freeholder and do it earlier.

    The seller received a quote to informally extend just few months before selling, which had a fair premium (according to online calculators) though the ground rent was much higher. Currently is £1/year, the informal extension was £200/year doubling every 20 years and capped at £1k!

    I already have the very 'worst case' scenario statutory extension money parked away so waiting 2 years is not a problem, I just wanted to see if anyone else has done something similar and get some opinions...

    Thank you!

    I don't need advice about asking the previous sellers about extending before exchanging/completing.
    *yes I know about marriage value
Page 1
    • eddddy
    • By eddddy 2nd Jun 16, 8:27 PM
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    eddddy
    • #2
    • 2nd Jun 16, 8:27 PM
    • #2
    • 2nd Jun 16, 8:27 PM
    The seller received a quote to informally extend just few months before selling, which had a fair premium (according to online calculators) though the ground rent was much higher. Currently is £1/year, the informal extension was £200/year doubling every 20 years and capped at £1k!
    Originally posted by always_sunny
    The online calculators assume that the ground rent will drop to zero (and 90 years added to the term) - so it's meaningless to compare the online calc results with the premium that your freeholder is asking for.

    By agreeing to a high ground rent, you are hugely increasing the cost of any future enfranchisement (or future lease extensions) - which is likely to reduce the value of your flat.

    This guy works through an example, to demonstrate the impact of high ground rents (although I can't vouch for the accuracy of his calcs): http://www.leaseholdknowledge.com/informal-lease-extensions-are-pure-poison

    Also, you need to make sure that your mortgage lender is happy with the escalating ground rent. See: http://forums.moneysavingexpert.com/showthread.php?t=5419786
    • always_sunny
    • By always_sunny 2nd Jun 16, 8:43 PM
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    always_sunny
    • #3
    • 2nd Jun 16, 8:43 PM
    • #3
    • 2nd Jun 16, 8:43 PM
    Thank you - I'd rather do it properly in 2 years using the statutory right - when I calculated the informal ground rent over the course of the new lease length the cost would be massive compared to pepper corn!

    It'd be nice to hear some 'success' stories from folks who have extended their leases - surely I won't be the first or last one! Would be nice to know good solicitors too!
    • ognum
    • By ognum 2nd Jun 16, 10:52 PM
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    ognum
    • #4
    • 2nd Jun 16, 10:52 PM
    • #4
    • 2nd Jun 16, 10:52 PM
    Thank you - I'd rather do it properly in 2 years using the statutory right - when I calculated the informal ground rent over the course of the new lease length the cost would be massive compared to pepper corn!

    It'd be nice to hear some 'success' stories from folks who have extended their leases - surely I won't be the first or last one! Would be nice to know good solicitors too!
    Originally posted by always_sunny
    I have done informal lease extension, reduced the ground rent to zero and had 99 years added to the original 70+ left, making 170+ years It is down to negotiation and how amicable the freeholder is.
    • anselld
    • By anselld 2nd Jun 16, 11:54 PM
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    anselld
    • #5
    • 2nd Jun 16, 11:54 PM
    • #5
    • 2nd Jun 16, 11:54 PM
    Freeholders will be aware of the same calculators you are using. Bear in mind that under a formal extension you will pay for both sides survey costs and both sides legal costs, so you can afford to to make an informal offer look attractive and still save some money.
    • always_sunny
    • By always_sunny 3rd Jun 16, 8:33 AM
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    always_sunny
    • #6
    • 3rd Jun 16, 8:33 AM
    • #6
    • 3rd Jun 16, 8:33 AM
    I have done informal lease extension, reduced the ground rent to zero and had 99 years added to the original 70+ left, making 170+ years It is down to negotiation and how amicable the freeholder is.
    Originally posted by ognum
    Thanks - that's inspiring... did you do the negotiation yourself or through professionals?
    Freeholder seems amicable, it's only 2 flats with everything left to the leaseholders to attend.
    Though the informal letter they sent the previous owner was trying to extend to lease to 99 years rather than the statutory 90 on top of existing!
    • eddddy
    • By eddddy 3rd Jun 16, 9:06 AM
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    eddddy
    • #7
    • 3rd Jun 16, 9:06 AM
    • #7
    • 3rd Jun 16, 9:06 AM
    Thanks - that's inspiring... did you do the negotiation yourself or through professionals?
    Freeholder seems amicable, it's only 2 flats with everything left to the leaseholders to attend.
    Though the informal letter they sent the previous owner was trying to extend to lease to 99 years rather than the statutory 90 on top of existing!
    Originally posted by always_sunny
    Hmmm... 99 years, escalating ground rent - that doesn't sound very amicable.

    In fact, that sounds similar to the example in the link in post #2 (http://www.leaseholdknowledge.com/informal-lease-extensions-are-pure-poison) which cost the leaseholder an extra £90k.

    You can make your own offer to the freeholder, perhaps something like:
    • 90 years added to term
    • Zero ground rent
    • What the calculators say + £2K


    The extra £2k reflects the fees you might save by not following the statutory route.
    • always_sunny
    • By always_sunny 3rd Jun 16, 12:11 PM
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    always_sunny
    • #8
    • 3rd Jun 16, 12:11 PM
    • #8
    • 3rd Jun 16, 12:11 PM
    Hmmm... 99 years, escalating ground rent - that doesn't sound very amicable.

    In fact, that sounds similar to the example in the link in post #2 (http://www.leaseholdknowledge.com/informal-lease-extensions-are-pure-poison) which cost the leaseholder an extra £90k.

    You can make your own offer to the freeholder, perhaps something like:
    • 90 years added to term
    • Zero ground rent
    • What the calculators say + £2K


    The extra £2k reflects the fees you might save by not following the statutory route.
    Originally posted by eddddy
    I suppose it depends on the definition of amicable when I did the calculation of informal vs statutory, the extra ground rent doubling every 20 years were bringing the freeholder a windfall of £130k over the course of the new lease!

    Do I need to use a solicitor to make an offer and/or is it advisable to do so? Has anyone done it themselves?
    • eddddy
    • By eddddy 3rd Jun 16, 4:22 PM
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    eddddy
    • #9
    • 3rd Jun 16, 4:22 PM
    • #9
    • 3rd Jun 16, 4:22 PM
    Do I need to use a solicitor to make an offer and/or is it advisable to do so? Has anyone done it themselves?
    Originally posted by always_sunny
    Not initially. If your offer is accepted, you probably would want to instruct a solicitor.
    • always_sunny
    • By always_sunny 4th Jun 16, 9:53 AM
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    always_sunny
    Not initially. If your offer is accepted, you probably would want to instruct a solicitor.
    Originally posted by eddddy
    Thanks and I guess with the informal route I don't need to wait for the statutory 2 years before approaching... I may wait few months (really, just moved in) and approach them and see what they say. Worse case they say no or a ridiculous counter offer then I can wait and do it via statutory route.

    My main worry is that it is impossible to be done though I suppose it's just the matter of paying the premium and that's it so hearing positive stories is inspiring!
    • techno12
    • By techno12 4th Jun 16, 9:50 PM
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    techno12
    I made an informal offer to the freeholder last year, via the managing agent at the time, at around 60% of what the online calculators said. There were only 61 years left so I was pretty keen to see it through.

    He accepted it (I had to pay both sets of solicitors' fees, though no valuation was required so I saved a bit there).

    The terms were +99 years and the ground rent as is (currently £60 per annum, will double to £120 in 29 years and stay at that level for the remainder).

    Happy enough with that, though not with my solicitor, who was useless and still hasn't sent any documentation through. I had to pay my £3 to the Land Registry the other day to see if it had gone through and to get 'something in writing' - we completed last September but I was advised to leave it 6 months due to delays in processing lease extensions at the LR.
    Last edited by techno12; 05-06-2016 at 12:06 AM.
    • always_sunny
    • By always_sunny 5th Jun 16, 10:27 AM
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    always_sunny
    I made an informal offer to the freeholder last year, via the managing agent at the time, at around 60% of what the online calculators said. There were only 61 years left so I was pretty keen to see it through.

    He accepted it (I had to pay both sets of solicitors' fees, though no valuation was required so I saved a bit there).

    The terms were +99 years and the ground rent as is (currently £60 per annum, will double to £120 in 29 years and stay at that level for the remainder).

    Happy enough with that, though not with my solicitor, who was useless and still hasn't sent any documentation through. I had to pay my £3 to the Land Registry the other day to see if it had gone through and to get 'something in writing' - we completed last September but I was advised to leave it 6 months due to delays in processing lease extensions at the LR.
    Originally posted by techno12
    Thank you - so you just sent them a letter etc and do the usual waiting?
    Did you have to inform the lender about your intention to extend the lease informally? I was reading that when extending via statutory route there's no need to, though not sure about the informal route.

    My GR is £1 so keen to keep that way!
    • always_sunny
    • By always_sunny 5th Oct 16, 4:10 PM
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    always_sunny
    instead of creating a new thread I will recycle my old one!

    I have decided that I would like to get in touch with the freeholder and ask for a leasehold extension on my flat, though because I don't qualify for the statutory route, I will need to approach them informally.

    Advice from experienced people is very welcome, I understand that as I do it informally the freeholder could take me for a ride and propose something that is not advantageous for me. I can say no.

    Am I better to use an experience valuator to do the negotiation or just approach the freeholder and make an offer? (Worst case I can say no and then wait to use the statutory route)
    Thank you
    here on an EU passport.
    • eddddy
    • By eddddy 5th Oct 16, 5:09 PM
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    eddddy
    Am I better to use an experience valuator to do the negotiation or just approach the freeholder and make an offer? (Worst case I can say no and then wait to use the statutory route)
    Originally posted by always_sunny
    There's no harm in approaching the freeholder. Have others in the block extended their leases? If so what did they pay?

    The fees for Statutory Lease extensions can be much higher than Informal Lease extensions.

    If others have got Statutory Lease Extensions, one approach could be to offer slightly more than they paid (for the same terms) - because the saving in fees would still reduce the overall cost.
    • always_sunny
    • By always_sunny 6th Oct 16, 10:58 AM
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    always_sunny
    There's no harm in approaching the freeholder. Have others in the block extended their leases? If so what did they pay?

    The fees for Statutory Lease extensions can be much higher than Informal Lease extensions.

    If others have got Statutory Lease Extensions, one approach could be to offer slightly more than they paid (for the same terms) - because the saving in fees would still reduce the overall cost.
    Originally posted by eddddy
    We are only 2 flats and I have non idea about the other flat, I believe it's tenanted but I barely see them. I would like to keep the term of my current lease and ground rent as £1. I know the freeholder offered a fair premium to the previous owners though wanted increased ground rent.

    Actually, when I went to see most flats around where I bought, most of them (if not all) had £250+ GR so I must assume they must have done informal extensions?
    here on an EU passport.
    • always_sunny
    • By always_sunny 7th Oct 16, 10:23 AM
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    always_sunny
    Also, would I need to inform my lender before doing any negotiations?
    here on an EU passport.
    • eddddy
    • By eddddy 7th Oct 16, 10:54 AM
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    eddddy
    Also, would I need to inform my lender before doing any negotiations?
    Originally posted by always_sunny
    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.)
    • Irratus Rusticus
    • By Irratus Rusticus 7th Oct 16, 7:27 PM
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    Irratus Rusticus
    Hi,

    If you are going the informal route be aware it is a minefield. So best to have some idea of the statutory formula. You obviously know variables are subject to expert valuation. Some data you know. Here is method wiv example data (Spreadsheet essential - use liberal cell referencing to save fingers):-

    1. Example Data and variables:

    Lease commencement date:....25/03/1987
    Original term:........99 years
    2nd GR period start...24/03/2020
    3rd GR period start...24/03/2053
    1st GR pa ... £40
    2nd GR pa ... £60
    3rd GR pa ... £80
    Yield on GR... 8%
    Discount Rate .5%
    Term now in years...70
    Present value... £100,000
    Savills 2016 relativity % ... 87.40%
    Uplifted value ..£114,416

    2. Present value of ground rent:

    1st GR payable for 4 years
    2nd GR payable for 33 years
    3rd GR payable for 33 years

    PV(GR1): £132.49 [ -PV(8/100,4,40) ]
    PV(GR2): £507.78 [ -PV(8/100,33,60)/POWER(1+(8/100),4) ]
    PV(GR3): £53.41 [ -PV(8/100,33,80)/POWER(1+(8/100),4+33) ]

    Total PV of ground rent: £693.68


    3. Dimunition of freeholder's interest:

    Term (PV of ground rent ) ..............£694
    Reversion (PV of uplifted flat value) £3760 [ -PV(5/100,70,,114416) ]
    Less reversion at end of new term: .... £-47 [ PV(5/100,70+90,,114416) ]

    Freeholder’s Interest: £4,408

    4. Freeholder’s share of Marriage Value:

    Leaseholder’s future interest: £114,416
    Subtract
    Leaseholder's present Interest: £100,000
    Freeholder's Investment interest: £4,408

    Marriage value: .... £10,009

    Freeholder’s 50% of marriage value: £5,004

    5. Premium for +90 years at peppercorn GR:

    Diminution of Freeholder’s Interest: ... £4,408
    Freeholder’s share of marriage value: .. £5,004

    Total premium (excl fees)................£9,412


    Recent case law liked Savills relativity graphs (others are available) so download and apply to your term.

    All above for formula illustration only! Subject to actual valuations and local conditions and ultimately agreement with the freeholder. Run figures as apply to you and you have some idea of the ballpark to negotiate. Jumping in blind can be costly.
    • always_sunny
    • By always_sunny 12th Oct 16, 4:34 PM
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    always_sunny
    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? I tried searching for one and found like http://www.freehold-sale.co.uk/freehold-calculator/ but don't see so accurate.
    here on an EU passport.
    • eddddy
    • By eddddy 12th Oct 16, 7:42 PM
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    eddddy
    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? I tried searching for one and found like http://www.freehold-sale.co.uk/freehold-calculator/ but don't see so accurate.
    Originally posted by always_sunny
    The asking price of the freehold is whatever price the freeholder chooses. (Just like the asking price of your flat is whatever you choose.)

    You can ask the freeholder what price they would accept, or you can make an offer if you want. (Obviously, they might not accept your offer. They might not even bother replying.)

    The calculator you link to seems to be for a company that buys freeholds - it indicates how much they would be willing to pay.

    You could offer more than that company pays or less - it's up to you.
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