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    • always_sunny
    • By always_sunny 2nd Jun 16, 3:21 PM
    • 1,379Posts
    • 1,660Thanks
    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 2
    • Irratus Rusticus
    • By Irratus Rusticus 12th Oct 16, 11:19 PM
    • 130 Posts
    • 96 Thanks
    Irratus Rusticus
    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?
    Originally posted by always_sunny
    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 "" 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.
    Last edited by Irratus Rusticus; 12-10-2016 at 11:22 PM.
    • always_sunny
    • By always_sunny 13th Oct 16, 12:02 PM
    • 1,379 Posts
    • 1,660 Thanks
    Thank you - lots to think about it - more likely waiting for the statutory lease extension might be the easiest solution - I am in no rush anyway!
    Though I may still send the freeholder an offer for informal extension just to see...
    here on an EU passport.
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