Lease Extension - 81 years left

johnbrown7070

Hi,

I am hoping someone can help!

I am considering extending the lease on my flat this year. The lease has 81 years left on it. Ground rent for the flat is currently £150 per year, and the original length of the lease is 99 years. I have lived in the flat for 2 years. I believe the flat would be worth around £205,000 in the current market, without the lease extension factored in. I am unsure exactly
how much the flat will be worth once the lease is extened back to 99 years.

Could someone give me a rough idea of this??

I have informally contacted the freeholder to get a rough idea of how much the lease extension will cost to renew back to the 99 year original length. He has replied and quoted the following:

- A premium cost of £7250 to extend the lease
- Ground to increase to £350 per year, and then to increase by £350 for each subsequent 25 year period
- His legal fees etc, which will be around £1000

On intial viewing, I thought this to be rather high, considering I am only extending the lease by 18 years!

Can someone advise me if this IS rather high? Is this an unreasonable offer?

I also wanted to know if I am I able to extend the lease BY 90 years, and if I would be better off going down this route? How much would this cost in this case?

I want to extend the lease before it gets below the 80 year mark, so will go through the formal channels when the time comes.

Any advice will be much appreciated!

Thanks in advance!

John

Doozergirl

Your flat won't increase in value with a longer lease. It will gradually start to fall in value if not renewed. If not that far below 80 years when you come to sell, you may get away with it not being an issue at all. Or it might be and you will be negotiated down.

Looking at this calculator http://www.tenancy-agreements.co.uk/lease.php

it estimates £6300 for an 18 year extension, £8200 for a 90 year extension isn't far out with their price although negotiating the ground rent up should in theory reduce the cost of the lease extension as you are trading off - you can negotiate them down as well.

If you have owned the flat for 2 years then you are entitled to extend by 90 years, but you also have to pay the going rate so you decide what is of greater value to you.

ET1976

I haven't done this yet but I have been looking into it (I have 105 years left), and I believe that if you go down the formal 90 year route, the ground rent has to be a peppercorn rent (i.e. nothing).

From the info you have given I would definitely take this route. 99 years is not a very long lease and it would have to be re-extended in the not too distant future to keep it above 80 years.

There is also a calculator and lots of info here http://www.lease-advice.org/.

johnbrown7070

Thanks for your reply!

Can i ask what figures you put in to that calculator to get that figure. I plugged in 205000 values and yield of 5% (guessing this and going by what I have read online!) and got an end figure of £5,244.80 for the premium! Have I done this correctly?

Thanks
John

Doozergirl wrote: »

Your flat won't increase in value with a longer lease. It will gradually start to fall in value if not renewed. If not that far below 80 years when you come to sell, you may get away with it not being an issue at all. Or it might be and you will be negotiated down.

Looking at this calculator

it estimates £6300 for an 18 year extension, £8200 for a 90 year extension isn't far out with their price although negotiating the ground rent up should in theory reduce the cost of the lease extension as you are trading off - you can negotiate them down as well.

If you have owned the flat for 2 years then you are entitled to extend by 90 years, but you also have to pay the going rate so you decide what is of greater value to you.

Doozergirl

johnbrown7070 wrote: »

Thanks for your reply!

Can i ask what figures you put in to that calculator to get that figure. I plugged in 205000 values and yield of 5% (guessing this and going by what I have read online!) and got an end figure of £5,244.80 for the premium! Have I done this correctly?

Thanks
John

It's the yield. I'd put in a lower value more applicable to houses so your estimation would be better than mine. The freeholder is being a bit cheeky but it costs money to go to LVT and they know this (sigh).

How long are you staying there - do you think it's worth it? Looking at the calculator, the price only increase by a little over £100 each year down to 75 years. I'd personally take the risk of obtaining a new price when I come to sell so that I'm ready to extend if necessary, and then negotiate with a potential purchaser if the issue is raised. (I'd fancy my chances with a buyer more than I would with a freeholder!)

diable

Is it possible for you to buy the freehold?

Richard_Webster

Is it possible for you to buy the freehold?

If you buy the freehold of the building with the other lessees the cost per flat is going to be roughly similar to the cost of an extension but the problem is generally getting a majority prepared to force a collective enfranchisement.

If you only get a bare majority the cost for each is going to be round about twice what it would be for a lease extension.

Once the lessees have the freehold then the company they set up can extend the leases for no more than the cost of the legal fees, but is not legally obliged to do so.

If you buy the freehold of just your flat this is like putting cash in an incinerator. It will immediately devalue your flat by around 30% and make it unmortgageable and may well affect the mortgageability of other flats in the building - so nice earner for freeholder who gets to be paid for selling you the freehold and then a few years later you will probably have to pay him to buy it back!

johnbrown7070

I believe it is, but I would need to get the majority of the flat owners on board, which is no easy task.

Without offending anyone, some of the owners in the neighbouring flats, are slightly elderly, and they are normally not in 'favour of change', lets say!

diable wrote: »

Is it possible for you to buy the freehold?

johnbrown7070

Thanks Richard,

Yes, the problem is managing to get the majority on board to go for the freehold, which is never easy!

I also wanted some advice on getting the actual process started. Should I hire the services of a valuer (who specialises in lease extensions) FIRST, and then get a solicitor? Or should I get both at the same time.

Ideally I want to obtain a professional valuation and based on that, take things from there.... If they quote a significantly lower figure, then I will def take the formal channels and proceed. If they quote a higher figure, then maybe I would be wise to take the freeholders quote!?!?!?!

Thanks

Richard_Webster wrote: »

If you buy the freehold of the building with the other lessees the cost per flat is going to be roughly similar to the cost of an extension but the problem is generally getting a majority prepared to force a collective enfranchisement.

If you only get a bare majority the cost for each is going to be round about twice what it would be for a lease extension.

Once the lessees have the freehold then the company they set up can extend the leases for no more than the cost of the legal fees, but is not legally obliged to do so.

If you buy the freehold of just your flat this is like putting cash in an incinerator. It will immediately devalue your flat by around 30% and make it unmortgageable and may well affect the mortgageability of other flats in the building - so nice earner for freeholder who gets to be paid for selling you the freehold and then a few years later you will probably have to pay him to buy it back!

johnbrown7070

We have been here 2 years already, and initially planned to be here for around 5 years or so.

You seem to be correct in saying the price increases by around £100 every year... i enquired about extending the lease when I bought , and was quoted around £6950.

I hadn't really thought about leaving the extension to when I sell up. That is a another option to consider! Thanks!

Doozergirl wrote: »

It's the yield. I'd put in a lower value more applicable to houses so your estimation would be better than mine. The freeholder is being a bit cheeky but it costs money to go to LVT and they know this (sigh).

How long are you staying there - do you think it's worth it? Looking at the calculator, the price only increase by a little over £100 each year down to 75 years. I'd personally take the risk of obtaining a new price when I come to sell so that I'm ready to extend if necessary, and then negotiate with a potential purchaser if the issue is raised. (I'd fancy my chances with a buyer more than I would with a freeholder!)

Fire_Fox

Don't leave the whole process until you sell, it can take several months and your buyers may get impatient. You should serve notice a couple of months before you go to market so you already have a negotiated price. If you are in a hurry the freeholder will have you by the short and curlies.