extortionate premium from freeholder

kcseb

Hi

I completed on a 2-bed leasehold flat in West London this April, paying £425k with 74 years left on the lease (£125 per annum current ground rent).

The seller assigned us the right to extend on completion, and so we offered the freeholder £21k for the statutory extension (90 years added at a peppercorn rent).

However the freeholder has served a counter-notice asking for £58k!

The flat had been on the market since January, at an asking price of £435k. The 2nd bedroom is extremely small, the big drawback. The flat is 500 sq ft ovreall.

I really don't have much more than £30k to spend on the extension, and was led to believe by the EA plus my own surveyor that a reasonable premium to pay would be £25k!

So any ideas what to do?

Many Thanks

Kevin

ValHaller

I am not sure how you got into this situation. The seller cannot AIUI assign you a right to extend on completion - the seller can use their rights for a Statutory extension to set up a deal which you complete on - at which point the price would be fixed and you would know what your price is.

It seems to me that what has happened is that the deal has not been done on the basis of a Statutory extension for which you need 2 years ownership and the freeholder is offering their non statutory price

Can you clarify what has been done?

kcseb

Hi Val

The seller transferred their right to extend to me. It's up to me to negotiate the price. But I should have statutory protection...as per the Leasehold Advisory Service below.

"It is possible for the seller, if they have owned the lease for at least 2 years, to serve a Section 42 notice to start the lease extension process and assign the benefit of the notice to the purchaser."

Best

ValHaller

OK, I see - you have been assigned the benefit of a S42 notice rather than just the right to extend. Perhaps you should have let the s42 notice run its course and got a price before committing? As I see it, there is now a process to go through - http://www.lease-advice.org/publications/documents/document.asp?item=8 - and you can take it to the Leasehold Valuation Tribunal.

kcseb

Hey...just wondered if anyone else had some advice on this?

Can a flat that just sold for £425k with 74 years on the lease, really cost £58k for a statutory extension?

Best

Richard_Webster

If the seller had to go as far as serving the statutory notice then that is a good sign that he knew he would not get a very good deal from the freeholder.

Why didn't you insist that the seller set up the lease extension terms before you exchanged so that you knew what you would have to pay?

kmmr

kcseb wrote: »

Hey...just wondered if anyone else had some advice on this?

Can a flat that just sold for £425k with 74 years on the lease, really cost £58k for a statutory extension?

Best

What do you think the flat it worth with the lease extension? Would it be about £455k? I will assume it is for the moment, but you can change the figures if it's more or less.

PV of the future rent payments is about £5k (assuming 1.5% discount rate).
Marriage value is £455k. Increase in value would be £30k - so you split that between you.

So, £15k + £5k + legals. So £25kish sounds reasonable.

Your choice is to go through the S42 process, and get an independent surveyor to work out the value. If you disagree you can go to LVT. S42 doesn't take too long, so I would go with that rather than private negotiation.

Sounds like you have a problematic freeholder there. Is it an individual or a company?

Moonraker71

I'm not a legal expert by any stretch, so happy to be corrected on any of this. But as far as I'm aware, you don't have to get the statutory extension. For example, you could just get it extended back to 99 years. This is what I have just done - 1 bed flat, 74 years left on the lease, extended back to 99 years for a £6k premium, negotiated directly with the freeholder, no formal notices served or surveyors involved whatsoever. Obviously the fact that I'm not in London and my flat's value is precisely half of yours will have an affect on the costs, but is this an option you could consider?

mystic_trev

I've done lease extensions on a couple of my properties. From the figures the OP has provided, their offer of £21k is to low and the counter offer of £58k to high, I'd be looking at the upper £30k's lower £40k's. They may need to go to an LVT to sort it out.

martinsurrey

mystic_trev wrote: »

I've done lease extensions on a couple of my properties. From the figures the OP has provided, their offer of £21k is to low and the counter offer of £58k to high, I'd be looking at the upper £30k's lower £40k's. They may need to go to an LVT to sort it out.

on a lease with such low ground rent (£125pa flat) and low marriage value (74 years) I would say around £20-25K + costs is right, and the lease advisory service agrees

http://www.lease-advice.org/calculator/

kcseb

Yes, next step seems to be a survey, negotiate, and then the LVT if we can't reach agreement.

Original seller had a valuation commissioned, which stated expected price to pay would be £34k, and to offer £21k...but that was assuming the flat sold for £435k (original asking price), and based on a slight over-estimation of the square footage. So it should be lower.

As an aside, some mention in the building from other owners of forcing him to sell the freehold, if enough of us get together...thoughts people?

Best