Lease extension offer based on RPI

dan74_2

Hello,
I'm in the process of negotiating a lease extension on my flat. I've been in communications with my freeholder who have put forward two offers. The second offer being a response to my request for negotiations.

The property is a 1 bedroom flat within a converted house. Value i would say around £100k at the moment. The current lease is at 71 years (originally 99 when converted) and ground rent is currently £50 per year until 33 years expired, then it turns to £100 for another 33 years and £150 for the last 33 year period.

I entered into informal negaotiations direct with the freeholder due to speed and convenience. Their first offer was as follows:

Premium £6750 for a brand new 125 year lease (previous lease would be surrendered and a new one issued)
Ground rent increase to £250 per annum, with further increases of £250 every 15 years, or by the increase in Retail Price Index, whichever the greater.
Fees would be £950 plus VAT.

I was not happy with this and went back with a counter offer, to which they replied:

Premium £5750 for a brand new 125 year lease (previous lease would be surrendered and a new one issued)
Ground rent increase to £200 per annum, with further increases of £200 every 15 years, or by the increase in Retail Price Index, whichever the greater.
Fees would be £950 plus VAT.

This is their final position on the matter.

What i need to know is whether this is a particularly bad deal, or is it pretty run of the mill these days?
The thing that worries me most is the RPI clause. Is this a clever way of them making it seem like a good deal but in fact when the first 15 years expires it will render the flat unsaleable?

Any good mathameticians care to spell this out for me please??



Thank you all.

rpc

The RPI clause means the landlord would get 4.7% annualised effectively or RPI, whichever is greater. Only if RPI is more than 4.7% over the 15 year period would the increase be more than stipulated.

Are you eligible for a statutory lease extension? This would be an additional 90 years on top of your current lease at peppercorn rent. Some quick calculator bashing suggests it might be about the same as the premium being suggested by your LL (but for longer and with no ground rent).

dan74_2

rpc wrote: »

The RPI clause means the landlord would get 4.7% annualised effectively or RPI, whichever is greater. Only if RPI is more than 4.7% over the 15 year period would the increase be more than stipulated.

Are you eligible for a statutory lease extension? This would be an additional 90 years on top of your current lease at peppercorn rent. Some quick calculator bashing suggests it might be about the same as the premium being suggested by your LL (but for longer and with no ground rent).

Thanks for the reply!
Yes I have looked into the statutory route but the additional fees scared me a bit. Here is what my solicitor said:

Statutory lease extension fees for acting would be as follows:

Fees for lease extension : £750.00
VAT @ 20% : £150.00
Land Registry fee : £ 40.00
Land Registry Document fee : £ 12.00
Pre Completion Searches : £ 11.00

Total: £963.00.

This would cover all work up to but not including Tribunal fees, if the landlord did not agree to the terms you are proposing. If application then has to be referred to the Tribunal then it charges an hourly rate of £230.00 plus VAT, however, 95% of cases usually settle prior to Tribunal.

All of this plus the freeholders legal fees, this is likely to push the cost to £8k plus. Maybe thats about normal, but i can't guarantee my freeholder will play ball and not try to make it as difficult as possible

dan74_2

Can anyone else tell me if the offer ive received is normal by today's standards and whether it might put off any potential buyers? Reall don't know what to do here

ognum

I have extended a couple of leases so I can tell you about them.

Ground rent has been reduced to peppercorn ie.0
Lease extension has been added to the current lease so one went from 72 years to 72 + 99, 171 years.

I withdrew an offer on a property where the ground rent was going to rise every third year by RPI, the cumulative effect of this would have made the property U sellable in 20 years but someone bought it so they clearly thought it was fine.

Hope this helps!

dan74_2

ognum wrote: »

I have extended a couple of leases so I can tell you about them.

Ground rent has been reduced to peppercorn ie.0
Lease extension has been added to the current lease so one went from 72 years to 72 + 99, 171 years.

I withdrew an offer on a property where the ground rent was going to rise every third year by RPI, the cumulative effect of this would have made the property U sellable in 20 years but someone bought it so they clearly thought it was fine.

Hope this helps!

So RPI rises rapidly. Is there a way of calculating what the increase could be in 15 years time?

ognum

dan74 wrote: »

So RPI rises rapidly. Is there a way of calculating what the increase could be in 15 years time?

Well it depends on RPI but it's a cumulative rise and if we got to a period of high inflation over a few years it would get expensive. It's not clear cut.

No way of knowing as you don't know what RPI a will be!