Value of Freehold when ground rent is linked to RPI

dan74_2

Hello,
I need to sell my flat quickly. It currently has 70 years remaining from an original 99 year lease. I have no time to formally serve notice for a 90 year lease extension so have been dealing direct with the freeholder to thrash out a deal. I've been offered a brand new 125 year lease for £5750 with ground rent set at £200 and rising by £200 every 15 years or by the increase in RPI (whichever the greater).

I've been on another forum and have recieved mixed advice. Some say this is a good deal, other are saying the RPi clause will make the flat unsalable in future or make the Freehold too valuable to be able to purchase or extend the lease again in future, because of the historic performance of RPI.

So... my question is, If the prospective buyer decides, within the first 15 year period of ownership, to renew the lease formally by serving notice and adding 90 years and peppercorn rent etc, or decides to purchase the freehold through collective enfranchisement, will the value of the Freehold be calculated by using historic RPI data or just by the £200 increments as set out in the lease?

thanks

moneyistooshorttomention

Is this brand new lease term of 125 years on top of the existing remaining 70 years = 195 years in total

OR

instead of the remainder of the 75 year lease and thus you would just be buying 55 years worth for your money?

dan74_2

the old lease would be surrendered and a new lease of 125 years would be put in place

eddddy

What about doing the following:

- Presumably you have the freeholder's offer in writing
- Get a valuation for a statutory lease extension

Market the flat 'as is' - at an appropriate price - and give the purchaser the choice...

1. You can buy the flat as is at £x
2.You can buy it with the new lease at £x + £5750
3. You can buy the flat for £x, and I will serve a section 42 notice on the freeholder (for the statutory lease extension)

(In your calculations, remember that the leaseholder will have to pay both the leaseholder's and the freeholder's legal fees.)


Edit to add:

You might have to offer a slight discount to compensate for the hassle associated with option 3.

And some lenders may be dubious about mortgages for options 1 and 3.

dan74_2

eddddy wrote: »

What about doing the following:

- Presumably you have the freeholder's offer in writing
- Get a valuation for a statutory lease extension

Market the flat 'as is' - at an appropriate price - and give the purchaser the choice...

1. You can buy the flat as is at £x
2.You can buy it with the new lease at £x + £5750
3. You can buy the flat for £x, and I will serve a section 42 notice on the freeholder (for the statutory lease extension)

(In your calculations, remember that the leaseholder will have to pay both the leaseholder's and the freeholder's legal fees.)

We did think of this, but unfortunately the offer from the freeholder expires in 6 weeks (was originally 3 months but we've been waiting for double glazing to be fitted), after which a new valuation will need to take place thus adding time and money. We simply dont have time as we are having a baby and need to get the place sold so we can move into a bigger property.

Also, if we struggle to sell and the lease ticks down to 69 years then we will be hit with a higher lease premium, so we wanted to just get it done asap.

The estimate for a formal lease extension is £8750 plus £950 for my solicitor fee plus another £950 for freeholders solicitor fee, we are looking at £11k + compared to around £7k for the informal route.

dan74_2

My main concern is the saleability of the flat with the informal lease extension completed and in place.

If you look over the history of RPi and calculate in 15 year segments the potetial increase in ground rent (based on historic data), the figure becomes quite worrying. But my query is, if the buyer plans to renew the lease again within the first 15 years by formally serving notice for a 90 year extension, or takes part in collective enfranchisement, then the value of the freehold would be based on the £200 increments and not the historic RPI data, is that right?

libf

dan74 wrote: »

We simply dont have time as we are having a baby and need to get the place sold so we can move into a bigger property.

Babies don't take up that much room to start with. I would slow down and make sure that you're making the right decisions rather than letting time pressures push you along regardless.

dan74_2

libf wrote: »

Babies don't take up that much room to start with. I would slow down and make sure that you're making the right decisions rather than letting time pressures push you along regardless.

Its not just the baby, the lease is ticking down. The longer we leave it the more expensive it will become for all options.

eddddy

dan74 wrote: »

... or takes part in collective enfranchisement, then the value of the freehold would be based on the £200 increments and not the historic RPI data, is that right?

I don't know, but my guess would be that the legislation doesn't mention this - so it would be up to a court to decide.

And since going to court would cost many thousands - most leaseholders would probably just agree to pay 'over the odds' for the lease extension, rather than pay even higher legal costs.

Did you use a surveyor for your statutory extension valuation? They might be the best person to answer this question.