Missold a freehold

benjus

G_M wrote: »

Depends how many additional years occupancy you are buying.

Assuming you are extending to a new 99 year lease:
a) if the current years remaining is 60, you are buying an extra 39 years
b) if the current years remaining is 50, you are buying an extra 49 years

So b) costs more than a).

Of course, if you have 50 years remaining (as b) above) but choose to extend the lease to 60 years (though goodness knows why), you'd be buying an extra 10 years which would cost less than a) above

I assume that the prices quoted are for a lease extension via the statutory process under the Leasehold Reform Housing & Urban Development Act 1993. That process adds 90 years to whatever the remaining term was, so the number of additional years you are buying is always the same.

When calculating the amount to pay the freeholder to extend the lease a number of factors come into play. One is the amount of ground rent that the freeholder would have received on the remaining term (as the extended lease will be at peppercorn ground rent) - this clearly goes down as the remaining term gets lower. However, you also need to compensate the freeholder for having to wait another 90 years to gain possession of the leasehold property. This is calculated by first calculating the value of the property with a new long lease, then working out how much this is worth deferred by the remaining term. The longer the remaining term, the less it is worth, which is one reason that extending a lease becomes more expensive as the remaining term reduces. There is also a big jump in cost when the remaining term drops below 80 years, as marriage value is also added. This is the increase in property value due to the extended lease, split 50/50 between leaseholder and freeholder.

Of course, the statutory process is not the only way - leases can also be extended by agreement between the freeholder and leaseholder. This lease may maintain ground rent at the existing level, so there would no longer be any need to compensate the freeholder for loss of ground rent.