Ground Rent Raising To £4,000???

bouicca21

Am I getting this right? Even with a long lease it is possible to go for a further extension in order to get the groundrent reduced to zero?

billy_goat

bouicca21 wrote: »

Am I getting this right? Even with a long lease it is possible to go for a further extension in order to get the groundrent reduced to zero?

Yes, the only rule is that you need to have owned the property for atleast 2 years before doing so (that is to say - before invoking your legal right to). Nothing to stop you making an offer to the Freeholder prior to this period as far as I am aware.

@Strawberries, I am assuming that the 2 year wait was something you knew about - it won't affect the numbers that much (i.e. buying out the 120 year lease in 2019).

strawberries1

billy_goat wrote: »

Yes, the only rule is that you need to have owned the property for atleast 2 years before doing so (that is to say - before invoking your legal right to). Nothing to stop you making an offer to the Freeholder prior to this period as far as I am aware.

@Strawberries, I am assuming that the 2 year wait was something you knew about - it won't affect the numbers that much (i.e. buying out the 120 year lease in 2019).

Yes I'm aware of the two year waitbut considering requesting the notice is served now but I need to know how much it will cost me in total and if there's a time limit to conclude the process.

chucknorris

martinsurrey wrote: »

its £4000 from 2119, which is 100 years time.

£1 in 1917 is equivalent to £80 now.

so if the next 100 years is similar to the last 100 years that £4000 ground rent will look like £50 a year does now.

(of course we had periods of great inflation and a few wars, but shows the power of compound inflation)

I wouldn't worry about a doubling every 25 years clause.

I agree, doubling every 25 years seems fairly standard to me:

http://www.savills.co.uk/research_articles/186866/141018-0

billy_goat

chucknorris wrote: »

I agree, doubling every 25 years seems fairly standard to me:

http://www.savills.co.uk/research_articles/186866/141018-0

It is, but it is more complicated than that behind the scenes.

Very simple illustration - would you take out a loan of £1, which you had to pay 3.53% interest on (guessed this number, not calculated), whilst the value of the loan rises by 3.53% a year. (i.e. to pay off the loan you have to pay an additional 3.53% for every year that you wait to pay it off)?

Because this is basically what happens if your ground rent doubles every 20 years (like myself).

When calculating the real cost of a ground rent term, you need to not only consider the change in real term payment, but also the change in real term value of the ground rent clause . Sorry if the above doesn't immediately make sense, if I could upload pictures I could give a much better explanation.

Richard_Webster

Doubling every 10 years is nasty!

Doing so every 25 years could be nasty if we have a period of very low or no inflation.

However, at the moment, most people don't think about the amount of ground rent when deciding what to pay to buy a flat or maisonette so it is likely that in say 10 years time unless buyers generally become savvier and more discriminating you shouldn't have too much trouble selling inspire of the doubling ground rent - but of course attitudes could change.

Unless you have a very anxious buyer, issues around indemnity policies will only come up when a buyer's solicitor goes through the papers, by which time the buyer is usually set on proceeding and his solicitor should explain that these points are minor ones unlikely to cause a problem in practice.

By the way, I would find out the identity of the freeholder and then Google the name - and see if there are adverse comments about them, and if so, what they say. If there is no service charge they do not have that over you, but nevertheless, some of the really nasty freeholders are just plain nasty and best avoided.

strawberries1

Richard_Webster wrote: »

Doubling every 10 years is nasty!

Doing so every 25 years could be nasty if we have a period of very low or no inflation.

However, at the moment, most people don't think about the amount of ground rent when deciding what to pay to buy a flat or maisonette so it is likely that in say 10 years time unless buyers generally become savvier and more discriminating you shouldn't have too much trouble selling inspire of the doubling ground rent - but of course attitudes could change.

Unless you have a very anxious buyer, issues around indemnity policies will only come up when a buyer's solicitor goes through the papers, by which time the buyer is usually set on proceeding and his solicitor should explain that these points are minor ones unlikely to cause a problem in practice.

By the way, I would find out the identity of the freeholder and then Google the name - and see if there are adverse comments about them, and if so, what they say. If there is no service charge they do not have that over you, but nevertheless, some of the really nasty freeholders are just plain nasty and best avoided.

Thanks Richard, the new freeholder purchased the freehold in 2015 and they're an investor freeholder

AdrianC

strawberries1 wrote: »

Thanks Richard, the new freeholder purchased the freehold in 2015 and they're an investor freeholder

Which doesn't affect the amount a statutory extension will cost you, nor does it affect the terms - and the peppercorn ground rent that'll apply afterwards.

strawberries1

billy_goat wrote: »

Nothing to stop you making an offer to the Freeholder prior to this period as far as I am aware.

@Strawberries, I am assuming that the 2 year wait was something you knew about - it won't affect the numbers that much (i.e. buying out the 120 year lease in 2019).

Yes Billy, I'm aware. About how much do you think the difference might be if I waited till then? If I serve in two years we probably won't get to the tribunal for another 10 months right? So beginning the process of extension now versus in 2years?

Is the statutory purchase price of freehold based on (amongst other things) the current ground rent or the proposed future ground rent also? Is this the same for calculating the premium for extension under the Act?

I read somewhere the Act allows you to keep the terms of the current lease; does this mean GR can't revert to £15 for first 50 years and then £30 for the next 75yrs as in the original lease? Or it will have to be the GR provisions that started in 2015?

Or does the interpretation of statue mean peppercorn even though that was never in the original lease?

The other 3 maisonettes have 74yrs left. I wonder if it'll cost them the same to extend as it will to buy the freehold. If that's the case they might be open to purchasing the freehold but will my GR prevent this from happening?

billy_goat

strawberries1 wrote: »

Yes Billy, I'm aware. About how much do you think the difference might be if I waited till then? If I serve in two years we probably won't get to the tribunal for another 10 months right? So beginning the process of extension now versus in 2years? Estimates are below.

Is the statutory purchase price of freehold based on (amongst other things) the current ground rent or the proposed future ground rent also? Is this the same for calculating the premium for extension under the Act? I dont know about freehold purchase, but the premium for extension is based on the financial value of the ground rent income, the financial value of the interest in the property due to the lease, and the marriage value, which we dont need to consider here

I read somewhere the Act allows you to keep the terms of the current lease; does this mean GR can't revert to £15 for first 50 years and then £30 for the next 75yrs as in the original lease? Or it will have to be the GR provisions that started in 2015? Peppercorn means.. peppercorn. i.e. nil.

Or does the interpretation of statue mean peppercorn even though that was never in the original lease?

The other 3 maisonettes have 74yrs left. I wonder if it'll cost them the same to extend as it will to buy the freehold This will start to cost them a lot of ££ because they will have to pay the marriage calculation. On the other hand, the longer they leave it the worse it gets for them!. If that's the case they might be open to purchasing the freehold but will my GR prevent this from happening?

Ground rent value, the below are calculated using a 6.5% capitalisation rate, 5% reversion, 3 columns in order are:
- Years Into125 year doubling lease
- Value Of Ground Rent (multiply by initial ground rent to get your amount)
- Reversion Cost (multiply by current property value)
0 18.68127321 0.001626053
1 18.9611509 0.001711635
2 19.26128783 0.001801721
3 19.58315049 0.001896549
4 19.92831151 0.001996367
5 20.29845739 0.002101439
6 20.69539666 0.002212041
7 21.12106881 0.002328464
8 21.57755368 0.002451015
9 22.06708169 0.002580016
10 22.59204471 0.002715806
11 23.15500774 0.002858743
12 23.75872143 0.003009204
13 24.40613558 0.003167583
14 25.10041349 0.003334298
15 25.84494745 0.003509787
16 26.64337528 0.003694513
17 27.49959815 0.003888961
18 28.41779963 0.004093643
19 29.40246609 0.004309098
20 30.45840868 0.004535892

So if you renew in year 3, the cost is 19.58315049 * £250 + 0.001896549 * property value (i.e. £250000) = 4895.79 + 474.14 = £5369.93

If you renew in year 6, the cost is 20.69539666 * £250 + 0.002212041 * property value (i.e. £250000) = 5173.85 + 553.01 = £5726.86

Numbers above should work for any apartment where year zero = 125 year lease and lease doubles every 25 years. Percentages are subjective, legal fees are not included, and as you can see the numbers moved a little since I last calculated as a used 22 year at £250 and 25 at £4k instead of 25 at £250 and 22 at 4k Above should be taken as a good estimate only.