Lease Extension - Help

morlox

I've been in my flat for the required 2 years and I'm now looking to sort out the lease extension.
We recently remortgaged the flat and it was valued at £185K with 72 years left on the lease.


I have approached the Freehold to negotiate the extension and they have come back with the following terms:


Extend to 125 years
Cost: £19, 675
Ground Rent: £200pa doubling every 25 years or RPI increase every 10
Landlord costs: £600


This seems incredibly high to me. Looking at lots of online calculators, I was anticipating more around the £12 - 14K mark for a statutory increase of 90 years.


There are no solicitors or surveyors involved yet. I'm not sure if I should go ahead and just go down the statutory route, or give them a number of my own, or get a surveyor/ solicitor involved at this point?


I should say, we would like to extend as inexpensively as possible. We don't intend to be here for too many years. Ideally, an informal extension to 99 years around the £10K would be more what we had in mind, but I don't want to shoot myself in the foot if that's going to cause problems down the line.


Any advice, greatly received! It's very confusing this whole thing.

Tom99

[FONT=Verdana, sans-serif]What will your lease be worth when you extend it?[/FONT]
[FONT=Verdana, sans-serif]Quite possibly less than £200k so you will make at least a £5k loss on the deal currently offered.[/FONT]
[FONT=Verdana, sans-serif]The new ground rent of £200pa with RPI every 10 year may not be too onerous but when you come to sell and your competition is a similar flat with 37yrs more on the lease and no ground rent, which would you choose?[/FONT]
[FONT=Verdana, sans-serif]A statutory lease extension will take longer and will cost more in fees but its reasonable to expect your all in costs to be less than £15,000 and for a more attractive lease when you come to sell.[/FONT]
[FONT=Verdana, sans-serif]You can of course negotiate, for example tell the landlord your very best offer is a 162yr lease at £0 ground rent and a premium of £13,000 plus a max of £600 costs.[/FONT]

morlox

I'm not sure what the lease will be worth. How do you find that out? I think you are right though, that I wouldn't be looking at more than 200K.


Out of curiosity, how did you arrive at the number for £15K? If that's what we'd be looking at all in, that might be the better way to go.

da_rule

You need a properly qualified surveyor to work out the valuations and then give you guidance on what you should be offering for a statutory extension.

Tom99

morlox wrote: »

I'm not sure what the lease will be worth. How do you find that out? I think you are right though, that I wouldn't be looking at more than 200K.
Out of curiosity, how did you arrive at the number for £15K? If that's what we'd be looking at all in, that might be the better way to go.

[FONT=Verdana, sans-serif]If your remortgage was at a fairly low LTV the £185,000 may not be dead accurate. 72yrs is not a common lease length to sell on the open market so the surveyor would not have had many, maybe no, comparables to work with.[/FONT]

[FONT=Verdana, sans-serif]If you went the statutory route then both parties surveyors would first determine the value of the new long lease. Then they would look to agree a relativity factor, that is Old Lease Value divided by New Lease Value and expressed as a percentage.[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]You can get a rough idea of the relativity %age here:[/FONT]
[FONT=Verdana, sans-serif]https://www.freeholdcalculator.com/leasehold_extension.php[/FONT]

[FONT=Verdana, sans-serif]Using that calculator the relativity outside Central London for a 72yr lease is 93.98% so if your flat is worth £185,000 now it will be worth £185,000/0.9398 = £196,850 with the new 162yr lease.[/FONT]

[FONT=Verdana, sans-serif]Since you lease is below 80yrs and marriage value will have to be shared 50%/50% this relativity %age is a component in the calculation. It very far from the exact science the above precise looking figures would suggest.[/FONT]

[FONT=Verdana, sans-serif]You don't state your existing ground rent and ground rent reviews so my £15,000, all in, was just rounding up the figure of £12k-£14k for some costs.[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]One way of looking at whether informal terms are good value is to look at how much you would have to pay to apply a statutory lease extension to these informal terms and compare it you your 162yr lease at £0 ground rent.[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]If you wanted to extend the proposed 125yr lease at £200pa rising to 215yrs at £0 it would probably cost about £5,000 depending how you value the ground rent increases.[/FONT]
[FONT=Verdana, sans-serif]Compare that with extending the statutory 162yr lease at £0pa to 252yrs at £0pa which would cost about £75.[/FONT]

[FONT=Verdana, sans-serif]Therefore the freeholder is retaining £4,925 of value for themselves which would have been yours had you gone the statutory route instead.[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]Given your existing lease length I think it would be well worth employing an RICS surveyor now so that you will have a much better idea of how various figure compare before you go any further. [/FONT]