Lease Extension, Capitalisation rate etc...

strawberries1

Apologies for this boring post.

I your need help negotiating my lease extension please.
My surveyor says there's no point negotiating it as the landlord's proposed figure on counter notice £18,000 (reduced to £16,000 after I rang and negotiated the counter notice) (Now £15,400 after I applied to FTB) is a good offer.

If a novice like me can reduce it from £18,000 to £15,400 I wonder what a professional can do.

Below is the LL's surveryor's calc.

Reading through FTTB judgements it appears the capitalisation rate should be 6.5% not 6%.

Valuation Date 19/07/2018
Lease start date 24/06/1966
Term 125
Expiry date 23/06/2091
Unexpired term 72.93
Rent receivable by landlord £30.00

5.00% Deferment
6.00% Capitalisation this I believe should be 6.5%
shall state tribunal decision on this

VALUES (Wondering about these figures as I purchased at £260,000 with benefit of s.42 notice. Similar ppty sold for £289,000 a month prior to my completion)
Freehold Vacant Possession £280,000
Extended Lease Value differential 99% £277,200
Leasehold Vacant Possession £254,800 91.00% Differential (Is this Relativity? The graphs give an average of 94.04%, highest being 95.32% lowest is 92.47% ironically this lowest is the graph of the LL's surveyor but for some reason he uses an even lower figure)


TERM 1 £30.00
x YP 72.93 years @ 6.00% 16.4288
£493

REVERSION FHVP £280,000
x PV 72.93 years @ 5.00% 0.0285
£7,977
£8,470

Less Value of Landlord's proposed interest £280,000
x PV 162.93 years @ 5.00% 0.0004
(Existing term plus 90 years) £99
Total diminution £8,371

CALCULATION OF MARRIAGE VALUE
Tenant's Extended Lease Value £277,200
Landlords' Extended Lease Value £99
Sum of Proposed Extended Lease Interests £277,299
Less
Landlords' Present Interests £8,470
Tenant's Present Interest £254,800
£263,270
Marriage Value £14,029
Take 50% Marriage Share £7,014

PREMIUM PAYABLE
Diminution in Landlord's Interest (para 3) £8,371
Plus Landlord's Share of Marriage Value (para 4) £7,014

---

Total Premium £15,385
Say £15,400

Compare with my surveyor's

Original Term Lease Length 125
From Date: 24-06-66
Valuation Date: 19-07-18
Freehold Capitalisation Rate 6.5%
Freehold Deferment Rate 5%
Extended Lease Reduction (from FHVP) 99%
Relativity 92.47%
Ground Rent (years) (Ground Rent) Term 1
0.00
£15
Ground Rent (years) (Ground Rent) Term 2
72.93
£30
Total (years) 72.93

Extended Lease Term 162.93 GIA 628 sq.ft
Unimproved FHVP Value £287,879 £458
87.10%
Extended Lease Value £285,000 £454
Existing Lease Value £266,202 £424

A. DIMINUTION IN VALUE OF LANDLORD'S INTEREST
A1 Ground rents receivable:
Rent Reserved £15 YP Term 1 0.0000 £0
Rent Reserved £30 YP Term 2 15.2288
£457
£457
A2 Reversion to freehold in possession:
Reversion to VP value £287,879
x PV of £1 until end of term 0.0285 £8,201
Freeholder's Present Interest £8,657

A3 Landlord's interest after grant of new lease of:
Freehold Vacant Possession Value £287,879
x PV of £1 until end of new term 0.0004
£102
Diminution: £8,556
B. CALCULATION OF MARRIAGE VALUE
Value of interests after the lease extension:
Landlords Interest £102
Tenants Interest (extended lease value) £285,000 £285,102
LESS
Landlords Interest £8,657
Tenants Interest (existing lease value) £266,202 £274,859
Marriage Value £10,243
Landlords share of Marriage Value at 50% £5,121
Lease Extension Premium £13,677

da_rule

I’m assuming you’ve read the Sigrist Square case, where the rate was set at 8.25% for example? There are various other decisions out there where the rate is higher than 6.5%.

Taking this to the tribunal seems risky for the sake of 0.5%, especially when the tribunal may decide you’re both wrong and impose a higher rate.

If I was you, I’d go back and offer somewhere between £14,500 and £15,000 and save yourself the cost and time of the tribunal.

strawberries1

It's a shame but my surveyor refuses to negotiate with the FH or surveyor.
I told him I didn't even say much before the counter offer was reduced.
​​​​​​​
His most recent response is below.

"The problem we have always had is that the extended lease value of £285,000 (freehold value of £287,879) compared to the price paid for the existing lease of £260,000 produces a relativity of 90.3%. The purchase price included the benefit of the act which should stripped out. Normally a 3% adjustment is required which reduces the existing lease value to £252,200 excluding the Act. Putting the two together produces a relativity 87.6% and a premium of £16,028".!

Yet he had said there was no point him trying to reduce it from the counter offer of 18k.

strawberries1

Instead of the £12k calculation for the S.42 I was hoping to meet at the £14k calc.

LL's costs are:
£894 valuation
£1,260 legal
Will query whether it already includes VAT but probably not so will be added on.

£220ph + VAT surveyor!
£265ph + VAT legal Grade A outside London (in house sol)

I need to find decisions to use to negotiate these down too especially as the surveyor and in house sol have acted for LL on similar properties on this road.