Ground rent set to increase >£250pa in the next few years and a bit worried

eddddy

Raneynickel4 said:

Even if I get a statutory lease extension, I presume the tribunal will take a long time and I'd have to pay to extend the lease very soon which I'd rather not do. 

You'd have to wait 2 years before you can start the lease extension process - unless you ask the seller to start the process for you, before you complete.

Once the process is started it will probably take between 6 months and 18 months to complete.

And the freeholder cannot say "no".

NameUnavailable

At the moment all of this is really the vendors problem as any buyer will face the same dilemma.

Why buy someone eles's problem, unless it's financially worth your while.

That £5K estimated cost to extend won't include tribunal/legal fees, so take that into account also.

princeofpounds

NameUnavailable said:

That £5K estimated cost to extend won't include tribunal/legal fees, so take that into account also.

Indeed I doubt the online calculator accounts for the escalating ground rent, so it's probably more.

But obviously a deed of variation which will correct the specific problem should be much less than a full statutory extension at tribunal.

eddddy

princeofpounds said:

NameUnavailable said:

That £5K estimated cost to extend won't include tribunal/legal fees, so take that into account also.

Indeed I doubt the online calculator accounts for the escalating ground rent, so it's probably more.

But obviously a deed of variation which will correct the specific problem should be much less than a full statutory extension at tribunal.

The escalating ground rent (25% every 10 years) would probably add about an extra £2.5k to the cost of a statutory lease extension.


So in theory, a 'fair' freeholder would charge about £2.5k for a Deed of Variation to remove the escalation - i.e. fix the ground rent at £250 for the rest of the term of the lease.


But I suspect that many freeholders would see this as a money-making opportunity, and demand much more than £2.5k.

princeofpounds

eddddy said:

But I suspect that many freeholders would see this as a money-making opportunity, and demand much more than £2.5k.

Thanks. It would make sense from a negotiation theory point of view - a buyer of the variation should be willing to pay a premium to avoid the cost and hassle of going through a statutory lease extension instead.

matchmade2

Is there an agreed method of calculating fair compensation for a Deed of Variation. I say this as someone who pays ground rent but also receives it on a flat I own. The £250 limit is ridiculous - it includes no compensation for inflation, so it means the value will get smaller and smaller over time. This is of course what all the people shouting in favour of leaseholders want; no-one ever speaks up for the freeholder's property rights and responsibilities in all this. 

eddddy

matchmade2 said:

Is there an agreed method of calculating fair compensation for a Deed of Variation. 

Agreed by whom?

A professional valuer would probably do a "Net Present Value" calculation. But that uses a "discount rate" (or "yield" or "interest rate"), and you'd have to decide what "discount rate" to use.

For statutory lease extensions, the "discount rate" or "yield" used is usually about 6% or 7% per year.

(i.e. a payment of £100 in ground rent in a year's time, is worth about £94 today.)