Freehold asking price unaffordable. Therefore, should I ask for the cost of extending the lease?

topoftherock

Hi, all, I’m looking for some advice. Just a bit of background information. Our terraced house  currently has a statutory 50-year lease extension (it started in 2010 and will finish in 2060), and the ground rent is £1,000 per annum. The original 99-year lease was between 1911 and 2010 @ £2 per year. I know that we won’t be entitled to another statutory lease extension once this one expires I.e there is only one statutory lease extension allowed for houses (I.e there are different rules for flats). We recently paid almost £500 for a valuation (albeit this was done remotely) and the freehold asking price was £32,000. We, unfortunately, can’t afford anywhere near this amount. Therefore, is it worth asking how much it would cost to have a 50-year or 100-year lease extension? How much would this likely cost? And then if we did get it, Would we expect to pay a lot more than the £1k per year ground rent we currently have? Many thanks 

eddddy

You don't have a statutory right to a lease extension - so the terms (including the price) would be whatever you can agree with your freeholder.

If you want to pay a lower ground rent, typically you would have to pay a bigger amount up front.
If you're happy to pay a higher ground rent, typically you would pay less up front.


But a high ground rent might also make the freehold more expensive to buy in the future.

eddddy

topoftherock said:

We recently paid almost £500 for a valuation (albeit this was done remotely) and the freehold asking price was £32,000. 

Just to clarify - who did you pay the £500 to?

1. Did you instruct your own valuer who gave you a valuation report in return for a £500 fee?
2. Or did you pay your freeholder £500 - which they might have used to pay for a valuation report, which you haven't seen, so you don't what it says (or they might have used to pay for a short break in Cornwall)?

If you did option 2 - you don't necessarily know if £32k is a realistic figure. It might be worth getting your own valuation, as in option 1.

topoftherock

eddddy said:

You don't have a statutory right to a lease extension - so the terms (including the price) would be whatever you can agree with your freeholder.

If you want to pay a lower ground rent, typically you would have to pay a bigger amount up front.
If you're happy to pay a higher ground rent, typically you would pay less up front.


But a high ground rent might also make the freehold more expensive to buy in the future.

Thanks for the info. Thinking about it more, there probably won’t  be a big difference in extending it vs purchasing the freehold. So, I guess we’ll have to wait and see what happens in the next few years regarding the leasehold reforms. 

topoftherock

eddddy said:

topoftherock said:

We recently paid almost £500 for a valuation (albeit this was done remotely) and the freehold asking price was £32,000. 

Just to clarify - who did you pay the £500 to?

1. Did you instruct your own valuer who gave you a valuation report in return for a £500 fee?
2. Or did you pay your freeholder £500 - which they might have used to pay for a valuation report, which you haven't seen, so you don't what it says (or they might have used to pay for a short break in Cornwall)?

If you did option 2 - you don't necessarily know if £32k is a realistic figure. It might be worth getting your own valuation, as in option 1.

We paid the freeholder (via their solicitor) close to £500 for the valuation. I asked the solicitor to send me an invoice and also a copy of the valuation report, in order to see how they arrived at the £32k.  They sent us the invoice (this was invoiced  to the solicitor from the valuer; which we paid of course)  but no more information. They (the freeholder’s solicitor)  stated on the reply letter they are unable to disclose  the calculations, as the calculations were not made available to the solicitors  by the surveyors. The letter goes on to say that the valuation is based on two elements. 1) the amount of money needed to invest to give a similar return to the ground rent. (They state that in terms of very low interest rates, such as those at present, this gives a relatively high valuation. 2) the value of the ground (but not the building) on the basis that it returns to the landlord on the expiration of the lease. (They state that This depends on the location of the building and the demand for building land in the area).                                            

eddddy

topoftherock said:

The letter goes on to say that the valuation is based on two elements. 1) the amount of money needed to invest to give a similar return to the ground rent. (They state that in terms of very low interest rates, such as those at present, this gives a relatively high valuation. 2) the value of the ground (but not the building) on the basis that it returns to the landlord on the expiration of the lease. (They state that This depends on the location of the building and the demand for building land in the area).                                            

Just to keep things in perspective - what the solicitor is saying is just puff, probably intended to impress and reassure you.

The solicitor is just quoting a chunk of text that the valuer gave them - the text might have been copied from a text book or the internet.

There is nothing in that letter that confirms that £32k is a fair price for the freehold - but it might be.

The only real way to get a better idea about whether £32k is a fair price is to instruct your own valuer.


 
The freeholder is trying to sell you something. Sellers often want buyers to pay more than something is worth.

And the solicitor and valuer are working for the freeholder, so part of their duty is to help the freeholder to get the best price possible.

TripleH

As per edddy get your own valuation done. Yours will (hopefully) come in lower than the vendor's valuation.

You counter with your valuation and both sides meet somewhere in between the two values.

Good luck.

topoftherock

We’ve already offered £15k and they refused that. so is it still worth getting my own valuation? I’m guessing it will be around the £500 mark as well? Thanks 

es5595

If the ground rent is £1000 a year, and runs until 2060, they leaseholder stands to get another £38k, and then own the land… unless they’re absolutely desperate for money right now, why would they sell it for £32k? 

topoftherock

es5595 said:

If the ground rent is £1000 a year, and runs until 2060, they leaseholder stands to get another £38k, and then own the land… unless they’re absolutely desperate for money right now, why would they sell it for £32k? 

They’ve already offered it us for £32k. Do you mean, why would they sell it for less than £32k? 

topoftherock

When I initially asked about buying the freehold a few months ago, the solicitor said that the freeholder doesn’t have as much land as they had before, and they’ve got  insurance fees  etc to pay, so they would be interested in selling it (at this point the solicitor said he expected the asking price to be between £15-£20k, but stated that I shouldn’t quote him).  It’s making me wonder if he knew all along it would be far more than this, and he said that to give me a false sense of confidence, so that I’d pay the £500 valuation fee!  I’ve got no regrets anyway. It was worth  paying  it, just to get some closure.