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

eddddy

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? 

It doesn't work like that.

It's a matter of comparing the price the freeholder is asking, with the price a tribunal would set.

i.e, The OP would have to decide whether to accept the freeholders offer of £32k or go to a tribunal to get a better price.


Tribunals tend to assume a 'yield' (or 'discount rate') of about 6.5% or 7% per year on future Ground Rent.


So 40 years of ground rent at £1000pa equates to a total payment today of about £13.5k or £14k.

eddddy

topoftherock said:

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. 

Or the other way of looking at it is that £15k to £20k is a realistic amount - perhaps the freeholder was selling other freeholds for that amount.

But the freeholder is now taking a punt by asking you for £32k.

theoretica

No harm in asking if they would accept less for the freehold - they might say yes.

deannagone

I suspect the solicitor was aware of the valuation figures given by Eddddy as the true value of the freehold when they gave their original ball park figure but the freeholder said 'bug off, I want more'.  

In your place, I'd stop trusting anything to do with the freeholder and pay for an independent valuation.  Proceed from there.  At the moment you are playing the freeholders game in which they set all the rules. You're not negotiating with any strength to your position at all.

TripleH

You also don't know how the valuation you paid for was requested

You can ask apparently the same question in certain ways and get completely different answers. The Freehold owner may have instructed the valuation in certain way to get a figure they like. Alternatively they could have had the freehold valued got say £15k valuation but decided you weren't the sort of person to seek advice or query the amount, so opted to double the amount to chance their arm. Or it could be they inflated the price in the hope that you'd beat them down to a level where they walk away happy with more than expected and you walk away happy because you negotiated a big discount?

topoftherock

eddddy said:

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? 

It doesn't work like that.

It's a matter of comparing the price the freeholder is asking, with the price a tribunal would set.

i.e, The OP would have to decide whether to accept the freeholders offer of £32k or go to a tribunal to get a better price.


Tribunals tend to assume a 'yield' (or 'discount rate') of about 6.5% or 7% per year on future Ground Rent.


So 40 years of ground rent at £1000pa equates to a total payment today of about £13.5k or £14k.

Wow! Thanks a lot for the info! I’m definitely feeling more confident now of negotiating a price with your advice ! (Although I’m also realistic and not getting too carried away). I think I’ll look to get my own valuation in the next few months then. If I went to a tribunal , would I have to pay a lot of money? Or would I pay a lot of money, if I lost the case and they favoured the freeholder? Please tell me how you arrived at the £14k figure using the yield/discount rate? 

topoftherock

eddddy said:

topoftherock said:

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. 

Or the other way of looking at it is that £15k to £20k is a realistic amount - perhaps the freeholder was selling other freeholds for that amount.

But the freeholder is now taking a punt by asking you for £32k.

Yes, you could be right. So my next move is to get my own valuation then. I suppose I’ll be looking at around the £500 figure then? 

topoftherock

theoretica said:

No harm in asking if they would accept less for the freehold - they might say yes.

We offered them £15k just before they gave us the £32k asking price. And after this, I said that we are still prepared to offer £15k. But they refused. 

topoftherock

deannagone said:

I suspect the solicitor was aware of the valuation figures given by Eddddy as the true value of the freehold when they gave their original ball park figure but the freeholder said 'bug off, I want more'.  

In your place, I'd stop trusting anything to do with the freeholder and pay for an independent valuation.  Proceed from there.  At the moment you are playing the freeholders game in which they set all the rules. You're not negotiating with any strength to your position at all.

Yes, you’re right! Thanks a lot for giving me the motivation! 

topoftherock

TripleH said:

You also don't know how the valuation you paid for was requested

You can ask apparently the same question in certain ways and get completely different answers. The Freehold owner may have instructed the valuation in certain way to get a figure they like. Alternatively they could have had the freehold valued got say £15k valuation but decided you weren't the sort of person to seek advice or query the amount, so opted to double the amount to chance their arm. Or it could be they inflated the price in the hope that you'd beat them down to a level where they walk away happy with more than expected and you walk away happy because you negotiated a big discount?

You’ve made a very good point. I mean the solicitor is in his 70s and knows his stuff and has seen it all, so that’s why I really thought that the £15-£20k was realistic (even though he works in the best interests of the freeholder).