Lease - to renew or not to renew

supermario64

Hello!
I’m currently facing a dilemma - after all my research I’m still not sure which way to go and would love to hear anyone willing to weigh in.

Basically my flat is a leasehold with 92 years remaining on the lease. I’ve been putting off renewing it as I know new legislation on this topic was due.

It seems like the new bill that has passed is relative to leases on new builds and doesn’t affect existing leases. From what I gather there’s intention to change law relative to existing leases as well but that might take a couple more years.

I’m currently in a position where I have the funds to renew my lease (this could cost, based on online calculators, anything from £5k to £10k). My main fear is that they’ll change the legislation to benefit leaseholders and i’ll regret not waiting a few more years… so I’m currently thinking:

1 - I should just renew asap. The more years I have on my lease the cheaper it’ll be. It also seems that the proposed changes would be mostly beneficial for people who pay marriage tax and who’s lease has fallen below 80 years.

2 - With 92 years remaining there’s no point in doing it now. As long as I don’t get close to 80 I should wait to see which changes they introduce. Even if don't need to pay marriage tax they might fix the period for lease extensions at 990 years (vs. much shorter periods some leases are extended for nowadays).

Additional context: I don’t plan on selling this property for at least another 20 years, so I definitely need to do it at some point.

Thank you in advance!

london21

Can try the informal route to find out how much it would cost you.

Online estimates are just a guide, no harm contacting your freeholder to find out the cost.

Already 92 years, better to start the process now because as the years get shorter, cost will increase. 

bouicca21

OP has nothing to lose by waiting.  Marriage value won’t kick in for another 12 years,

london21

I will say no harm asking, costs nothing.
My mate who had 94 years left got 125 years extension for £2350.

eddddy

supermario64 said:

I’m currently in a position where I have the funds to renew my lease (this could cost, based on online calculators, anything from £5k to £10k). 

Just to clarify - that would be for a statutory lease extension (adding 90 years to lease, and reducing ground rent to zero).

There would be legal and valuation fees on top - which might cost £2k to £4k.

It's those legal and valuation fees (£2k to £4k) which the government is proposing to reduce - by making it a simpler online process.



Also, instead of adding 90 years to the lease, they're planning to let you extend your lease to 990 years - but it's not clear if that would push the cost up. (i.e. increase the £5k to £10k cost that you mention.)


You can ask the freeholder about an informal lease extension instead, if you want. The legal and valuation fees are usually lower - but you need to make sure the terms are good (ground rent etc). Some freeholders 'rip-off' leaseholders with informal extensions.

supermario64

Thank you everyone for all your input. I decided I’m going to approach the leaseholder and figure out how much it would cost.

I’ll then make a decision based on that!

eddddy

supermario64 said:

Thank you everyone for all your input. I decided I’m going to approach the leaseholder and figure out how much it would cost.

I’ll then make a decision based on that!

I suspect it's just a typo - but I think you mean you'll approach the freeholder. (You are the leaseholder)

supermario64

eddddy said:

supermario64 said:

Thank you everyone for all your input. I decided I’m going to approach the leaseholder and figure out how much it would cost.

I’ll then make a decision based on that!

I suspect it's just a typo - but I think you mean you'll approach the freeholder. (You are the leaseholder)

Yes exactly, my mistake!

So I’ve gone down the informal route, freeholder came back with this proposal:

Lease Extension Premium: £14,717.00

Remainder of current term + 90 years.

(currently 92 years left)

Ground rent: £413.75pa subject to review every 10 years in accordance with RPI

This is for a 1 bed flat in New Cross (London zone 2) worth about £290k.

Need to do some research but my first thought is, this doesn’t feel like a great deal. Was also under the impression I’d be paying less ground rent but it’s actually staying the same (400) with planned increases. Five years ago they increased already from 50 to 400 p.a!

Need to decide whether to go back with a counter proposal or go down the statutory route (which I believe is a less straightforward process with more legal fees involved). Maybe I can get a fairer price?

All this business just makes me feel that I’m completely at the mercy of the freeholder with very little negotiation power…

eddddy

supermario64 said:

So I’ve gone down the informal route, freeholder came back with this proposal:

Lease Extension Premium: £14,717.00

Remainder of current term + 90 years.

(currently 92 years left)

Ground rent: £413.75pa subject to review every 10 years in accordance with RPI

supermario64 said:

(this could cost, based on online calculators, anything from £5k to £10k). 

So the online calculators assume +90 years, and ground rent reducing to zero - costing between £5k and £10k.

So £14.7k with an escalating ground rent starting at £413 sounds like a very bad deal.


That £413 per year ground rent is probably worth at least £8k to £10k to the freeholder.

So the freeholder is essentially getting around £22k to £25k for a lease extension which should only cost £5k to £10k.



(But it's unclear if you already have an escalating ground rent - you say it increased from £50 to £400. If you do currently have an escalating ground rent, a statutory lease extension might cost more than £5k to £10k.)

Jasjeet54

DO NOT go down the informal route! The freeholder will for sure rip you off. You need to renew formally via a solicitor, which will mean there will be no future ground rent. Please consult with a legal expert or look into leaseholder support groups.

supermario64

eddddy said:

supermario64 said:

So I’ve gone down the informal route, freeholder came back with this proposal:

Lease Extension Premium: £14,717.00

Remainder of current term + 90 years.

(currently 92 years left)

Ground rent: £413.75pa subject to review every 10 years in accordance with RPI

supermario64 said:

(this could cost, based on online calculators, anything from £5k to £10k). 

So the online calculators assume +90 years, and ground rent reducing to zero - costing between £5k and £10k.

So £14.7k with an escalating ground rent starting at £413 sounds like a very bad deal.


That £413 per year ground rent is probably worth at least £8k to £10k to the freeholder.

So the freeholder is essentially getting around £22k to £25k for a lease extension which should only cost £5k to £10k.



(But it's unclear if you already have an escalating ground rent - you say it increased from £50 to £400. If you do currently have an escalating ground rent, a statutory lease extension might cost more than £5k to £10k.)

Thanks eddddy,
That's a really good point: I just checked and they don't take into account rising ground rents.
So if that can add another £5k-£10k suddenly their proposal doesn't seem outrageous, although still not a great deal.

Jasjeet54 said:

DO NOT go down the informal route! The freeholder will for sure rip you off. You need to renew formally via a solicitor, which will mean there will be no future ground rent. Please consult with a legal expert or look into leaseholder support groups.

Thank you - I think this is definitely the right way to go, just wanted to check what their informal proposal would be. That said i am worried with all the legal costs involved, but believe I'd be better off in the long term...