Extend Your Lease guide discussion

da_rule wrote: »

That doesn't matter, he would probably have to buy himself out of the contract with the third party.

In terms of how it is calculated, you simply add all of the yearly ground rents together (including the increases) to get a sum. So if there was 10 years left (ignore the marriage value implications) and the ground rent was £50 doubling each year the rents would be:
£50
£100
£200
£400
£800
£1600
£3200
£6400
£12800
£25600

Therefore the amount to be added the the premium would be the sum of all this (which I make to be around £51,000). So for yours you need to just work out how much ground rent is due over the remainder of the lease based on the ground rent increases.

That's not correct.

You have to apply a discount rate to future ground rent payments - it's a bit like the inverse of an interest rate, or an inflation rate.

I'm no expert on this, but I believe the discount rate that's often used may be 7% per year.

So if your lease says you have to make a ground rent payment of £10,000 for the year 2117 (i.e. in 100 years), that's equivalent to paying your freeholder compensation of £11.52 today.

And if you have to make a ground rent payment of £10,000 for the year 2217 (i.e. in 200 years), that's equivalent to 1.3p today.

strawberries1 wrote: »

I'm in the middle of purchasing a property with GR doubling every 25yrs with 120yrs left. For the next 20years of the Term £250 per annum
For the next 25years of the Term £500 per annum
For the next 25years of the Term £1000 per annum
For the next 25years of the Term £2000 per annum
For the remainder of the Term £4000 per annum

This info came up at the enquirires state ie after my offer. The surveyour suggests I ask for a reduction if I still want to go ahead.

Probably because if you default on your groundrent payment the freeholder can repossess your flat when the groundrent is £250 a year (nice law!). That is one reason why they do it, hoping to catch you out.

Hi Ben,

You should not have any problem selling a leasehold flat with good title until the lease is approaching an unexpired term of less than 80 years. I say a problem but even then it is not a problem, please read on.

To extend a lease that has less than 80 years to expiry incurs what is called a "marriage value" In this case, the leaseholder has to compensate the freeholder with the loss of 50% of the difference between what the flat would be valued as if it was leasehold property and the diminished value of a short lease. Also, owing to this, the number of lenders begins to decline as the lease runs down. Some lenders will not lend at all below 70 years, It follows that competitive deals on mortgages also decline. I am not up to date with the mortgage industry but I think it will be a safe bet to say that 65 and below then no mortgage will be available. Not that this will affect you of course.

You should be fine if you plan to sell in 5-7 years time. The ground rent of £10 is excellent and if there is a clause to escalate this unreasonably then if your solicitor is doing his/her job properly he/she will advise you. I would advise anyone buying a leasehold property to do their due diligence on their prospective landlord to see if they have any "form" i.e. unfair treatment of leaseholders. Having said that, in my opinion, local authorities are probably the safest organization to have as your landlord. We probably all abhor how inefficient and corrupt they are but they will comply with the law with regard to being a landlord. In the unlikely event that they stray, then as a council tax payer, you will have the system of local government democracy should soon bring them back on track. Not to mention your statutory rights as a long leaseholder.

Lastly, people become victims of rogues in any industry but more often than not the common theme as to why is because they fail to invest a little time in doing some due diligence. Just as you are doing here Ben. Some people would rather spend more time watching soaps or x-factor etc on the telly than on due diligence on a purchase that is going to take a substantial percentage of their salary over the subsequent 25 years.