Question about lease extensions

[philv]

HI,

For lease extensions, i believe that going below 80 years starts to significantly increase the cost of extending a residential property lease.

If i had 80.5 years remaining on a lease now, and applied today for a lease extension.

By the time the lease is extended it will be less than 80 years remaining.

So, would the coat of the lease extension be calculated on when i first approached the building owner?

Or at some later specific or random point?

If the process went to arbitration due to not being able to agree a value with the building owner, the process could take a year or more.
This would make the lease approach 79 years.
So theoretically, stalling or lengthenin gof the process by the buildign owner could be more profitable for them?

Thanks

[Alpinestars]

I think it's from the date of a valid S42 notice. I did this a few years ago and went to tribunal. I can't remember the exact details, but I did all the work and represented myself, and I'm pretty sure the relevant date was the S42 notice. If you can't agree anything informally, I'd go down the formal route ASAP. In theory the cost shouldn't rise just because it falls below 80 years, but the calculations are more involved and become more subjective because you need to calculate marriage value.

[philv]

Thanks for tne reply.

Was it quite stright forward doing most of tne work yourself without a solicitor?
Instructing a surveyer/valuer to determine the premium.
Then issuing an s42.

Hopefully the freeholder would accept or make an acceptable counter offer.
Then all that would remain would be having my own solicitor review rhe final revised lease?

Edited by philv on Thursday 29th December 11:29

Edited by philv on Thursday 29th December 11:31

[Alpinestars]

I got a solicitor to serve the notice as I had a very difficult landlord and I didn't want to make a mistake. But it's pretty easy to do.

I did all the calculations and valuations. It's much easier if it's over 80 years as from memory it's the market value of the lease discounted back (80) years in your case and the ground rents also discounted back. The variables are going to be the discount factor (income and capital), but there are some very established rules, and the value of the property, which if it's not an unusual one should also be easy using local estate agents.

[philv]

Thanks.

OK...so only a solicitor to serve the s42.

Yes, i found the calculations for rising ground rents.
I presume i could use soem fo the myriad of online calculators to get a premium for a 0 ground rent lease.

Then use capitalisation of ground rent forumla to calculate the premimu for rising ground rents (below).

Then add the 2 figures togther to get the inal premium,
None of the online calcs take into account rising ground rents.

Thsi sort of thing in excel -

99 year current lease with 18 years elapsed -
£75.00 PA for the 1st 33 years
£150.00 PA for the 2nd 33 years
£250.00 PA fo rthe 3rd 33 years

=PV(0.0725,15,75) for the first of the three streams

=ROUND(PV(0.0725,33,150)/(1+0.0725)^15,9) for the second of the three stream

=ROUND(PV(0.0725,33,250)/(1+0.0725)^48,9) for the third of the three stream

[Alpinestars]

The ground rents' PV should be around £1500.

Add to that the reversionionary interest. Which should be c0.0192 x value today, eg, £1,921 for a flat worth £100k now.

That should be your premium to buy. The premium to extend would be slightly less as the reversion to landlord is at 81 plus 90 years for a 90 year extension.

Hope that helps.

[HotJambalaya]

The thing is that you have to pay the costs of the other side, ie their lawyers and valuations too, which really burns your p1ss. Given that, you might as well get a surveyor and valuation done anyway, since in particular you'll most likely need a proper valuation if it goes to arbitration.

But yes, all dates will be from your original notice period