Lease extension premium?

Lease extension premium?

0:02 AM, 31st May 2023, About 9 months ago 12

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Hello, I am in process of selling a 1 bed flat and need to extend the lease. The lease has approx. 53 years to run.

The flat is valued at around £170,000.

The lessor has proposed a premium of around £28,000 for an extension of 72 years.

Is it usual/possible to negotiate the premium?

Does the premium amount look reasonable?

Thank you,

Malcolm


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Comments

Hitesh

9:30 AM, 31st May 2023, About 9 months ago

Little or limited knowledge in this area.
But the offer seems good in principle especially as opening FIRST offer.
This would make virtual freehold I guess as 125 years
I would look at my initial cost of the flat knowing that you have 53 years lease pending = to say £3333 PA
By paying the £28 will reduce cost to circ £1700 PA cost
Mine is purely logical approach. At least can pass the flat in will to family or whomever. 125 years is long time.
Also will be easier to sell or pass on later as can get finance / mortgage
If was me I would counter offer £20k and hope to meet half way point.
In any case do buy the 73 years as will I increase your holding.
Please note lots of new legislation around this area so be mindful and seek advice. But above is my opinion only and am not qualified.

Simon Lever - Chartered Accountant helping clients get the best returns from their properties

9:49 AM, 31st May 2023, About 9 months ago

A simple calcualtor provided by the Leasehold Advisory Service will give you an initial idea if the level is about right.
https://www.lease-advice.org/calculator/
This obviously is not definitive but will be a good place to start.

Dennis Forrest

9:49 AM, 31st May 2023, About 9 months ago

You should be aiming for a Statutory Lease extension which the freeholder cannot reject. This gives you a 90 year lease extension and a peppercorn rent. Even the mention of this to your freeholder should produce a better offer. Less than 80 years left on the lease and the freeholder is entitled to marriage value which is 50% of the increased value of your flat with a longer lease. So your flat need to be going up by 2 x 28,000 = £56,000 or £226,000 for a new revised value of your flat. This will give you a good idea if the lease premium is reasonable

Stephen Reynolds

9:50 AM, 31st May 2023, About 9 months ago

It is possible to negotiate and if this fails there is a process involving surveyors / valuers to determine a reasonable price for the extension. Negotiations are preferable as you will be responsible for any costs incurred during the valuation process. I'm helping an elderly friend negotiate a lease extension at the moment. 57 years to run on a flat valued at c£350k and the freholder wants £70k to extend just back to 99 years. We will probably go down the valuation route. There are lots of online lease extension calculators but they give wildly varying figures so not sure how useful they really are. I recently did an extension for my leasholder/friend to 999 yrs on a £1.3M flat for the transfer of a car parking space.

Kizzie

10:33 AM, 31st May 2023, About 9 months ago

Reply to the comment left by Stephen Reynolds at 31/05/2023 - 09:50
Do you hold a share of freehold interest in a Management co.
If you do then there is usually no premium payable for the extension itself other than standard legal costs, valuation and land registration

Judith Wordsworth

10:34 AM, 31st May 2023, About 9 months ago

Most leasehold lease extensions are by a Deed of Variation to 999 years, quicker and easier than a Surrender and Re-Grant, and Ground Rent amended to an annual Peppercorn.

There is a formula for the price of a lease extension as a starting place but this is why people buy up freeholds, and to get commission on Buildings Insurance and building works.

Shame you've not bought a share in the Freehold as would cost you £0 to extend the Lease, bar solicitor (if you needed on) and HM Land Register fees.

Dennis Forrest

11:00 AM, 31st May 2023, About 9 months ago

Reply to the comment left by Judith Wordsworth at 31/05/2023 - 10:34
Buying the freehold is good but you normally need at lease 50% of leaseholders to agree.

Tony Phillips

16:05 PM, 31st May 2023, About 9 months ago

I'm in a similar situation and currently 'negotiating' ...its painful as the FH is difficult to get hold of and responds s l o w!

Freeholder says FH is worth £60k. I countered with a really low offer of £30k CASH! He replied its worth £60!

I am literally going to try the 'meet me half way' tactic and go to £45k. If he repeats £60k. I will ask politely if there ANY wriggle room innthe price. Might save me £5-10k who knows???

My final ploy will be to agree the £60k with £30k cash down (which will leave me skint!) And pay the rest over 2-3 years (interest free) and we each pay our own legal fees!! He retains the FH till Ive paid in full. And we have a simple conract agreement drawn up.

If my negotiation stratergy fails I'll have to bite the bullet and take a loan which probably will difficult as Im 67

Puzzler

20:18 PM, 31st May 2023, About 9 months ago

All of you - please read the following

https://www.lease-advice.org/advice-guide/lease-extension-valuation/#:~:text=In%20cases%20of%20lease%20extension%2C%20it%20can%20generally,as%20to%20how%20much%20the%20value%20will%20increase.

New or extended leases do not have ground rent by the 2022 Act (unless by private treaty when it can only be held at the current rate for the term of the original lease)

Get a valuation and if you cannot agree you can go to the tribunal who will decide. The 999 years is not enacted yet and not necessarily the most common.

Start with a leasehold specialist solicitor

@Tony, there are certain requirements for a property deed that mean you can't just dream up a contract which doesn't adhere to them

Tony Phillips

0:18 AM, 1st June 2023, About 9 months ago

Reply to the comment left by Puzzler at 31/05/2023 - 20:18
Hmmm. Puzzler! Forgive my ignorance on property deeds. My logic was a simple contract (If the freeholder agrees that is..and thats quite a big IF!) why would that not be allowed.

Ie FH wants £60k. I give him £30k up front. I pay the outstanding £30k over 24/36 months. He holds onto the FH as security but with a legal contract between us agreeing to sign over the FH once Ive paid in full.

Surely that's possible?

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