Worried about the effect of doubling ground rent on extending or selling?

by Readers Question

10:00 AM, 9th April 2017
About 2 years ago

Worried about the effect of doubling ground rent on extending or selling?

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Worried about the effect of doubling ground rent on extending or selling?

I’m in the process of purchasing a maisonette with ground rent doubling every 25yrs and will be £4,000 in 100yrs. I appreciate £4,000 will probably be £400 of today then but won’t this affect the cost of extension in 40yrs when it’ll be down to 80yrs?

The current term is 122.

I’m worried about the effect on extending or selling on. Ground rent will be £500 from 2039.

It’ll be grateful to read your opinions.

Thank you.

Dami



Comments

Ian Cognito

9:56 AM, 10th April 2017
About 2 years ago

Hi Dami

If the starting Ground Rent is an acceptable figure, then you should be quite content with a doubling every 25 years which equates to a compound increase of 2.81% per year. If you are borrowing, this will be acceptable to a lender (who will want to be sure that the scale of increase will not make the property unsaleable),

Personally, I like a doubling every 25 years. It is unambiguous and should not lead to protracted and costly negotiation/dispute. Also, on a 125 year lease, the timely notification will grab the attention of other leaseholders which should make it easier to explore lease extension or buying the freehold.

Dami Ade

12:17 PM, 10th April 2017
About 2 years ago

Reply to the comment left by "Ian Cognito" at "10/04/2017 - 09:56":

Thanks Ian.
They're about 12 other leases in this freehold title and only this one and another have been extended since the original lease was granted in the 60s.
Will it be financially beneficial to seek to extend under statue now or wait till another 10years when I'm looking to sell? I worry that it'll put buyers off at that point. Two buyers already pulled out of purchasing this property in the past year.

About how much will it cost to extend under statute or to buy a share of the freehold?
Thank you.

Laura Delow

15:46 PM, 10th April 2017
About 2 years ago

You are only entitled to extend under formal Section 42 Notice after owning the property for 2 years. In 10 years time when you state there will be 80 years left on the lease, under current legislation //Section 42 formal notice, the minimum extension is an extra 90 years with no ground rent payable aka as a peppercorn ground rent.

Dami Ade

15:53 PM, 10th April 2017
About 2 years ago

Reply to the comment left by "Laura Delow" at "10/04/2017 - 15:46":

I understand I can extend under s.42 if I negotiate that with the seller now.
If he serves the notice he can assign it to me. If I don't go down that route I need to know how much it's likely to cost me.
In 10 years it'll be 110 years left.

Paul Green

11:46 AM, 11th April 2017
About 2 years ago

I wouldn't let the lease fall below 83 years, so start 6 months before hand. At 83 years you really notice the price difference and 80 years and below
left on a lease the costs really rockets....80 & below and they have you. See link below for estimates and a good layman's explanation. http://www.moneysavingexpert.com/mortgages/extend-your-lease

Dami Ade

12:29 PM, 11th April 2017
About 2 years ago

Reply to the comment left by "Paul Green" at "11/04/2017 - 11:46":

Thanks Paul. I won't hold it that long. It has about 120yr left. The only reason I'm considering extending is cos of the high ground rent increments.


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