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Do you know what the current ground rent of the lease is? It's not possible to determine the premium without knowing this.
If say, the ground rent is £100pa, I estimate the premium to be between £14.5k and £16k using https://lease-extensions.org.uk/calculator.html
All landlords try to maximise the gains out of lease extensions, so it's very common to pay at least 20% more than the estimation if you do not choose the statutory route for an extension. The issue is that if you do choose the statutory route, legal fees can end up being at least £3k, where as it would be £500 through the informal route. Take this into consideration.
Personally I wouldn't be offering more than £85k for the flat, depending on the ground rent.
Ashley ConnellLease Extension Solicitor at Hetts
Thank you Ashley for the extra advice, I believe the ground rent was £10 per annum. I am guessing based on what you say about landlords increasing the cost, it is highly likely I would have to go down the statutory route to minimise the cost. If I did this can the Landlord still increase the ground rent cost to whatever rate they wanted?
No, under the statutory route, the landlord will have to reduce the ground rent to nil.
With ground rent at £10pa. I estimate the premium to be £13.5k to £14.5k.
Flats being advertised for sale with a short (~ 50 year remaining) leashold are common in my local area. They are difficult to sell as (unless the lease is extended) only cash buyers can purchase them. To get an accurate price extend the lease ask the seller to request a quote from the leaseholder (our quote cost £200 but the fee should come off the renewal cost if you proceed).
Advice I was given was to ask the seller to extend the lease as part of the sale, beware a new owner has to wait 2 years before they can apply to extend the leasehold (rules may have changed in the couple of years - check the current situation). Check carefully as the renewed lease may included unwanted changes - the last one I looked at groundrent jumped from £10/year to £100/year, and a new clause was added to automatically increase it (memory is poor, maybe +25% every 10 years).
In your case and valuing it as £105k when completed - £5k kitchen - £5k bathroom = offer £95k *if* the seller purchases the freehold as part of the sale and reduces the £95k to pay for it (ie £75k for flat + £20k for lease extension). This is well below the asking price so be prepared to walk away and look for somewhere else. Review prices in the area, is the seller valuing it too high, or or you valung it low? Any sold properties to compare with? Lots to consider.
The two year period still applies, but you can have the seller serve a section 42 notice and assign the rights to the buyer. This allows the buyer to extend after completion at any time, provided the notice is not invalid.
The property has just popped up in my email inbox, now reduced to £78,000.
Plucking figures from the sky, I guestimate resale cost + resale fees £109,000, take off £10,000 refurb/tidy, £23,000 lease extension + fees. Gives a purchase price of £76000 to break even. I am a virgin when it comes to property investing. How much monitory value would one factor in to an offer for the lease variables and possible problems. Obviously something could crop up with the lease extensions making it unviable, at which stage I would have incurred costs, so there has to be a percentage deducted from any offer to make the risk worthwhile. I appreciate this figure is a completely personal one to us all, but I have no gauge whatsoever to judge against, due to my complete lack of knowledge about lease extensions and their difficulties.
All advice would be gratefully received thank you.
Hi Tom, you are asking same questions i would be, how to value the cost + time + hassle of the refurb (and the risk of finding unknown problems once you start) or problems trying to renew the lease ? You also need to consider the "standng costs" (services, council tax, etc) for the time it takes you to get the work done.
If I had a choice between a property needing work and a more exensive renovated property, I'd want to make sure he difference in price made the work worthwhile - otherwise just buy the renovated one and save a lot of stress. A lot is down to personal choice and how you value your time & effort.