Overview
We were instructed by the leaseholder of a residential flat in Cornwall to provide valuation advice in connection with the proposed extension of their long leasehold interest.
Following completion of our valuation, our instruction was extended to include negotiations with the superior landlord to agree the premium and principal terms of the lease extension.
Situation
The property comprised a residential flat forming part of a mixed-use building, with access via a shared staircase to the rear. The existing lease was originally granted for a term of 99 years and had approximately 54 years remaining.
The relatively short unexpired lease term meant that extending the lease was important to protect the property’s value and future marketability.
Under the Leasehold Reform, Housing and Urban Development Act 1993, qualifying long leaseholders have a statutory right to extend their lease by an additional 90 years, with the ground rent reduced to a peppercorn. The premium payable requires specialist valuation advice and takes account of a number of factors, including the value of the property, the remaining lease term and appropriate valuation assumptions.
Solution
Our RICS Registered Valuer inspected the property and undertook detailed research to establish its freehold equivalent value. This was particularly challenging due to limited directly comparable evidence, requiring careful consideration of completed sales and appropriate adjustments for the individual characteristics of the property, including its position above commercial accommodation and shared access arrangements.
We then calculated the premium payable for the lease extension, having regard to the relevant legislation, market evidence, valuation yields, relativity and applicable case law. Our report provided the client with a range of potential outcomes and a recommended opening offer.
Following our valuation, we were instructed to negotiate directly with the superior landlord on the client’s behalf. An initial offer was submitted for an additional 90-year term and peppercorn ground rent.
The superior landlord subsequently challenged the offer, referring to figures produced by online lease extension calculators considerably in excess of our recommendation to the client. We explained that, whilst online calculators can provide a useful sense check, they cannot properly reflect the individual characteristics of a property or all of the inputs required for a lease extension valuation.
Having considered the superior landlord’s response and revisited our valuation assumptions, we recommended a measured increase in the offer rather than simply adopting a midpoint between the parties’ respective positions.
Outcome
Following our advice, a revised premium was offered and accepted by the superior landlord.
We subsequently prepared Heads of Terms recording the agreed premium, the additional 90-year lease term and peppercorn ground rent, enabling the respective solicitors to progress the legal documentation.
The instruction demonstrates the benefit of obtaining specialist valuation advice when extending a lease. Our involvement went beyond establishing the premium: by combining detailed valuation analysis with negotiation advice, we were able to guide our client through the process and achieve an agreed outcome on favourable terms.
If you are considering extending the lease of your flat, our RICS Registered Valuers can provide clear, independent advice on the likely premium and support you through negotiations.
Valuations – Vickery Holman to learn more or discuss your requirements with our team.
