Lease extension valuation of a flat in Bude

Lease extension valuation

Overview

We were recently instructed by the Landlord of a ground floor, 2 bedroom flat in Bude, to provide advice on the premium payable in respect of the statutory lease extension of the long leasehold interest in their property. Our Client is the owner of the freehold interest in the building and the flat is subject to a 99 year lease from 1974.

Situation

Under the Leasehold Reform Housing and Urban Development Act 1993, long leaseholders (tenants) have the right to extend their lease. The law gives qualifying tenants the right to extend their lease by 90 years, in addition to the unexpired term they already enjoy, at a ‘peppercorn’ rent; this means there is no ground rent to pay.

To be a qualifying leaseholder, you must have owned your property/long lease for 2 years and the original lease term must have exceeded 21 years when it was originally granted.

Solution

Under the Act, the Landlord is entitled to receive a premium which is made up of potentially three elements; some Landlords and Tenants prefer to negotiate the lease extension on their own terms, meaning they can agree whatever terms they decide. If an agreement cannot be reached, the statutory route is started by the service of the Tenant’s notice (Section 42 notice) and then follows a prescribed route.

In this particular case, the lease had approximately 53 years to run and the Landlord was enjoying a rather generous ground rent, with a rent review in around 20 years’ time. We calculated the diminution in the value of their interest and the share of the marriage value, which was applicable as the lease had less than 80 years to run. We did not consider there was any compensation payable for any reduction in value of any other interest held by the landlord.

Outcome

We provided our Client with a best and worst case scenario in terms of the premium payable by the Tenant, which is in addition to the reasonable cost of any professional fees incurred by them. Following our advice, we are delighted our Client has accepted an offer at the higher end of the range provided.

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