by The Chartered Surveyor

Question

My husband and I are looking to purchase a property in W2. It is 640 sq ft two bed flat in a mansion block. The purchase price is £485k and the lease is just over 70 yrs. We are told ground rent is £40 pa although the land registry title docs state this increases to £120, we are unclear whether this has happened yet. We would like to establish (1) what the likely premium would be for the lease renewal and (2) what the likely increase in property value would be once the lease was renewed.

Answer

Under the terms of The Leasehold Reform, Housing and Urban Development Act 1993, you would be entitled to a new lease with a length equal to your remaining 70 or so years plus and additional 90. This is a slight technicality in that you don’t actually extend your lease, yet in reality the result is the same. The lease would also be at a peppercorn ground rent i.e. nominal.

At a lease length of 70 years a property would be worth around 90% of its value in comparison with it having a long lease. So if we are going on the basis that £485,000 is the value of the property with a 70 year lease, following an extension to 160 years it’s value would be around £530,000.

What is more likely is that the property is on the market at £485,000 and the agent is taking no account of it’s current lease length. If we deem that to be true the property is worth £436,500 with a 70 year lease.

The valuation for acquiring a new lease is not as straight forward as the difference between the two values i.e. £485,000 – £436,500 = £48,500, as amongst other factors the increase in value from the granting of a new lease is shared equally between the leaseholder and freeholder.

On the information you have given me, I would estimate the cost of a new lease to be somewhere between £35,000-£40,000. You should bare in mind that you will be responsible for the freeholders reasonable costs such as solicitors and surveyors fees. This could then be deducted from the purchase price.

One final consideration is that the Act states that to qualify for a new lease the leaseholder has to have owned the property for a minimum of two years. In your scenario you would have the current leaseholder serve notice on the freeholder and assign the benefit of that notice to the lease, enabling you to complete the process once you have purchased.