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Cost of extending a lease

Posted: November 22nd, 2016, 2:57 pm
by modellingman
I have a leasehold flat which is rented out.

There are a number of issues I'm currently dealing with related to its lease. The issue here relates to the cost of extending the lease. I'll possibly post about some of the other issues later.

I have come across this worked example for calculating the premium payable for a lease extension.

It utilises two discount rates: 8% and 5%. The former is applied to the future stream of ground rent payments, whilst the latter is applied to capital values at reversion to determine present values.

I'm happy with the calculations as set out in the worked example and know enough to be able to produce similar calculations for cases where the discount rates, length of lease and valuations are different.

My questions are:
1. Does the worked example reflect the legal rules correctly?
2. What determines the discount rates? (The premium value seems highly sensitive to the rate applied to the capital values)

Re: Cost of extending a lease

Posted: November 22nd, 2016, 11:46 pm
by NomoneyNohoney
The leasehold advisory service I believe is quite respected. They have an online calculator which gives a "suggested" premium. Their suggestion has no force, but I'd say is a good basis to work from:
http://www.lease-advice.org/calculator/

Re: Cost of extending a lease

Posted: November 23rd, 2016, 4:01 pm
by DiamondEcho
Thumbs up to LEASE^, they are a really useful and 'free' resource.

Re: Cost of extending a lease

Posted: November 23rd, 2016, 4:22 pm
by PinkDalek
DiamondEcho wrote:Thumbs up to LEASE^, they are a really useful and 'free' resource.


Agreed but the OP referred to them by way of the (hidden) link.

Re: Cost of extending a lease

Posted: November 23rd, 2016, 5:21 pm
by DiamondEcho
OIC. For guidance on current discount rates and the parameters thereof I'd go to the LVT, Leasehold Valuation Tribunal, and look at their recent Decisions in adjudicating enfranchisement/extension valuations.

Correction!: Google/wiki reveals: 'The leasehold valuation tribunals were abolished under The Transfer of Tribunal Functions Order 2013 and their functions were transferred to the newly created First-Tier Tribunal (Property Chamber) with effect from 1 July 2013'

Therefore suggest... -> http://www.lease-advice.org/faq/where-c ... decisions/
.... which will take you to the latest incarnation of what I'm suggesting.

ps. Also IME the LVT/'FTT[PC]' are very well aware of how these discount rates etc are exploited by professionals to engage in a p'ing contest whilst churning fees, and so ['the tribunal'] have increasingly become clear where the permitted extent of the boundaries on such rates lies. I'd start by looking for those rough boundaries, then reading through some Decisions, perhaps on cases similar to what your own might present, and see the nuances considered in arriving at final figures.

Re: Cost of extending a lease

Posted: November 23rd, 2016, 8:23 pm
by Greenfingerz
I have found this calculator very useful:

http://www.freeholdcalculator.com/leasehold_extension.php

Re: Cost of extending a lease

Posted: November 24th, 2016, 7:29 am
by modellingman
Thanks, all, for your helpful replies.

I will follow up the FFT[PC] Decisions to get a feel for the rates and what factors the tribunal uses to determine them in their Decisions.

The calculators are useful as a supplement to my own calculations.

DiamondEcho wrote:ps. Also IME the LVT/'FTT[PC]' are very well aware of how these discount rates etc are exploited by professionals to engage in a p'ing contest whilst churning fees


Now, why doesn't that the latter half of this sentence surprise me?

Re: Cost of extending a lease

Posted: August 10th, 2021, 1:07 pm
by realestate
It's been 5 years of this thread, and I don't know how I ended up here. I was searching for a lease and came across this and i am glad everyone got the answer.