Cost of extending a lease
Posted: November 22nd, 2016, 2:57 pm
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)
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)