What Are The Ballpark Costs To Extend The Lease?
I recently had a leasehold enquiry from a property investor looking at lease extension possibilities.
He told me:
I have come across a property in Reading – 26 Topnotch Court which is up for sale at £130K through an estate agent who makes it as difficult as possible to get in touch and talk to the owner. (Not just this property but in general.)
So far I know it has 65 years to run. The freeholder is Topnotch Developments Ltd. The service charge now is £90 per month and the ground rent is £70 per year.
I have been trying to get the term and dates of the lease, the original ground rent, review dates etc but I am being met by a stone wall. The estate agent claims that the owner is refusing to get this as Topnotch want to charge £1000 for this info.
I suspect if this had an extension this property would be worth about £150K.
My preliminary questions are 1) is it worth pursuing, 2) can you tell from this the ballpark costs to extend the lease? 3) is it worth paying money to Topnotch to find more? 4) What do you think?
My reply was as follows:
1) is it worth pursuing? I don’t know, that depends on whether this property fits into your investment strategy.
2) can you tell from this the ballpark costs to extend the lease? I could have an educated guess – but not all the facts are confirmed.
3) is it worth paying money to Topnotch to find more? I wouldn’t pay £1,000 to find out the lease details and have them clarify their view of the lease extension price. I would:
- Download the leasehold title from HM Land Registry for £3 to clarify the lease term and date, and the original ground rent. I suspect it will say £35pa … and if it is a 99 year lease, then the original ground rent will have doubled after 33 years to £70pa … and will double again after another 33 years to £140pa.
- I would then enter the information here : http://www.lease-advice.org/calculator/ to get an initial ballpark figure for the extension premium
- And here too : http://www.lease-clinic.co.uk/calculator/start and then I’d compare the two
- I’d then research on Zoopla, or wherever, to see the sold prices within Topnotch Court – looking for the price of unextended flats … and extended flats (to check your £20k margin)
What do you think? Once you’ve gone through that process, I think you’ll find the extension premium is likely to be £10k to £12k (for the full 90 years and peppercorn ground rent), to which you need to add the landlord’s legal and valuation costs (£1,500 to £3,000) and your own legal and valuation costs (similar). So you might be looking at a project cost of £148k at the top end, before any other costs such as repairs/refurbishment.
But it all depends what your strategy is – and what you’re intending to do with the flat.
Think of a lease extension as “cream on the cake”. You need to ensure the cake tastes good first; i.e. there needs to be a good reason for buying the flat in the first place – and then use a lease extension to overcome the mortgage barrier, etc.
I hope that helps.
Bernie Wales, FIoD, FIRPM, AssocRICS
If this article interested you, find out more about short leases and lease extensions here > www.BernieWales.co.uk/short-leases