Tag Archives: valuation

How do I calculate the premium payable to extend my lease?

There is statutory method set out in schedule 13 of the 1993 Act which shows how the lease extension premium will be calculated if you are buying a plus 90 year extension on top of the existing term of your lease.  This applies under the 1993 Act only.

 This is not so much of a ‘formula’ as an approach to a professional valuation set out in words in the Act.  You will still need the services of a surveyor or valuer to advise the likely premium that you will pay.

 An approximate indication can be found by looking at a ‘lease extension calculator’ such as the one that appears on the Bishop and Sewell website: bishopandsewell.co.uk/lease-extension-calculator/

Such tools are an approximate guide only but will give you a rough idea of the premium to be paid to extend your lease.

Essentially the premium depends on 3 things: the length of the lease, the capital value of the flat and the amount of ground rent that is payable under the lease.

Without going into lots of detail, the calculation compensates the freeholder for the loss of ground rent income, reflects the capital value of the freehold when the lease expires (i.e reflects the right to receive the flat back when the lease expires) and also when the lease has less than 80 years to run also includes an additional factor called ‘marriage value’ which recognises the up lifting value which occurs when the lease is extended. This splits the ‘profit’ which occurs when this has happened between the landlord and the tenant 50:50 taking into account the ‘term and reversion’ elements already accounted for in working out the compensation of the loss of ground rent and the capital value of the freehold when the lease expires.

How do I know what premium the tenant should be paying me to extend the lease?

If a Section 42 Notice has been served, this notice will state an offer figure. This is very much the starting point in negotiations as to the price to be paid. You should take professional valuation advice on the likely ‘fair’ premium from a qualified surveyor.

You can always use a Lease Extension Calculator to determine whether the offer seems valid, however the best way to know would be to obtain professional advice.

Even if you are involved in an informal discussion that will lead the grant of a new lease, you should ask the tenant to pay your costs in obtaining valuation advice so that a figure can be offered to the tenant and/or put to the tenant in informal negotiations.  As the statutory process requires that your costs are covered under Section 60 of the 1993 Act, it would not be unreasonable to ask the tenant to pay some or all of your legal and valuation costs.

How can I find out how much my lease extension will cost?

This is a question for a valuer or surveyor who specialises in this area, but if you know the lease length and the current value of the flat and the ground rent schedule, then you can have a go at working this out approximately by using one of the calculators available online, like this one:

http://www.bishopandsewell.co.uk/lease-extension-calculator/

These type of calculation tools come with a health warning as they are only approximate, and cannot consider the unique circumstances of your property, however they can be useful in deciding whether you can afford to go forward with the process, or more importantly if you are thinking about making an offer on a short lease property, what the likely cost will eventually be.