Head Lease Extension

We have a leasehold property where the lease has just over 80 years unexpired. We have requested an extension from the freeholder, who has come back with an offer. The premium is about 25% higher than our valuer suggested we start negotiating at but the main issue is the ground rent, where they want £250pa with an increase every 15 years linked to RPI.

We are getting conflicting advice - our valuer says that there is a chance that even an RPI linked ground rent could make the flat un-mortgageable or unsellable given the noises coming from Government. He recommends going the statutory route where we will end up paying a peppercorn. On the other hand, our lawyer says that the recent Law Society guidelines only focus on agreements where the rent doubles every so often. He says the legal and professional costs of the Section 42 process are higher.

I need to be very cognisant of falling outside of lending guidance because the ownership structure of the flat severely limits the number of lenders as it is.

Does anyone else have recent experience with this?

Once you have been there 2 years you have a legal right to a statutory lease extension of 90 years at a peppercorn rent I think. Check with a solicitor.

Thanks, David - that’s correct, the process is under Section 42 of the appropriate Landlord and Tenant Act. My lawyer says the costs of going this way are more than the voluntary route, whilst my surveyor says landlords don’t give anywhere near the same terms on a voluntary basis.

I suppose my decision is based on the future value of £250 (plus rpi increases) per annum. In any event, I have asked the landlord to sharpen their pencil, otherwise, I will go the statutory route.

I’m surprised your lawyer says the statutory route is more expensive. My experience is that its usually cheaper as I think you can appeal to the tribunal for a determination if the seller tries to bump the price up.

I know - I think he doesn’t want the work! I have a feeling the landlord won’t want to sharpen his pencil, so we’ll be going that route anyway.