Selling a Property with a Short Lease – Case Study

Lease Extension in London

Earlier this year Perry Hill were instructed to carry out a lease extension in Isleworth for the leaseholder. Below we explain how Perry Hill was able to save the client a total of £25,000 for a statutory 90 year lease extension at nil ground rent.

Selling Property with a Short Lease

This was job was a low lease and the property in question had circa 16 years unexpired on the lease. The property was inherited recently and the leaseholder wanted to put to sell the property as quickly as possible, this could only be carried out after a lease extension had been completed.

Low leases require a different approach to be used, this particularly due to the large sums of monies expected for the lease extension and the freeholder would be keen to negotiate hard because they know at the end of the term, they will be acquiring the property at no cost.

The executors of the estate served a section 42 notice; this reserves the leaseholder’s right to a 90 year lease extension at nil ground rent under statute.

This was a particularly interesting case due to the nature of the low lease and calculating the existing lease value. There are a number of methodologies that can be used; these methods are the graphs of relativity, real world evidence of similar comparable properties on similar lease terms and investment value.

Lease Extension Outcome

In this particular case the investment value was deemed the most appropriate, as this incorporates both what an investor would pay on the open market for a property with a low lease, providing a certain level of income via rent and a “no act” world.

The investment method is effecting via an experienced surveyor, is valuing the Market Rent for the property assuming an Assured Shorthold Tenancy, deducting an appropriate percentage to include vacancy rate and 10% for management of the property.

This value would be then capitalised at 7%. The 7% represents the rate of return when compared to the Capital Value of the property assuming a short lease. This is an effective away of calculating the existing lease value, as there would be no further deductions for a “no act” world, which is a contentious issue currently in leasehold valuations with the recent Sloane v Munday case. Between the surveyors it was decided that the investment valuation was an appropriate method for calculating the existing lease value as there was no real world evidence available.

Using this way of thinking, Perry Hill are delighted to state that they saved the client a total of £25,000 for a statutory 90 year lease extension at nil ground rent.

Lease Extension Services from Perry Hill

Perry Hill Chartered Surveyors successfully help homeowners each year in extending their residential Leaseholds. Our industry-recognised surveyors save our Clients time and money by helping with the burden of negotiating complex residential Leasehold negotiations.

Find out more about Lease Extensions and contact a member of our team today to discuss your options.