A client asked me to advise as to the range of premium to extend his lease having found a purchaser willing to pay a price for him to deliver the extended lease that he had accepted. What was missing from the equation was the price to be paid for the existing lease. This is all fine providing the seller sees the lease extension through first, a 6-9 month process to complete providing the buyer was happy to wait. It soon transpired the client didn’t want to do this but pass the extension baton to his purchaser via an assigned s42 notice.
On analysing the potential sale, the agreed extended lease price indeed fitted with comparable evidence of other extended lease asking prices but not (yet) evidence of transacted long lease prices in the block.
So unless there is a seismic leap in values as the market accepts the ‘new’ prices being asked – which indeed can happen if there is a shortage of similar flats available – it will be difficult to justify the value being paid when compared to the premium to be paid to extend the lease.
Turning to the premium to be paid, generally the lower the overall capital value, the lower the premium to extend the lease. If the buyer agrees to pay a high price for the existing lease – then this will assist in raising relativity against past (lower value) long lease sales after an appropriate discount for rights has been allowed.
So how do we settle the price the buyer pays for the existing lease in that both will want to acquire the extended lease as cheaply as possible?
If the landlord was to find out the price agreed for the long lease / other marketed flats achieve the ‘new’ high prices being asked for; then the extended lease value will increase along with the premium payable as a consequence.
On the other hand if the seller agrees a high price for the existing lease, this may well indeed help with relativity after deducting appropriately for the right to the extended lease providing the rights discounted result fits with established graphs of relativity as a check (and the computation to reach the premium payable produces a positive marriage value).
If the landlord finds out the agreed long lease price / high price paid for the existing lease – this would indicate a higher extended lease be adopted to ‘fit’ and as a result a higher premium payable.
In all this leads to a wonderful circular argument that the Law Commission has been asked to consider as outlined at 4.12 of its Solutions for Leasehold Houses document referred to in last month’s blog.