Disputes on Costs to Extend a Lease

Video explores your options if there is a dispute on the costs to extend a lease. How to calculate, what to do and the Leasehold Advisory Service and First Tier Tribunal.

Transcript:

“Hello there, subject for this video is: disputes on costs to extend the lease.

I've already in a previous video giving you details, rough details, of how the costs of extending a lease are worked out.

Fundamentally there are there are four elements to the calculation:

1. Is working out the value of the lease itself, in terms of let's say: you’ve got a lease for 70 years and the rent is a £100 per annum.  How much would an investor have to invest to get a guaranteed income of £100 per annum for 70 years?
2. The second element is what's known as the ‘reversion value’.  It’s if the lease runs to term and it runs out, effectively what is the residual value of the land? and then
3. The third element of the calculation is the reduction in the freeholder's interest in the value of the land and property. So to give you are a for example here let's say you got a 70 year lease and you extend it by a further 99 years well, freeholder's interest has been reduced because they're not going to be able to get at that land or use that land or the buildings or anything else for a further 99 years on top of what they've already got. So their interest is being reduced.  There is a value to that and then
4. The fourth element is called the ‘marriage value’. And the marriage value is how much is the property worth today without the lease being extended? Versus how much is the property worth in the future with the lease having been extended?

So those form the basics of the calculation for how much the costs are to extend the lease.  But, there can be clearly disputes.  There can be a dispute between what the freeholder's surveyor makes assumptions for/on reversion values, future values etc. and loss of interest, costs of investment versus what your own surveyor may suggest is a reasonable valuation for extending the lease.

Now, if there is a dispute there used to be an organisation called the Leasehold Valuation Tribunal service.  Now, that has now been replaced by a government supported body called the Leasehold Advisory Service and their website is www.lease-advice.org,so there’s a plug for them, but on there [it] gives all of the details of what happens.  But the ‘long and the short’ here is if there is a dispute and you cannot reach agreement you can go to the leasehold advisory service, it does form part of the UK courts [system] and what would then happen is your professional advisers, your legal advisers, would make a submission to the court.

It's what's known as a ‘first-tier Tribunal’ within the property area of the courts and the courts will make a decision. You make representations of what you consider the value of the property is and the freeholder may make their representations of what their valuation [is] of extending the lease is.

So there is a dispute procedure via the Leasehold Advisory Service.

[So] just to summarise, I’ve already given at the start of this video and then also in a separate video how the basics of calculating how much it costs to extend the lease.  But, if there is then a dispute there are procedures in place via the leasehold advisory service and the first-tier Tribunal route for effectively, the courts to make a decision on what is a fair value for extending the lease.

[And] if you believe that you are being treated unfairly or your freeholder is asking perhaps more than what your own professional adviser’s suggesting they may be that you have to go down that route. So that's ‘disputes on extending the lease’ and the costs of and where you can go to, to get some help.  If you've got any problems or any questions, as ever, please do contact us.  Thanks very much for watching.”