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Leasehold Property Services from Comptons Solicitors

Premium Guidance

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Premium Guidance for Lease Extensions

A premium is an amount you pay to your Landlord to buy a Lease Extension for 90 years and to reduce your ground rent to nil (a peppercorn).

It is worth noting that the 90 years extension with a peppercorn ground rent is your legal entitlement but you can reach deals with different years and ground rents outside the law (known as voluntary deals) which can vary the premium you would pay under statute. Also professional costs for a voluntary deal can be cheaper. 

The premium calculation is prescribed by statute. Like any calculation the final result depends on the variables that you put into the computation. It is important to note that on 8 January 2020 the Law Commission published a Report on Options to Reduce the Price Payable which, depending on which option is passed by Government, may reduce the premium (please click here for full report). The law change, if at all, is expected in 2021 although keep an eye on this website as this time scale is not set in stone and this page will be updated as and when we know more.

Under the current system, the variables that you include in to the calculation are:
  1. The value of your flat (and a deferment rate which in large is 5%);
  1. The ground rent that you pay each year (in relation to which a discount rate is applied);
  1. If your lease is under 80 years left to run, the increase in value your flat will receive once you extend your Lease which you share 50/50 with your Landlord (referred to marriage value and the industry refer to this part of the calculation as “relativity”).

The Leasehold Advisory Service publish a calculator here where you can work out roughly the premium that you will pay. 

In addition to the premium you are required to pay your own legal and valuation costs together with the Landlord’s reasonable legal and valuation costs. For more information on costs please see the Lease Renewal Service page on this site. You will also be required to pay any arrears of service charge. 

 
For more information:

  1. Mr & Mr own a Flat in London worth £500,000. The lease expires in 90 years time and has a ground rent of £50 doubling every 33 years. The premium range in this case would be between £7100 and £7300 plus costs. There is no marriage value payable.

  1. Mr & Mrs own a Flat in Hertfordshire worth £300,000. The Lease expires in 60 years time and has a ground rent of £20 doubling every 33 years. The premium range in this case is £28,700 and £31,600.

Keen to discuss a Premium Guidance matter? Get in touch to see how we can help.

Who to speak to at Comptons

James Compton
Partner, Head of Enfranchisement
+44 (0)20 7482 9513
jc@comptons.co.uk

Sarah Jennings
Associate Partner
+44 (0)20 3869 4464
sarahj@comptons.co.uk

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