Posts Tagged ‘legal’

Extending a leasehold, Section 42 and the LVT

Tuesday, October 4th, 2011

I recently completed a leasehold extension which involved issuing a Section 42 notice and applying to the Leasehold Valuation Tribunal. It was a long process but now that it is over I can share an account of what happened.

leasehold extension

If you have bought a property in the UK there is a high chance that you have bought a leasehold. A leasehold is like a very long term rental. Instead of renting for 6 months you are renting for 10s or hundreds of years. The ultimate owner of the land or property is the freeholder. If you own the freehold, or a share of the freehold you will never have to worry about extending the lease (because you own the land/property, and are not leasing it).

In this post I’m going to give real figures for the surveyor and solicitor costs for both sides, but I don’t want to reveal the actual property value or premium amount. I will however give re-scaled figures. I am going to use the diamond symbol ⋄ as my unit, and have re-scaled all the premium costs based on the property being worth 100,000 of this units at the time the process was started– so ⋄100,000.

You can quickly turn the premium estimates and valuations into percentages of the property price by dividing by 1000.

The rough lease extension process

In order to extend a lease you will have to pay your own surveyor and solicitor costs, as well as your freeholder’s costs.

If the lease is less than 80 years in length you will have to pay the freeholder 50% of the marriage value. The marriage value is the increase in property value as a result of extending the lease.

You can come to an agreement without invoking the Section 42 process if both sides are happy with this. But in many cases both sides don’t agree, so the statuary Section 42 process will need to be invoked.

Issuing a Section 42 notice to the freeholder will force him to give you valuation, and it mandates that the process and outcome follow a standardised set of rules. These include fixing the time scales by when each side has to respond, the terms of the new lease, and the right for the leaseholder to take the case to the Leaseholder Valuation Tribunal if no agreement can be reached.

If the LVT stage is necessary then each side will be responsible for their own costs for this stage.

Initial enquiries – July 2009

I’d owned my property for about 8 years and had been aware of the lease length slowly ticking down. It had got down to about 67 years before I first did something about it.

I sent an initial letter to the freeholder asking him for a rough figure as to what it might cost. He replied a week later saying that I would have to pay for his surveyor costs (£850+VAT) to get a proper valuation, but he guessed it might be around ⋄8600. This would not be for a 90 year statutary lease extension, this would be for a negotiated extension whereby the existing lease would be surrendered and a new 125 year would be granted.

There are several problems with going down the negotiated route.

  1. The freeholder can give you any valuation he likes. Even though he guessed ⋄8600 in his letter he could well come back with a figure of ⋄15000 later on. By which time the £850+VAT valuation fee has been paid. And this valuation is not necessarily valid for the S42 process – you may have to pay the freeholder’s valuation costs again if you then decided to abandon the negotiated route and go down the S42 route.
  2. The negotiated lease could contain clauses that are unreasonable.
  3. It is likely you would have to agree to a rise in the ground rent.

Forming a group – February 2010

I did nothing more until the next year when one of the other residents in my building sent round a letter asking if anyone was interested in joining him in extending their leases in a group to save on surveyor / solicitor costs.

This seemed like a good idea so I sent him my name. He had already contacted a surveyor and solicitor that he recommended we use. There were 4 people with 5 flats originally in the group, but one dropped out later. The core group was 3 people, with 4 flats between us.

Surveyor valuation – May 2010

The first step would be the surveyor’s valuation which would cost £587.50 each. I had to give him a £100 deposit to commit. By the end of March we had all committed and his visit was scheduled for May.

When he visited he looked at the existing lease and made some notes about it. Then he looked around the flat and took some measurements. After he’d been to all our flats we all had a drink together and he told us about the process and answered our questions.

Two weeks later we received his valuation. He estimated the cost of a statutary lease extension at ⋄7500. He recommended we put in an offer at ⋄5800. And he predicted that the freeholder might try to seek a figure of around ⋄9300.

Issuing the Section 42 notice – July 2010

Around the time the surveyor’s valuation was carried out I arranged for the solicitor to make an ordinary power of attorney (PoA) so a relative could act on my behalf whilst I was away in Japan.

In June the solicitor was given the go-ahead to issue the Section 42, and in July the notice was served – it was signed by a relative using the PoA.

Once the Section 42 is served the freeholder has two months to respond. And once the Section 42 has been served the freeholder can insist on 10% of your offer price being put on deposit with your own solicitor. As my offer was for ⋄5800 this meant I had to send a ⋄580 deposit.

A month later in August the freeholder responded disputing the validity of the Section 42 notice as it had not been signed by me personally. I had to send over a new signed Section 42 notice from Japan which had to be re-served on the freeholder. This unfortunately resets the two month period.

Valuation received from freeholder – October 2010

In October 2010 the counter notice was received from the freeholder. His valuation was ⋄11100, much higher that even the surveyor’s expectation of what the freeholder might ask for.

Negotiation

Now that the counter notice had been received there were three options.

  • Give up!
  • Come to a agreed price by negotiation.
  • Take the matter to the leasehold valuation tribunal. They can made the decision on the fair price for you.

An application to the leasehold valuation tribunal (LVT) has to be made within 6 month of receiving the counter notice from the freeholder.

That meant there was about 5 month of negotiating time left before we felt we needed to get the LVT application ready (best not to leave it to the very last minute!).

Over a month later my surveyor managed to get a copy of the freeholder’s surveyor’s calculations. But the freeholder’s surveyor remained fairly elusive and non-responsive for the next 4 months. Although both surveyors occasionally communicated little common ground was found. Much of the disagreement seemed to centre on what percentage to use for the ‘relativity’ in their calculation.

No offers or counter offers were made during this time. Occasionally I would email the surveyor for news, and after waiting 2-4 days he’d reply saying there wasn’t much to report.

The surveyor estimated that if this went to tribunal his costs would be around £1500. And we would have to pay for our solicitor to attend the tribunal as well – the solicitor never gave an estimate of his costs for attending the LVT.

Application to the LVT – March 2011

It reached March 2011 and the 6 month deadline was looming so we asked the solicitor to make the LVT application. 10 days later the LVT acknowledged that the application was in their system.

In April the LVT issued some written directions stating when the freeholder must send the draft lease for us to look at, and a suggestion that the hearing take place between June and August 2011.

Lease terms agreed – May 2011

In May the solicitor contacted us to say that the terms of the draft lease had been agreed. This is referring to the wording of the lease, not the premium. That was still very much unresolved!

An offer from the freeholder – May 2011

At the end of May, to our surprise, we received an offer from the freeholder. He would agree to settle for ⋄9300. This was much lower than his original offer of ⋄11100, but still a lot higher than my surveyor’s estimate of the fair value being ⋄7500.

Agreement – June 2011

In June the final premium of ⋄9300 was agreed. The agreement was signed by a relative using the PoA which had earlier on invalidated the initial S42. The money was transferred in July, and the final lease, and Land Registry documents were received at the end of August.

Leasehold extension timeline

Here is the timeline of events.

leasehold extension timeline

Here is the same timeline shown as a list.

  • 01/03/2010 Surveyor contacted
  • 31/03/2010 Surveyor given go ahead for valuation
  • 27/04/2010 Solicitor asked to prepare Power of Attorney
  • 04/05/2010 PoA ready
  • 11/05/2010 Surveyor valuation visit
  • 24/05/2010 Surveyor valuation received
  • 24/06/2010 Gave go ahead for solicitor to issue S42
  • 20/07/2010 S42 served on freeholder
  • 02/08/2010 10% deposit transferred
  • 18/08/2010 Freeholder disputes validity of S42
  • 23/08/2010 New S42 served on freeholder
  • 13/10/2010 Freeholder’s valuation received
  • 19/11/2010 Surveyor receives freeholder’s calculations
  • 07/03/2011 Asked solicitor to make LVT application
  • 17/03/2011 LVT acknowledges application
  • 15/04/2011 LVT issues written directions
  • 17/05/2011 Terms of draft lease agreed
  • 27/05/2011 Surveyor mentions possible offer to settle
  • 15/06/2011 Premium is agreed
  • 07/07/2011 Lease extension completion
  • 19/08/2011 New lease and Land Registry docs received

Lease extension cost breakdown

These prices include VAT. I haven’t included the £111.63 power of attorney, as this isn’t required in normal circumstances. I only had one arranged as I was going to be out of the country for a long time.

My surveyor

£587.50 – Valuation (based on 5 flats)
£600.00 – Negotiation (based on 4 flats)

My solicitor

£44.00 – Land Registry search for issuing Section 42
£60.00 – Issue the Section 42 notice (based on 4 flats)
£50.00 – Fee to ‘protect our position at the Land Registry’ for S42
£300.00 – Submit LVT application (based on 4 flats)
£300.00 – Dealing with new lease after issued by freeholder (based on 4 flats)
£50.00 – Land Registry fee for registering the title
£4.00 – Miscelaneous Land Registry search fee

Freeholder’s costs that I had to pay

£1057.50 – Surveyor
£1085.00 – Solicitor
£1.55 – Special delivery fee

Estimates vs valuation vs final price

This graph shows how the estimate, valuation and final price varied.

leasehold extension estimate vs final premium

Conclusions

The whole process took about a year and a half to complete and used £4139.55 in costs (surveyor/solicitor). The premium was another ⋄9300 on top of this (or 9.3% of the current estimated value of the property).

A lease extension is certainly an expensive and time consuming process.

It isn’t too complicated if you leave everything up to your surveyor / solicitor, but it may be best avoiding it in the first place by not buying a property with a short lease.

How to get an ordinary power of attorney

Friday, May 7th, 2010

There are two types of power of attorney (PoA) in England. There is a lasting power of attorney (which replaced the enduring power of attorney), and the ordinary power of attorney.

power of attorney 1

The lasting power of attorney can be used to grant someone the power to handle your financial, property and health affairs if you are no longer able to deal with them yourself due to ages / illness / reduced mental capacity.

I’m not going to talk about the lasting power of attorney. I’m writing here about the ordinary power of attorney. I’m no legal expert so make sure you consult a proper solicitor before arranging anything, but maybe my experience will help you.

The ordinary power of attorney is a much more limited power, which can be used for very specific purposes. For example:

  • Allowing a relative or trusted person to handle specific aspects of your finances if you go abroad.
  • To allow someone to carry out a specific transaction on your behalf.

Arranging one is very simple.

First find a solicitor. You can use the Law Society Find a Solicitor site to search for one.

You don’t actually need to find one near you as there is no need to meet up with the solicitor to arrange this. In fact you may find that if you use a solicitor in a ‘cheaper’ part of the country you’ll get a better rate than one in London for example.

Once you’ve picked a solicitor you should get a quote. You’ll need to tell them exactly what you want by phone or email. Sometimes email has advantages for these kind of dealings as what you want is in writing, and you have a record of your communications.

You’ll need to ask for something such as “an ordinary power of attorney to allow my father to arrange a lease extension for my flat”.

The solicitor should be able to give you a price – and in usual solicitor fashion they’ll probably quote it without VAT so you’ll have to take that into account. When I arranged an ordinary PoA I was quoted a figure of £95.00 + VAT. Which is £111.63.

If you are happy with the price give the go ahead. At this point you are committed to paying for the solicitor’s service.

The solicitor will need the full names and addresses of yourself, and the person whom you are granting the power of attorney to. This person is known as the ‘attorney’. You should also re-state what the scope of the PoA is.

You solicitor will then prepare the document. This will take them literally about one minute to do as all they do is to fill in some gaps on a PoA template. They’ll then probably post it to you.

When you get it you’ll probably see it is just a single page of A4 paper. First check that all the details are correct. Then you’ll need to sign it in the presence of a witness, who will also need to add their details to the form.

power of attorney 2

You’ll then need to post the form back to your solicitor. They may also ask you to send them some photocopied proof of your address and identity (such as a bill, passport, or driving licence). They’ll probably want your money as well at this point.

Then once they have received it they’ll check that you’ve filled it in correctly, photocopy it for their records, and send the original one back to you.

And that’s it. If the solicitor is efficient the whole process might be completed in about a week – and the only reason it takes this long is due to the posting of documents back and forwards.

It isn’t difficult to arrange, you can do it all by email and post. And at the end of it you get a single sheet of A4 paper for a cost of over £100. But if that piece of A4 paper allows you to do what you need it could be worth it.

Other options

If you want a cheaper option than going with a solicitor you can get off the shelf ordinary power of attorney forms from clickdocs and Desktop Lawyer . I can’t however vouch for what they service is like, or how easy their forms are to use.

Certainly if you are willing to pay the money to use a qualified solicitor arranging an ordinary power of attorney is very straight forward and quick.

Certified copies of documents for £7

Friday, April 18th, 2008

I was recently sent a letter from a company I have an account with telling me that I needed to provide them with certified copies of two documents in order to verify my identity.

A certified copy is a photocopy of a document (such as passport, utility bill, birth certificate) that has been verified as being true by a person who holds a certain position of responsibility. This person could for example be a solicitor, notary, teacher, bank manager or post master.

Certified copy document statement

I’d heard that it is possible for solicitors to do this service for about £2. However when I contacted three local solicitors (all in London) for quotes they all gave me a price of £70-£80 for certifying two A4 copies. Anyone know where those £2 solicitors are? Not in London it would seem.

Instead of paying these rip-off prices I found out about the Post Office Identity Checking Service. For a fee of £7 they will check up to three different documents and certify the copies of them.

Not all Post Offices offer this service so I checked online and went to one that did. When I got to the counter and asked for the service it seemed obvious that they don’t provide it very often. The guy behind the counter had to study the application form carefully before he worked out what to do.

They check your documents, write “this copy is a true likeness of the original” on the copies (you need to bring your own photocopies), sign the document, and then stamp it with their standard Post Office ink stamp.

The copies are now certified and ready for whatever purpose you needed them for.

This is a useful service that I hadn’t heard of until now. You may be able to certify your copies for free (if you happen to know a teacher or doctor who would be willing to do it), or for as low as £2 (if you can find a solicitor who will do the service for such a low price). However it is convenient to know that you can get this done in the Post Office without an appointment for a fixed fee.

Tips and advice for buying windows

Friday, March 21st, 2008

After recently buying some windows myself here are some tips that I have put together. This advice is aimed at people living in Britain but much of it applies for where ever you may live.

1. If you can, inspect windows previously installed by the company. The window company may be able to provide addresses of people whose windows you can view. Make sure you are satisfied with the way they look from both the inside and outside. If you can’t arrange to see actual windows then ask to see detailed photographs or a brochure of their work. Try to agree with the company (in writing) that your windows will look as good as the ones you see – they are bound to show you the best ones!

2. As well as inspecting the windows you should ensure you are happy with the mechanical operation of the windows. Try opening all the different types of windows (e.g. if there are large and small windows open both of them) and testing any handles or locks.

3. Check what guarantee the company offers. A guarantee is legally binding and provides rights in addition to your statutory rights. Check if the guarantee is “insurance backed”. This will protect you if the window company goes out of business. Make sure that you get the guarantee in writing.

4. The language used on quotes is often quite technical. Ask for explanations of any technical terms that you don’t understand.

5. Check if the quote includes repairs to the window-sill and repairing / repainting any damaged areas of the window frames. If your TV aerial is routed through the windows make sure that they can take it into account.

6. If you are going for double glazing find out how easy it is to replace the double glazed sealed units. They have a limited lifetime (often 5-10 years) after which the seal may fail and condensation may build up inside.

7. Get multiple quotes – if possible contact a minimum of three companies and compare the quotes.

8. Try to pay only a small deposit. Ideally paying as much as you can after the work has been completed. This will give you more bargaining power if there are problems with the windows. For example, if there are problem you may be able to withhold some of the balance until the problem is fixed. The Trading Standards web site explains how you can do this.

9. Before handing over the final balance inspect and test all your windows. If you can avoid having to pay too soon after the windows are completed, you may get lucky and be able to see how your windows perform during wind and rain.

10. Ask the company what problems previous customers have had with their windows and how they dealt with them. Ask if they can give you details of previous customers that you can contact for references. Be aware that they are likely to give you details of happy customers.

11. If you run into problems then there is legislation protecting you such as:

  1. Sale of Goods Act 1979
  2. Supply of Goods and Services Act 1982
  3. Sale and Supply of Goods to Consumers Regulations 2002

12. Further advice can be found at:

  1. http://www.tradingstandards.gov.uk
  2. http://www.consumerdirect.gov.uk
  3. http://www.adviceguide.org.uk (Citizens Advice Bureau)

You may wonder if it is worth going through all these steps. Think about how much the windows will cost. Replacing a number of windows could end up costing as much as a small car (or maybe a bigger car depending on how many get replaced). Would you buy a car without thoroughly researching it, reading the brochure and taking it for a test drive?