If you’ve approached your landlord for a lease extension and they’ve responded by suggesting they will put your lease back to (say) 99 years and increase your ground rent, should you accept their offer?
Firstly it is worth using a lease extension calculator such as the one on this website to work out what a lease extension would likely cost if you were to exercise your rights under the Leasehold Reform Housing and Urban Development Act 1993.
It is important to remember that the cost of a lease extension under the 1993 Act may not be directly comparable to a lease extension outside of the Act. Where the lease is extended under the Act you are guaranteed a new lease that is 90 years longer than your existing lease, paying no further ground rent. If the landlord’s offer is on entirely different terms one would not expect the price to be the same.
If the landlord’s offer to extend the lease back to 99 years and increase the ground rent is cheaper than an extension under the 1993 Act then that is a good sign as the landlord is offering less in return for your money. Remember that if your landlord is increasing the ground rent that you will be putting more money in their pockets in the long term.
Technically, to compare the non-statutory deal with a lease extension under the 1993 Act you would have to work out the present value of the additional ground rent and then subtract that value from the compensation the landlord is entitled to in respect of the devaluation of their reversionary interest. If that doesn’t make sense its time to speak to a valuer for advice.
Ultimately whether you decide to accept the landlord’s offer may depend on your circumstances. If you are looking to sell your flat then you might not be as concerned with getting good value for money as you are with the bottom line. Provided the proposed increase in ground rent doesn’t put buyers off and that you can still sell the flat for at its full market value, it would be worth considering any deal that is cheaper than a statutory lease extension.