Property - short leases remainding
Discussion
Looking to buy my first pad. Found a great place which is about £30k lower than similar places due to 'only' having 77years left on the lease and the owners want a quick sell.
I don't know a huge amount about leases, but the estate agent said that I'd have to live there for 2 years to extend the lease (I intend to stay for 18months max)? That true?
Surely at 77 years remainding there is no rush to renew the lease?
Any decent online resources for reading up on leases etc?
Cheers :)
I don't know a huge amount about leases, but the estate agent said that I'd have to live there for 2 years to extend the lease (I intend to stay for 18months max)? That true?
Surely at 77 years remainding there is no rush to renew the lease?
Any decent online resources for reading up on leases etc?
Cheers :)
The only reason to renew the lease is because some people don't like 'short' leases.
Best bet is to buy it, and get the lease extended. I've never heard about the 2 year thing, but I have been told that to extend a lease costs a few hundred quid - well worth it for the £30k saving.
If you have to stay 2 years then rent it out for the ast 6 months.
Best bet is to buy it, and get the lease extended. I've never heard about the 2 year thing, but I have been told that to extend a lease costs a few hundred quid - well worth it for the £30k saving.
If you have to stay 2 years then rent it out for the ast 6 months.
I think (not sure of course) that the estate agent is talking bull, get them to work for their money and find out for you
The lease renewwal cost is set by the free holders so you need to get in touch with them to get a definitive answer. FWIW I've just bought a place with 62 years on the lease, it was £11.5k
to extend it to 99 years
The lease renewwal cost is set by the free holders so you need to get in touch with them to get a definitive answer. FWIW I've just bought a place with 62 years on the lease, it was £11.5k
to extend it to 99 yearsIncorrigible said:
I think (not sure of course) that the estate agent is talking bull, get them to work for their money and find out for you
Yeah. This girl was quite tasty but a bit dappy. Lovely long legs...
I'm going back later in the week for more information and a look around the place.
Estate agent claims they just want a quick sale as they've found a new place. That could be sales bull or it could be the truth.
How much would an independent valuation cost? Surely that would help me a lot?
The lease can be extended under the Leasehold Reform, Housing and Urban Development Act 1993 
Under this legislation you must have owned it for 2 years and the lease must be over 21 years which it obviously is. If you want to get the lease extended before owning it for 2 years the existing owner can serve the Section 42 Notice on the freeholder and then transfer the benefit of the notice to you upon sale.
With 77 years unexpired the benefit of extending upon resale is small. But if the market remains constant the theory is that the value of a 77 year lease will fall by less than 1% over about 2 years.
My advice - if you can afford to extend then do it, but if it make things tight and your only hanging on to it for a couple of years don't worry about it.
Under this legislation you must have owned it for 2 years and the lease must be over 21 years which it obviously is. If you want to get the lease extended before owning it for 2 years the existing owner can serve the Section 42 Notice on the freeholder and then transfer the benefit of the notice to you upon sale.
With 77 years unexpired the benefit of extending upon resale is small. But if the market remains constant the theory is that the value of a 77 year lease will fall by less than 1% over about 2 years.
My advice - if you can afford to extend then do it, but if it make things tight and your only hanging on to it for a couple of years don't worry about it.
I brought a flat with a short lease - no problems at all. Most of the lenders were OK as long as the lease was no shorter than the duration of the mortgage + 5 years.
The sellers didn't want the hassle of sorting the lease so dropped the price. Via our solicitors we spoke to the managing agents who confirmed in writing that they would extended lease from 60 odd years to 125 for something like £3K + legals (which were a few hundred quid). We also got a few points clarified in the lease.
It was all straight forward. The key thing was to get writted confirmation that the freeholder will extend the lease for £x within time frame of x weeks. This is much better than waiting for 2 years until you have the right to force it, as you can get into all sorts of lease valuation battles in the various tribunals.
The sellers didn't want the hassle of sorting the lease so dropped the price. Via our solicitors we spoke to the managing agents who confirmed in writing that they would extended lease from 60 odd years to 125 for something like £3K + legals (which were a few hundred quid). We also got a few points clarified in the lease.
It was all straight forward. The key thing was to get writted confirmation that the freeholder will extend the lease for £x within time frame of x weeks. This is much better than waiting for 2 years until you have the right to force it, as you can get into all sorts of lease valuation battles in the various tribunals.
Battlecat said:Will that work out cheaper than the £11.5k I've been quoted
The lease can be extended under the Leasehold Reform, Housing and Urban Development Act 1993
Under this legislation you must have owned it for 2 years and the lease must be over 21 years which it obviously is. etc
Incorrigible said:
The lease can be extended under the Leasehold Reform, Housing and Urban Development Act 1993
Under this legislation you must have owned it for 2 years and the lease must be over 21 years which it obviously is. etc
Will that work out cheaper than the £11.5k I've been quoted
Firstly i would comment that you shouldn't be extending to 99 years, the statutory extension you're entitled to is 90 years, thus you'll end up with 152 years and the ground rent reduces to zero (legally known as a peppercorn).
Also the freeholder doesn't set the price you pay. The price isn't set and varies depending on the level of ground rent you pay and if its reviewed during the term. Also the price depends on the value of the property with the extended lease and the current lease. Also investment yields and property returns effect the price.
I'm a Chartered Surveyor and deal with litigation issues on commercial and residential leases, so i negotiate these lease extensions quite often. The price is negotiated between surveyors acting for the tenant, headlessee and the freeholder, and if an agreeable price can't be decided it ends up in a Tribunal and our cases are put to the judge.
If you email me i'll let you know what info i need and will let you know if i think £11.5k is too much.
Hopefully this won't open the flood gates with loads of people wanting free advice!!
I had heard of the 2 year rule too, but I was also under the impression that if you wanted to buy the freehold you could, and the current freeholder had no choice but to sell - and the cost was usually 20 times the ground rent plus legal of which you had to pay the freeholder's fees.
friend of mine in a similar lease situation , the options as mentioned are either extend the lease, which is your right, which would cost in the region of £3k ish for a £200k property ( guseeing on average other circumstances), you have the righ tto do this , iirc, as long as you have more than 21yrs remaining.
or
buy the freehold, if its a flat in a converted proerty, at least half of the other flats have to agree with you and go into th epurchase as long as they have lived there for more than 12 months continuously or more than 3 years in the previous 10.
freehold purchase is worked out on rent, marriage value, and resale increase, again entirely depends on the property but for my friends flat in dulwich ( one of two in the property, and already havng 972 years on the lease) its about £3k per flat, including legal costs. if the freeholder cooperates could talk as little as 4 months, if they dont up to 18 months..
personally i would go for the freehold rather than the lease extension if your case allows as resale is much easier and takes away any issues that leasehold property can create..
or
buy the freehold, if its a flat in a converted proerty, at least half of the other flats have to agree with you and go into th epurchase as long as they have lived there for more than 12 months continuously or more than 3 years in the previous 10.
freehold purchase is worked out on rent, marriage value, and resale increase, again entirely depends on the property but for my friends flat in dulwich ( one of two in the property, and already havng 972 years on the lease) its about £3k per flat, including legal costs. if the freeholder cooperates could talk as little as 4 months, if they dont up to 18 months..
personally i would go for the freehold rather than the lease extension if your case allows as resale is much easier and takes away any issues that leasehold property can create..
how does it work
Right, Battlecat seems to have their finger on the pulse re where to go/what to do about the extension. Now let’s talk practise and negotiation.
The price the flat is being offered to your for had better be special as you will get stuck for not only the premium payable to extend the lease but also the agreed surveyors costs and the LL’s legal fees and disbs. and additional cost on your legal fees.
The major thing is that there is no way in hell I would advise you to sign the contract to purchase until you have been given a figure from the LL as to what the premium to extend will be, plus costs, or you could find yourself in trouble.
Likewise don’t go thinking that you can buy and as you are going to sell shortly it doesn’t matter, you will get stung when you come to sell if the buyers Sols know their onions.
In an ideal world I wouldn’t agree to purchase until the Seller had had the lease extended or until the LL had advised you of the premium, etc, and confirmed to your solicitor in writing that they are prepared to grant the extension to you.
One final point – the Act referred to sets out the legal framework for obtaining an extension of a lease but does not have to be followed if there is agreement on both sides as to the terms. Very useful as it doesn’t bind you into any particular timescale but does allow you to fall back on it if things get bogged down.
There is a whole lot more to it than I have time to set out here and I would strongly suggest that you make sure you have instructed someone who knows what they are doing, not some tick box monkey.
PLEASE NOTE – this is not to be construed as legal advice, you should advise any conveyancer and any surveyor instructed by you of any quires or concerns you may have and act upon their advice not that of bunch of cyber warriors like us lot, even if we might occasionally give the impression we know what we’re on about
>> Edited by Rude-boy on Wednesday 31st August 12:39
Incorrigible - Did you get my reply to your email?
As someone pointed out, the 1993 Act provides a leaseholder the right (as long as criteria is met) to a 90 year extension at zero (legally known as a peppercorn) ground rent, and sets the framework under which both parties interests are protected and time limits can be set by applications to the Leasehold Valuation Tribunal which basically sets a court hearing date.
Something which i think is being misunderstood is that there is no scale for the cost of a lease extension. It varies from one property to another and depends on the lease length, current ground rent and any reviews, yields and returns, current (unextended) and extended lease values. Marriage value forms part of the calculation if the lease has under 80 years unexpired. Essentially Marriage Value is the difference between the combined present interests of the Leaseholder and the Freeholder, and the proposed interest which would be the value of the extended lease.
It is not possible to compare prices where the property values and the unexpired terms are different. To get an idea of the cost you really need to speak to a Chartered Surveyor or solicitor with experience in this area.
By the way, the ability to acquire the freehold is another matter covered by the Leasehold Reform Act 1967 and the Commonhold and Leasehold Reform Act 2002. So I'd rather not get into that at this stage!!
As someone pointed out, the 1993 Act provides a leaseholder the right (as long as criteria is met) to a 90 year extension at zero (legally known as a peppercorn) ground rent, and sets the framework under which both parties interests are protected and time limits can be set by applications to the Leasehold Valuation Tribunal which basically sets a court hearing date.
Something which i think is being misunderstood is that there is no scale for the cost of a lease extension. It varies from one property to another and depends on the lease length, current ground rent and any reviews, yields and returns, current (unextended) and extended lease values. Marriage value forms part of the calculation if the lease has under 80 years unexpired. Essentially Marriage Value is the difference between the combined present interests of the Leaseholder and the Freeholder, and the proposed interest which would be the value of the extended lease.
It is not possible to compare prices where the property values and the unexpired terms are different. To get an idea of the cost you really need to speak to a Chartered Surveyor or solicitor with experience in this area.
By the way, the ability to acquire the freehold is another matter covered by the Leasehold Reform Act 1967 and the Commonhold and Leasehold Reform Act 2002. So I'd rather not get into that at this stage!!
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