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Leasehold extension advice

for those of you who have extended the leasehold on a flat before... I'd like to ask some advice.
I bought and moved in a flat with a short lease (less than 80 years*) and I am wondering whether I am best to stay put for the statutory 2 years before extending or to informally get in touch with the freeholder and do it earlier.

The seller received a quote to informally extend just few months before selling, which had a fair premium (according to online calculators) though the ground rent was much higher. Currently is £1/year, the informal extension was £200/year doubling every 20 years and capped at £1k!

I already have the very 'worst case' scenario statutory extension money parked away so waiting 2 years is not a problem, I just wanted to see if anyone else has done something similar and get some opinions...

Thank you!

I don't need advice about asking the previous sellers about extending before exchanging/completing.
*yes I know about marriage value
EU expat working in London
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Comments

  • eddddy
    eddddy Posts: 16,293
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    The seller received a quote to informally extend just few months before selling, which had a fair premium (according to online calculators) though the ground rent was much higher. Currently is £1/year, the informal extension was £200/year doubling every 20 years and capped at £1k!

    The online calculators assume that the ground rent will drop to zero (and 90 years added to the term) - so it's meaningless to compare the online calc results with the premium that your freeholder is asking for.

    By agreeing to a high ground rent, you are hugely increasing the cost of any future enfranchisement (or future lease extensions) - which is likely to reduce the value of your flat.

    This guy works through an example, to demonstrate the impact of high ground rents (although I can't vouch for the accuracy of his calcs): http://www.leaseholdknowledge.com/informal-lease-extensions-are-pure-poison

    Also, you need to make sure that your mortgage lender is happy with the escalating ground rent. See: http://forums.moneysavingexpert.com/showthread.php?t=5419786
  • always_sunny
    always_sunny Posts: 8,314 Forumite
    Thank you - I'd rather do it properly in 2 years using the statutory right - when I calculated the informal ground rent over the course of the new lease length the cost would be massive compared to pepper corn!

    It'd be nice to hear some 'success' stories from folks who have extended their leases - surely I won't be the first or last one! Would be nice to know good solicitors too!
    EU expat working in London
  • ognum
    ognum Posts: 4,835
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    Thank you - I'd rather do it properly in 2 years using the statutory right - when I calculated the informal ground rent over the course of the new lease length the cost would be massive compared to pepper corn!

    It'd be nice to hear some 'success' stories from folks who have extended their leases - surely I won't be the first or last one! Would be nice to know good solicitors too!

    I have done informal lease extension, reduced the ground rent to zero and had 99 years added to the original 70+ left, making 170+ years It is down to negotiation and how amicable the freeholder is.
  • anselld
    anselld Posts: 8,262
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    Freeholders will be aware of the same calculators you are using. Bear in mind that under a formal extension you will pay for both sides survey costs and both sides legal costs, so you can afford to to make an informal offer look attractive and still save some money.
  • always_sunny
    always_sunny Posts: 8,314 Forumite
    ognum wrote: »
    I have done informal lease extension, reduced the ground rent to zero and had 99 years added to the original 70+ left, making 170+ years It is down to negotiation and how amicable the freeholder is.

    Thanks - that's inspiring... did you do the negotiation yourself or through professionals?
    Freeholder seems amicable, it's only 2 flats with everything left to the leaseholders to attend.
    Though the informal letter they sent the previous owner was trying to extend to lease to 99 years rather than the statutory 90 on top of existing!
    EU expat working in London
  • eddddy
    eddddy Posts: 16,293
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    Thanks - that's inspiring... did you do the negotiation yourself or through professionals?
    Freeholder seems amicable, it's only 2 flats with everything left to the leaseholders to attend.
    Though the informal letter they sent the previous owner was trying to extend to lease to 99 years rather than the statutory 90 on top of existing!

    Hmmm... 99 years, escalating ground rent - that doesn't sound very amicable.

    In fact, that sounds similar to the example in the link in post #2 (http://www.leaseholdknowledge.com/informal-lease-extensions-are-pure-poison) which cost the leaseholder an extra £90k.

    You can make your own offer to the freeholder, perhaps something like:
    • 90 years added to term
    • Zero ground rent
    • What the calculators say + £2K


    The extra £2k reflects the fees you might save by not following the statutory route.
  • always_sunny
    always_sunny Posts: 8,314 Forumite
    eddddy wrote: »
    Hmmm... 99 years, escalating ground rent - that doesn't sound very amicable.

    In fact, that sounds similar to the example in the link in post #2 (http://www.leaseholdknowledge.com/informal-lease-extensions-are-pure-poison) which cost the leaseholder an extra £90k.

    You can make your own offer to the freeholder, perhaps something like:
    • 90 years added to term
    • Zero ground rent
    • What the calculators say + £2K


    The extra £2k reflects the fees you might save by not following the statutory route.

    I suppose it depends on the definition of amicable :eek: when I did the calculation of informal vs statutory, the extra ground rent doubling every 20 years were bringing the freeholder a windfall of £130k over the course of the new lease! :eek:

    Do I need to use a solicitor to make an offer and/or is it advisable to do so? Has anyone done it themselves?
    EU expat working in London
  • eddddy
    eddddy Posts: 16,293
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    Do I need to use a solicitor to make an offer and/or is it advisable to do so? Has anyone done it themselves?

    Not initially. If your offer is accepted, you probably would want to instruct a solicitor.
  • always_sunny
    always_sunny Posts: 8,314 Forumite
    eddddy wrote: »
    Not initially. If your offer is accepted, you probably would want to instruct a solicitor.

    Thanks and I guess with the informal route I don't need to wait for the statutory 2 years before approaching... I may wait few months (really, just moved in) and approach them and see what they say. Worse case they say no or a ridiculous counter offer then I can wait and do it via statutory route.

    My main worry is that it is impossible to be done though I suppose it's just the matter of paying the premium and that's it so hearing positive stories is inspiring!
    EU expat working in London
  • techno12
    techno12 Posts: 720
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    edited 4 June 2016 at 11:06PM
    I made an informal offer to the freeholder last year, via the managing agent at the time, at around 60% of what the online calculators said. There were only 61 years left so I was pretty keen to see it through.

    He accepted it (I had to pay both sets of solicitors' fees, though no valuation was required so I saved a bit there).

    The terms were +99 years and the ground rent as is (currently £60 per annum, will double to £120 in 29 years and stay at that level for the remainder).

    Happy enough with that, though not with my solicitor, who was useless and still hasn't sent any documentation through. I had to pay my £3 to the Land Registry the other day to see if it had gone through and to get 'something in writing' - we completed last September but I was advised to leave it 6 months due to delays in processing lease extensions at the LR.
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