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    • jamels2
    • By jamels2 13th Mar 17, 9:52 AM
    • 267Posts
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    jamels2
    Lease extension - formal/informal
    • #1
    • 13th Mar 17, 9:52 AM
    Lease extension - formal/informal 13th Mar 17 at 9:52 AM
    I have been advised to extend my lease as it is down to 62 1/2 years.
    After some advice whether to go formal or informal?
    Ive looked at the title registers and found about 4 other flats have extended back up to 99 and only one other flat has gone formal and added 90.
    The last flat that sold achieved a good price and had an informal 99 years a few years ago.
    So i am confident that most buyers will just look for enough years left.
    However still a bit worried that the risin ground rent may be a problem if i kept hold of it and had to extend again in 18 years, making it expensive.
    Any advice on this welcome!
Page 1
    • eddddy
    • By eddddy 13th Mar 17, 10:44 AM
    • 4,804 Posts
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    eddddy
    • #2
    • 13th Mar 17, 10:44 AM
    • #2
    • 13th Mar 17, 10:44 AM
    So I guess you're saying the freeholder is offering you an informal extension with a rising ground rent.

    To be clear, an informal lease extension doesn't have to have a rising ground rent - that's just your freeholder's choice, probably because it makes more money for them.

    You could try negotiating an informal extension without a rising ground rent.

    As you say, many buyers don't seem to be too influenced by ground rents and lease terms (as long as they are well over 80 years).

    But I guess attitudes and awareness may change in say 3, 5 or 10 years, when you sell. Enough people may have been stung by expensive lease extensions and expensive freehold prices to make buyers understand the implications better.

    Or maybe not.
    • da_rule
    • By da_rule 13th Mar 17, 12:34 PM
    • 2,382 Posts
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    da_rule
    • #3
    • 13th Mar 17, 12:34 PM
    • #3
    • 13th Mar 17, 12:34 PM
    As your lease has dropped below the 80 year mark, you could be looking at £20k+ to extend the lease using the formal route as you have to include marriage value. That doesn't include legal and survey costs (both yours and the freeholders).

    Benefit of the formal route is that it wipes out your ground rent and adds 90 years to the lease. Whereas the informal route, whilst it may be cheaper in the short run, you may have increased ground rent and the extension period on offer may only be another 30odd years to take the lease back up to 99 years.

    Are you eligible to use the formal route? (i.e. You've owned the leasehold property for a minimum of 2 years)
    • always_sunny
    • By always_sunny 13th Mar 17, 12:40 PM
    • 3,089 Posts
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    always_sunny
    • #4
    • 13th Mar 17, 12:40 PM
    • #4
    • 13th Mar 17, 12:40 PM
    As your lease has dropped below the 80 year mark, you could be looking at £20k+ to extend the lease using the formal route as you have to include marriage value. That doesn't include legal and survey costs (both yours and the freeholders).
    Originally posted by da_rule
    The informal route may look cheaper but usually it is more expensive. Usual GR is £250 doubling every 10/20 years. That is also a killer when reselling the flat.
    Anything but nil GR is a no-no
    Expat with an EU passport
    • jamels2
    • By jamels2 13th Mar 17, 1:11 PM
    • 267 Posts
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    jamels2
    • #5
    • 13th Mar 17, 1:11 PM
    • #5
    • 13th Mar 17, 1:11 PM
    Yes im entitled to seek statutory route. Why is it so few people take this route though?
    • HouseBuyer77
    • By HouseBuyer77 13th Mar 17, 1:47 PM
    • 851 Posts
    • 802 Thanks
    HouseBuyer77
    • #6
    • 13th Mar 17, 1:47 PM
    • #6
    • 13th Mar 17, 1:47 PM
    Why is it so few people take this route though?
    The freeholder offers a cheaper renewal price in return for a larger ground rent generally involving some kind of increase. Doubling every 10/20 years, increasing by RPI etc. They may in fact offer multiple options with different renewal prices and ground rent increases. Do some maths and you may find the freeholder gets basically the same money over 30 years but they aim to confuse with the illusion of choice.

    People presumably see the up-front renewal cost (which is a simple, easy-understandable number) and put more priority on that then they should and pay less attention to the ground rent provisions. Could look ok now (e.g. £250 a year) but the increasing terms can rapidily make things more expensive or even make the property unmortgageable.

    Edit: Oh and statutory can also incur some legal fees, so they say 'wouldn't you rather just take one of these options rather than pursuing us through the courts for what you're legally entitled to'.
    • eddddy
    • By eddddy 13th Mar 17, 2:12 PM
    • 4,804 Posts
    • 4,441 Thanks
    eddddy
    • #7
    • 13th Mar 17, 2:12 PM
    • #7
    • 13th Mar 17, 2:12 PM
    Just to emphasise - informal lease extensions can be negotiated. You don't have to accept the freeholder's suggested price and terms.

    One strategy that I've seen work a few times is where the leaseholder says to the freeholder something like...
    "If I go for a statutory lease extension, I'll probably have to pay you £10k premium plus I'll have to pay about £3k in fees...

    ... so I'll offer you £11.5k instead for an informal lease extension on the same terms (90 years added and zero ground rent)".
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