Leasehold flat with 75 year lease.Too short?

balsingh

I have been looking at London flats most of which have had leases 90 years or above. I have seen an excellent property but the lease is 75 years (or 97 years from 1984 as it was stated). Is that a probelm? I will be taking out a full 25 year mortgage to buy a property but I have heard the some lenders will only lend to you if the lease is at least 30 years more than the mortgage term. As a result, I am wondering if the lease term may be short (especially when it comes to selling in the future) and the lease gets even shorter. Any info/advice/experiences? Should the asking price be lower if the lease term is shorter?

cattie

If you buy the property & don't get the lease extended, then you may have a problem when you come to sell.

There is usually a good reason for a vendor not to have had the lease extended before putting the property on the market, as it would make the flat more saleable & possibly add value, so you should try to find out if they did indeed try to do so. And if not, why not.

With leaseholds it's usually possible to approach the freeholder for a lease extension after 2 years of ownership. Of course this costs & some freeholders try to take advantage by stating a high price.

I wouldn't advise buying a property with less than 80yrs left on the lease, unless it was at at an absolute silly giveaway price of course.

Advice on owning leasehold properties can be obtained from these people http://www.lease-advice.org/newintro.htm It's a government funded agency.

Doozergirl

I'd buy the flat if I could get a price for the extension from the freeholder and was sure that they were co-operative. If the asking price was equal to flats with longer leases, I would definately subtract the cost of extending plus a bit more for my time before making any offer.

Our second flat had a lease of 77 years. The lady that owned the flat had lived there for 22 years and had never thought to extend it. Sold on again with 75 years left (as we hadn't been there long enough to extend) without much of a problem - just a lower asking price which was reflected in the price paid anyway. It was sold on again just outside 2 years later, so I bet it's down to 72-73 years now. The short lease may just be down to the fact that it's a first time buy and most people need somewhere bigger when they get married or have a family...or you might have a problem freeholder - it's pretty easy to find out though.

holsum

This is making me very nervous, the 1 bedroom flat I'm planning to buy also has a 75year lease, the vendor has lived there for 16years and is moving because she has a baby and has outgrown the place. The freeholder for this property is absent. I haven't incurred any cost yet as the vendor hasn't foud anyway to buy yet, but when I mentioned the short lease to my lender he asked me couldn't I find somewhere else.... my response was but I like this place... what to do what to do.

balsingh

The fact that the property in question is being listed as having a 97 year lease from 1984 makes me think that the freeholder doesnt want to sell the freehold.

Doozergirl

There's nothing unusual about a 99 year lease - I don't think there's any hidden meaning in a 97 year lease either.

You don't need to buy the *freehold*, you want to extend the lease. A 99 year lease means that the landlord has a chance of an extra return (ie. a lease extension) in their lifetime, that's all.

Find out if the vendor can get a cost from the freeholder for renewal and then you won't have to speculate!

westernpromise

balsingh wrote:

Any info/advice/experiences? Should the asking price be lower if the lease term is shorter?

Yes, basically.

IIRC, if there are more than 80 years left on the lease and you have lived there for 2 years and a majority of other lessees in the building agree, you are entitled to buy the freehold. At that point the price is easy to establish - it's just the ground rent the freeholder will have to forego, reduced a bit to reflect the fact that £50 ground rent he would have got in 80 years' time is worth next to nothing now.

Last year I bought the freehold of a leasehold flat in a converted house with 1 other flats in it. The ground rent was £50, and the freehold cost about £1500 to buy.

In this case that doesn't apply because there are less than 80 years remaining; this means the freeholder can demand the inclusion in the price of of the freehold of something called 'marriage value', a nebulous term meaning he can ask whatever he likes and if you don't like it you can only hope a leasehold valuation tribunal agrees with you - but you have to pay both sides' costs.

Bottom line is that you aren't entitled to the freehold for next to nothing at 75 years, and the longer you leave it, the more it will cost to buy it. If I were you I would get the current owner to buy the freehold so you know what you're in for. Alternatively look for somewhere with at least 83 years left on the lease. After you've been there 2 years you can then apply to buy the freehold.

balsingh

westernpromise wrote:

Alternatively look for somewhere with at least 83 years left on the lease. After you've been there 2 years you can then apply to buy the freehold.

After the 2 years, if I want to apply to buy the freehold, does the freeholder HAVE to sell it?

westernpromise

balsingh wrote:

After the 2 years, if I want to apply to buy the freehold, does the freeholder HAVE to sell it?

Yes.

There are some exceptions - eg if the freeholder is the Church or the Queen or something, I think they don't have to sell. Everyone else does, and the basis of the price is bog standard. It's just ground rent x years remaining divided by time value of money. As I say, 2 flats in a house paying £50 a year ground rent will work out at about £1500 to £2500 depending on what time value you use. Plus you have to pay both sides' legal fees, but it is so straightforward these should be minimal.

The catch you face is that you can't buy the f/h on the flat you're looking at for 2 years. By the time you can there'll be 72 or 73 years left and at that point you have to include marriage value. The f/holder will want a lot of money for it and if it's too high only a leasehold valuation tribunal can impose a lower figure. You of course have to pay both sides' costs of going to the tribunal.

When I bought a freehold last year, because of a dates mixup it looked like we were going to have to pay marriage value...and the f/holder wanted £16,000 for it. So timing is key - it could have cost us £20,000 rather than £2,000 (including legal stuff) to obtain the freehold.

That's why I'd make the current lessee do it first. I the 75 year lease plus freehold totals to more ££ than a similar flat with a 90-year lease, then it's not a bargain after all.

Doozergirl

Don't forget that in order to purchase the freehold, you have to do it collectively with the other flat owners. You need at least 50% of the leaseholders in agreement and will have to set up a company to purchase the freehold on your behalf. It will involve more administration than a lease extension, which you can obtain without the other leaseholders being involved.

It will probably depend on the service charge you have to pay and the length of the other leases that determine whether the other leaseholders will feel it beneficial to purchase the freehold.

balsingh

The whole leasehold scenario is soooooooo confusing!!

Am I right in saying that the 'marriage value' only applies for leases below 80 years?

Also, the 2 year rule ... does it matter whether I live there or rent the flat out?

And finally, how do these tribunals work? What factors are used to determine what is a fair value and what would a freeholder use to justify a high price?

Is there a website with all this info available in detail or is it advice that Mr. Solicitor would have to charge me lots of money for?

Thanks for the info .... I'm learnng abotu this leasehold thing ... slowly but surely!