FTB with no knowledge of lease extension

Wyndham

thecolour wrote: »

Thanks guys. More background. Foxtons tells me the current owners have no cash at all and therefore cannot extend the lease before selling. Does this sound like a normal reason or should I be suspicious?

Their financial situation isn't your problem. You need this to be done, and for them it is a cost of their move. Stick to your guns and be ready to walk away, I think.....

techno12

I was told by my broker when I bought my current flat as a FTB that "30 years plus mortgage term" before lenders start getting nervous, so 60 years. My flat's lease has 68 years to go so I know I'll have to reduce the asking price accordingly when I come to sell.

I'd rather do that than stump up the cash now for no appreciable gain so I see where the seller is coming from - I certainly couldn't afford to extend my lease if I decided to sell.

A lease extension is way more than a "couple of thousand" - there's a standard formula to use based on 'marriage values' etc and it gets more expensive to extend as the remaining years decreases. In my case I'm looking at £15k on a £160k flat or thereabouts. If it was only £2k I'd do it tomorrow - I wish it was!

Richard_Webster

Two points:

1. Seller may suspect that the landlord will be difficult over a lease extension and therefore doesn't want to get involved. If the seller doesn't get reasonable terms from the landlord how do you know you will?

You will not have a right to an extension until you have owned the flat for 2 years (and the lease will be 2 years shorter and it will cost more). To compel that you might have to go through the LVT and that could cost £3-4K in legal and surveyor's costs, quite apart from the premium you would have to pay the landlord.

2. What you could do is ask why the transaction cannot be carried out back to back. You would have to pay more for the flat but you would know you would only be buying it with an extension. Seller gets terms from landlord and landlord's solicitor provides draft deed to extend lease. Without any legal commitment this gets signed "in escrow" by both the landlord and the seller.

Your solicitor offers to exchange contracts with ("releases a contract to") the seller's solicitor for him to transfer the extended lease. Seller's solicitor then knows his client won't have to pay for it because you will be paying for it in the overall cost and then approaches the landlord's solicitor and they agree cross undertakings that if the seller's solicitor sends the agreed amount to the landlord's solicitor he will provide the signed extension deed at completion. Seller's solicitor then goes back to your solicitor and the exchange of contracts is completed.

When you get to completion your solicitor sends money to seller's solicitor who sends part of it on to landlords's solicitor. Your solicitor then gets the extension deed and a transfer of the newly extended lease and registers them.

So it is perfectly possible to achieve with the seller spending very little extra money - just some legal costs. As I said at the beginning of this post, if the seller won't do it, you have to suspect that he thinks the landlord will be very difficult and he doesn't want you to know that the landlord is difficult. Most sellers of flats with rip off landlords do not want to advertise that fact!

Richard_Webster

I was told by my broker when I bought my current flat as a FTB that "30 years plus mortgage term" before lenders start getting nervous, so 60 years. My flat's lease has 68 years to go so I know I'll have to reduce the asking price accordingly when I come to sell.

That is certainly true of a number of lenders, but Halifax and Post Office/Bank of Ireland won't lend on anything under 70 years!

Mr_Thrifty

Who would use those lenders anyway? Rubbish rates of interest in my experience.

There is always some company out there that will lend you whatever you want. Even since the credit crunch, the banks basically just give money away to any old loser regardless of whether they can pay it back or not. You just have to shop around.

It always makes me laugh when I read the "Best Buys" section in the Personal Finance supplement in the Sunday Times. Usually I know of a deal that's at least 2 percentage points better than their supposed 'best buy', with less stringent lending criteria too.

Basically my advice is don't bother with a leasehold flat with anything less than 80 years left. Get a share of the freehold. Why anybody would enter into such an arrangement in the first place is beyond me. I don't know why anyone would willingly buy such a bad deal. You would have thought that leasehold flats with a lease of anything less than 999 years would be unsellable in the first place.

Richard_Webster

Basically my advice is don't bother with a leasehold flat with anything less than 80 years left. Get a share of the freehold. Why anybody would enter into such an arrangement in the first place is beyond me. I don't know why anyone would willingly buy such a bad deal. You would have thought that leasehold flats with a lease of anything less than 999 years would be unsellable in the first place.

I have sympathy with that view - why should flat owners pay ground rent - why not a peppercorn with a very long lease? Because builders know they can get away with highish ground rents (doubling every 25 years) so the freeholds are attractive to property companies who buy them up and employ expensive managing agents.

If more developers were to transfer the freehold after the development had finished to a residents management companies then buyers of new flats could say to other major developers "We're going to get a share in the management company that will own the freehold aren't we - or it's a commonhold flat isn't it?" The more who said that the more likely the major nationals would be to change the way they do it.

Realistically it isn't going to happen is it - they rely on people not realising all the traumas they are going to have in the future with certain management companies and freeholder property companies.

From what I have seen on this forum some builders in quite recent years have got away with selling houses with 99 year leases! The buyers don't know any better and don't resist.