London FT Buyer Short Lease concerns on old building

JoBluck

Hi All, I’m considering buying a property and would be grateful if anyone could give me some advice as the place I like seems to have potential issues surrounding it.

So, myself and my girlfriend are first time buyers and we have e found a one bedroom flat we really like in a ‘leafy’ suburb of West London that’s within our budget of £200K

When we went to view the property we were a bit surprised the asking price was in this price bracket as the flat is in a very attractive area, surrounded by parks, 7 minute walk to the train station (which takes you to Paddington in 15mins) and not far from shops, restaurants etc.

The property is in an old 1930’s building and consists of 20 or so purpose built flats but it seems the building is not in such a great shape – we noticed a lot of big and small cracks all over the building which have been haphazardly patched up. Obviously this is a surveyors question which can’t be fully commented on unless you can see it but nevertheless I feel should be highlighted. The flat itself needs updating but not a total referb.

Ultimately the question that we want to ask concerns the short lease of 72 years, ground rent is currently around £70pa. The estate agent is adamant that it wouldn’t be an issue to extend it. We are not so sure because of the following questions that came to mind after further research:

- Why would the vendor not extend the lease before selling the flat? Or indeed is it too expensive? More expensive than the vendor actually suggests i.e. around £8,000, or the landlord is difficult and lease extension would be a battle or perhaps there are redevelopment plans for the site? (since the building might not be fit for another 100 years say).

- We also discovered there are 2 other flats for sale in the same block all with short leases, one of them as low as 24 years! Again same questions as above.
- We researched the landlord Dexite Co Ltd and found several tribunal documents showing cases where the leaseholder was unhappy with the high premium counter notice.
- The estate management company that looks after the building – J S Estates has nothing but negative reviews online.

With the above in mind we are still contemplating whether or not to get a homebuyers survey done on the flat but is it really worth it? Even if it does come back generally positive should these concerns override it?

Should we back out or potentially make an offer under the condition the vendor extends the lease before completion of the sale? How long would that take? On other posts I've read it could be even up to several months!

As first time buyers we don’t want to find ourselves in a property that either costs thousands to extend the lease via tribunals, has a potentially problematic landlord or even in the worst case scenario - a property that is due to be demolished in 50 years just after we paid off our £200K mortgage. We would be looking to live there for 10 years and then sell.

Can the landlord FH refuse to extend the lease full stop?

Your advice, thoughts would be greatly appreciated!

Angie_B

Hi,

72 years left on the lease is not great. When a lease gets below 80 years it becomes a lot more expensive to extend as there is something called a marriage value (the more knowledgeable people on the board may be able to explain this better than me).

I believe you may struggle getting a mortgage on a property with a lease below 80 years. If you do buy, I think you have to wait a minimum of 2 years before you can apply for the lease extension as well, taking you down to 70 years or below.

Can you ask the vendor to make the lease extension application prior to the sale?

You can get an estimate of costs using the calculator at lease-advice.org or Martin has a excellent guide on extending leases.

Fire_Fox

Welcome! Sounds like a moneypit, extending the lease could be expensive but the major works could be prohibitive if they are structural rather than cosmetic - tens of thousands per flat. Do you have that kind of money? You don't say what material the cracks are in - brick, concrete render, other - but you may find a structural engineer is more appropriate than a surveyor. Are you sure you could even raise a mortgage with the state of the building? You are unlikely to be able to with that length of lease. Lease extension calculator here, plus advice guides on all matters leasehold including major works http://www.lease-advice.org/

It's commonplace to extend the lease as part of the conveyancing, that way legally the old freeholder serves the notice (you must own two years before you have the right to extend, the freeholder cannot then refuse) but effectively the new leaseholder pays for the extension with their mortgage. However this is a time consuming business, it could take months if the current leaseholder has not started the ball rolling. People don't extend the lease before selling because they either do not realise the flat is unmortgageable as is, or they don't have the cash available.

How are you going to enforce repairs on a rubbish freeholder/ management company and how are they going to enforce payment on the other leaseholders? If some leases are as low as 24 years they will be quite low in value, the owners may be more willing to forfeit the lease than contribute tens of thousands for major works and tens of thousands more for extending the lease. Are you willing to go to an LVT to push for repairs, are you willing to go to an LVT again if you feel the work is substandard or the cost was not reasonable? Are you willing to live there whilst major building works are completed? What if you need to sell in the middle of the consultation for major works or an LVT dispute?

princeofpounds

My suspicion is that it's not the lease that is the issue. It is harder to mortgage a short leasehold, but extending one is easy if you have lived there for two years or more; you can apply to the LVT for a 'fair' price. It probably explains the cheapness but not the mass sales.

I'd be inclined to suspect major works, or the anticipation of them, at the freehold level. But could be a number of things, from coincidence, to the same owner liquidating, to people fleeing a nuisance neighbour.

Richard_Webster

If it is so easy to extend the lease then the seller can organise it with the landlord and do it back to back with the sale to you so that you get an extended lease and he uses your money to pay for it.

So you have to call the seller's bluff - if it is so easy he can organise it can't he? If, as you may reasonably suspect, he thinks the landlord will be difficult, then when he won't do it you walk away - having told the estate agents why.

JoBluck

Thanks for the really in-depth and helpful replies, it has given me even more to think about and definitely helping me make an informed decision. Going for a second viewing tomorrow so will let you all know the result of that!

Thanks again and indeed any more info is greatly appreciated

JoBluck

Fire_Fox wrote: »

major works could be prohibitive if they are structural rather than cosmetic - tens of thousands per flat. Do you have that kind of money? You don't say what material the cracks are in - brick, concrete render,

I believe the building is brick mainly because it is from the 30’s.
Of course, we don’t have that kind of money and would absolutely back out straight away if we knew there were major works planned for the building. But how can we find out? Do we contact the freeholder directly?

Fire_Fox

JoBluck wrote: »

I believe the building is brick mainly because it is from the 30’s.
Of course, we don’t have that kind of money and would absolutely back out straight away if we knew there were major works planned for the building. But how can we find out? Do we contact the freeholder directly?

There are large and small cracks over a brick building?? :eek: Where are the nearest trees, and have any large ones been removed in the last few years? I am thinking subsidence, heave, far too heavy a roof material for the supporting structures or windows that have been replaced with totally inadequate/ no lintels. Whatever way you look at it that is BAD NEWS. Subsidence and heave may be insurance issues but will have long term implications for the saleability and insurance, roof and windows .... you could easily end up stumping up for that.

You cannot communicate directly with the freeholders, you are not contracted to them. You need to communicate via your solicitor and the vendor's solicitor and probably pay for the privilege of them giving you BAD NEWS because freeholders charge for answering solicitors letters. IMO back to basics, write to the leaseholder via the estate agent: reiterate your offer to purchase and the conditions it is based on (property off the market, subject to survey, conditional on the lease being extended by 99 years with a peppercorn rent), but state that you will not be proceeding with legals or survey until you have a price for the lease extension, and ask a load of questions about the vendor's knowledge of issues such as subsidence or heave being tested for, identified or treated, and knowledge of any major works being planned.

Honestly if you don't have a wedge of funds set aside for major works you are likely to be throwing good money after bad proceeding with the searches, survey, queries to the freeholder on this place. You WANT major works to be done to this building, you don't want it to be condemned or partially collapse! Are you on a no sale-no fee deal with your conveyancer?

JoBluck

Firefox and others, thanks again for the replies. Indeed we need to seriously consider this and could loose a load on fees. We will take your advice about getting back to basics and see what happens from there, indeed making sure we ask lots of questions.

We will let you know the developments (which we may rightfully anticipate to be slow?)

Fire_Fox

Four to six months but could be longer if the freeholder is useless. These things tend to move more quickly if all parties chase via the estate agent AND the solicitor every week. Depends if the current leaseholder serves notice as per the legislation and they faff about with valuations or they come to a private arrangement on price for extending the lease quickly. The only risk with a private arrangement is sometimes these are topping UP TO 99 years with the same ground rent instead of ADDING 99 years and a peppercorn rent. So be clear about what you want because the current leaseholder may do whatever is cheapest.

But I'd be most concerned about the external structure - it could be superficial/ cosmetic or it could be a large expensive job. If it is and it is pricey to extend the lease be prepared for the current leaseholder to freak as he realises the flat's net value is nowhere near as much as he thought. You are a good solid buyer, they'd be silly to let you slip through their hands so get the estate agent on your side. Some agents will try to pull the wool over the eyes of FTBs, so be sure you have read the LEASE website thoroughly and you can tell them what is what.

If you are writing or e-mailing it's easier to be clear about what you want and where you are at, and you can quote bits of legislation if the agent or leaseholder are lacking in knowledge or trying to pull the wool over your eyes. Keep reminding them that a short lease/ loads of repairs would make it very difficult for anyone else to raise a mortgage and that you are chain free with finances in place.