Leashold paranoia!

albmoney

I am half way through the purchase of a 1 bedroom leasehold flat in a nice area but I'm starting get a bit paranoid.

The flat was first put on the market for 275 then a few months later for 250. The lease is 75 yrs and I'm paying 245 for it.

The vendor has got a lease extension agreement with the freeholder which I can take on at completion. The cost is 11,500 for an extension to 99 yrs with ground rent at 100 a year.

Finding the 11,500 is killing me tbh and I have to borrow the money to do it. I'm having doubts if it's all worth it.

My logic is saying your getting a 99yr lease flat for 256,500 which should be worth the original 275,000. But being a 1 bed flat so close to the 250k stamp dug threshold makes me think I'm not sure that it really will sell for that much.

I'm also paranoid about why the extension is only to 99 yrs?
I have also been told by the vendors solicitors that I could extend in say 9 months time and the price would be similar. That would give me more time to raise the money but is its a good thing to buy a short lease flat and "hope" to extend it in the future. Is that leaving me somewhat vulnerable?

Also would it be better to wait 2 years and force a statutory lease extension and get the 75 + 90 yr lease? Would that be more or less expensive than the 11,500?

Can someone put my mind at rest?

Thanks.

Suarez

I would wait for the 2 years and get the 90 year extension. According to the leasehold calculator this would be between £12,000 to £14,000.

Not sure how accurate it is but I would ask your solicitor for advice?

http://www.lease-advice.org/calculator/

Also, you will pay no ground rent using the statutory lease extension so this would save £100 a year.

propertyman

To start can you buy a similar flat for c £100 GR pa and a lease of at least 90 years for £256K?

Forget the original price etc its looking at comparables in the market to see if the price £256 matches comparable values as often with shorter leases the offer for sale price in the EA window does not correctly reflect their value.

As rule as statutory extension has a nil ground rent and longer terms 75 + 90 so it is more expensive than a shorter term and a GR. That's not to say 11.5 k is expensive or not as we dont know how accurate that is as the offer for sale price is likely inaccurate as a reflection of the flats value with 75 years.

You can use one of the various calculators and feed in values from 230 to 275 and compare the price plus extension and see how it matches up to
or pay 300-500 for a valuation from a local chartered surveyor

albmoney

I think the price is fair for the area and the location. There isn't a glut of comparable properties because at the moment there doesn't seem to be many period flats for sale so close to a tube station. I suppose this is at near the top end in the area so my worry is that whatever price it is valued at doesn't mean it will sell easily. It's a bit of a gamble on my part (as is all property I suppose).

The main thing that does concern me is that if I were to purchase the flat without buying the lease extension on completion would that be a cardinal sin?

Now that we have laws in place to force the sale of a leasehold extension is it still a risk to buy a leasehold property and say that I'll raise the money in a year or two to extend the lease.

According to the leasehold calculator every year I delay the extension the price goes up 1K. Which is fine by me. As long as I can extend it when I want.

Leaseman_2

As you are clearly worried about this why not make your offer on the basis that you will buy a 99 year lease at £100pa. (or whatever lease term you are comfortable with at the price you are paying) ie you will expect a new lease to be granted at completion. That way you can arrange the finance in one go and save the uncertainty and later additional legal costs.

Fire_Fox

Serving formal notice on the freeholder stops the clock, the price doesn't keep increasing. Was formal notice ever served or were they approached informally? Under the statutory system you should be getting a peppercorn ground rent and a 90 year extension, not to 99 years with £100 ground rent. IMO ask the current leaseholder to go back to the freeholder using the legislation or wait the two years and serve notice yourself.

I don't understand why you are having to raise the funds separately either. Normally if extension is needed the buyer offers the value as if the lease has been extended, they get a mortgage agreed for the full amount, extension is done within the exchange/ completion process, buyer has just one debt for the full sum. You don't normally offer the value of the short lease and then pay for the extension on top when there is an agreement in place.

Don't compare to other for sale properties because many are overpriced in this difficult market, look at land registry sold prices for the street and area.

ValHaller

albmoney wrote: »

But being a 1 bed flat so close to the 250k stamp dug threshold makes me think I'm not sure that it really will sell for that much.

This property is one of the first I expect to pop cleanly through the stamp duty threshold, being close to the tube and in London. For provincial 3 or 4 bed houses on the stamp duty threshold, prices are likely to be stuck below the ceiling for years to come.

In your position, I would be planning on waiting 2 years for the statutory extension. I may be wrong, but I think that if you take the vendor's option to buy the extension to 99 years, it will become a linked transaction and push the deal into 3% stamp duty. So an extra £5200 to find which could be better put to taking the statutory extension later.

Leaseman_2

Good point. As a valuer I would want to take a solicitors opinion on that particular issue (or check with HMRC).