Extending lease then later buying freehold - double the cost?

techno12

Hi.

I'm toying with extending the lease on my flat, as it's down to 61 years now and I have the funds to do it (I think - depends on the figure the freeholder comes back with).

However, there's been talk amongst the leaseholders of applying to purchase the freehold.

According to this site the costs are about the same, but what would happen if I were to say extend the lease this year, then in a couple of years time we get our act together and arrange to buy the freehold (2 of the leaseholders in my 11-flat block have already extended)

Would I have to pay a similar amount again?

Or would the fact that I've paid out to extend the lease already be taken into account, so the amount payable for the share of the freehold would be greatly reduced?

Cheers!

(I can't find anything when Googling - loads of answers and info for the opposite case, ie extending the lease after purchasing share of freehold).

princeofpounds

Yes, is the short answer. Being a block of 11 flats, your individual lease is not going to significantly alter the value of the freehold (which is more valuable when the leases are closer to expiry).

And in fact the legal costs x2 as well.

HOWEVER - remember that even if you, as a group, own the freehold together, that does not mean you get free lease extensions.

That is something that can potentially be agreed. But why would those freehold owners who won't benefit from it for 90yrs+ pass up the opportunity for some revenue to fall into their (combined) hands in the next couple of years?

Everyone can agree to give free extensions, but there would need to be some kind of even-ing up process beforehand to make it fair anyway, probably everyone extending to the same long lease term at different costs.

In freeholds with lots of leaseholds, it is more normal to continue operating on an arm's-length basis. The revenue generated from periodic lease extensions is then basically used to help finance the freehold obligations (insurance, repairs etc.). Anything that is surplus can of course be distributed to freehold shareholders, but you probably won't have a surplus once you recognise the need for a sensible sinking fund.

partialycloudy

We did it the other way round.

Purchased the free hold which cost £19,000 as we only had 65 years left and then when we sold the flat extended the lease, which only cost the legal fees as we were the free holder
We were only 1 of two flat in a conversion so it was easier to arrange the purchase though.

If you do it your way you will be paying the Free holder twice....not technically double as you will first pay for extending a 61 year lease, which will be expensive, then you pay for buying the free hold of a property with a 100+ year lease so the purchase of the freehold would not be valued the same....if that makes sense.

princeofpounds

Purchased the free hold which cost £19,000 as we only had 65 years left and then when we sold the flat extended the lease, which only cost the legal fees as we were the free holder

Whilst it probably is slightly better value to do it this way round (for rather technical reasons around how values get assessed), if you had paid the leasehold extension then the price of the freehold would have dropped to offset it.

The value of the freehold is very closely related to how long it is until the next extension.

partialycloudy

princeofpounds wrote: »

Whilst it probably is slightly better value to do it this way round (for rather technical reasons around how values get assessed), if you had paid the leasehold extension then the price of the freehold would have dropped to offset it.

The value of the freehold is very closely related to how long it is until the next extension.

Yes that what I meant by saying you wont pay double.

Also when we were extending the lease we were the free holder...so even if the cost to extend was the same as buying the freehold, you would be paying yourself....if you see what I mean.

OP, if you arrange to have surveyor come and do a valuation you can ask for the costs of extending and buying. For us the difference was about £500 so we decided to buy the freehold and then extend when we sold the property on.

Good luck with whatever you choose.

techno12

Thanks for the replies, and it's given me food for thought over the weekend.

I really need to extend ASAP before it becomes prohibitively expensive, and it may be years before enough leaseholders agree to buying the freehold, if at all.

If it's going to cost loads to also buy the freehold then I'll give that a miss and just stick with the extended lease. (I guess I can cross that bridge at the time if/when we do it).