Leasehold 75 Years - Dealbreaker?

mack83

Hi All

We are buying our first property, and made an offer based on a leasehold with "share of freehold". This has been accepted, and the mortgage offer confirmed :beer:

The 'share of freehold' was compelling to us, initially believe we would have a share in the freehold of the building, but this now appears to be a share in the management company. (I am asking my solicitor to confirm)

However, down to our naivety (and that the agent didn't respond to my emails on the matter), it turns out the remaining lease is for 75 years.

As a first time buyer, most leases appear to have circa 999 years. I'm worried this would impact the resale value if we were to sell. The flat was built in the 90's so would have originally been a 100 year lease.

How straight forward is it to extend the lease?
Can this be expensive? Are we talking hundreds or thousands?
Is there a significant risk the lease would not be extended?
Should the lease be extended as part of the purchase?
As this wasn't openly disclosed, should we submit a slightly lower offer?

Thank you for your advice. It's a great property, and we would like to complete but I'm assessing the risk of proceeding with a lease which upon resale could harm value. As a first time buyer I've been a little too trusting it seems.

Thank you for your advice

m0bov

You won't get a mortgage on that length, your looking at 5 figure sums. Best to get the vendor to extend on completion or walk away.

TrickyDicky101

You may find that it is a share in the company that owns the freehold - you need to clarify this with your solicitor.

The cost to extend will depend on several factors including property location and value and specific lease terms (existing and what new terms you agree to when extended if via the non-statutory route).

Some mortgage lenders will accept shorter remaining lease terms, but you will be shrinking the available mortgage pool.

bouicca21

If it is coming with share of freehold, then you need to talk to the other members of the management company. Presumably their leases are of a similar length or have been renewed. You need to find out on what terms they would agree to an extension, and get it in writing. It is likely that you and they are all in the same boat so if they are a reasonable bunch, it it will be legal costs only. If they are not reasonable and they seek to profit from granting an extension, walk.

tiger_eyes

As the lease length is under 80 years, you're looking at paying the marriage value on top of the normal costs of lease extension. This could be a very expensive decision.

mack83

We've actually been approved a mortgage, the mortgage surveyor stated 75 years in his report to the lender and it was approved. I then asked my solicitor to look into this.

It would appear this could cost tens of thousands to extend the lease. This website has a useful article:http://www.moneysavingexpert.com/mortgages/extend-your-lease#marriage

As far as I can tell, this could cost us tens of thousands. Is there any approach for this to be extended prior to completion without us incurring significant costs?

As you can appreciate, first time buyers with stamp duty and legal fees, I don't have 20-40K in the bank and it doesn't warrant paying asking price for the property.

May be worth talking to the management company, thank you for your advice.However, this may be a deal breaker.

bouicca21

If the management company are the freeholder, then it's them you need to ask. Under these circumstances I would not expect them to insist on the marriage value. You won't know until you ask.

TrickyDicky101

How much is your agreed offer (currently)?

What is the Ground Rent and are there any escalation clauses (eg goes up with RPI each year, doubles every 10 years - that sort of thing)?

Assuming the vendor has owned the property for over 2 years, then they can initiate the statutory extension process and assign it to you on completion.

The freeholder can be approached to extend even if not owned for 2 years, but then the extension cost would be down to negotiation (and you don't have the statutory stick to threaten the freeholder with).

mack83

So speaking to the solicitor, the management company is not the same name as the freeholder.
Does this mean it's not a "share of freehold" and that's been misrepresented by the buyer and agent?

bouicca21

Perfectly possible that there is a freeholding company who have appointed the management company ... It's the freeholder you need to approach.

PS The flat I used to rent was one of 7 in a converted house - it was shared freehold but none of the lease owners could be arsed to do anything so they appointed a management company. Friends with shared freehold in another converted house do all the management themselves. You really need to find out just what the situation is.

mack83

I took your advice and spoke to the management company.
They confirmed it was a share of freehold, based on a transfer of shares on completion in the freehold company.
She put my mind at rest saying there were no additional fees, and I would only have to cover legal fees of the freehold company. She estimated £500 for the freehold companies' solicitors costs.
The company has granted 3 extensions to 999 years, and other leaseholders haven't extended due to old age. She said completing the extension as part of the sale could extend the completion to 5 months, so recommended waiting for 2 years after completion.
She said she would provide assurance in writing If I asked my solicitor to contact her.

It looks like this isn't a deal breaker.