Lease on contract is shorter than when it was advertised... What to do?

Phil000

Hello everyone,

Sorry for cross posting, I'm starting a new thread on this specific subject because the old one seems to have gone quiet. (This forum won't let me paste links, so if you want more context about my situation search for 'Doubts before contract exchange - help!' thread).

A few months back I had an offer accepted on a flat. At the time I went for the viewing, the flat was advertised with a 125 years lease (when I say advertised I mean that it is what the EAs told me, I can't actually find any written proof of this). I recently received the contract and lease draft from the solicitors, and it shows up as 99 years. I called the EA to clarify and his answers were perplexing. He first wrote me that he confirmed with the vendor that the lease should be 125 years and it's probably a mistake on the paper work, and he then call me back 10 minutes later to say that actually the vendor changed his mind 2 months ago and went for a shorter lease. I've never received any notification about this from anyone.

What's even stranger, is that I went back to my Mortgage Offer and Valuation, and in there the lease shows up as 999 years.

I read online that 99 years is still considered a long lease, however if I sell the flat again in 5-6 years time, might this impact me negatively? Will it do in 10? Also, my mortgage was offered on the 999 years lease base, I'm getting worried this can now change their offer to higher interest rates? I'm under the impression that, since I have a decent deposit and the vendor knows that I won't have much trouble getting a mortgage, they decided not to bother extending the lease as they advertised initially.

What would you do in my position? Is there anything I can do at this point to make them extend it to 125 years, or to get a discount? I have to say that it really bothers me to be played around like this, and I want to fight back and not having them win too easily. Worth saying that I feel they are in hurry to sell as well, as the flat is empty, and a sale fell through before I placed my offer, so I'm guessing now the vendor should be quite desperate to sell, which should put me in a decent position for negotiating.

On top of this, the required ground rent is £350 p.y., which sounds too high for a 99 years lease flat? And the service charges are 'not yet specified', is this standard?

Many thanks in advance!

eddddy

Phil000 wrote: »

I recently received the contract and lease draft from the solicitors, and it shows up as 99 years...

On top of this, the required ground rent is £350 p.y....

This has the hallmarks of a bad informal lease extension - it probably sounded cheap to the leaseholder, and perhaps they didn't take professional advice.

With such a high ground rent, it will be expensive to extend the lease again.

Also, if the ground rent is increasing, mortgage lenders may not be happy to lend on it.

AnotherJoe

Phil000 wrote: »

On top of this, the required ground rent is £350 p.y., which sounds too high for a 99 years lease flat? And the service charges are 'not yet specified', is this standard?

No. And that is a massive red flag. You cant possibly sign without knowing that, what if after signing they say "Its £1,000 a month" ?

I think this all sounds quite haphazard. Lease length varies at random, service charges (for what services??) undefined.

I woudl tell them you need absolute clarity, in writing to your solicitor, of what these are.

And in the meantime I'd be looking at other flats.

cattie

Never take what an EA tells you regarding a property as gospel. Especially in the cases of things such as lease length, service charges etc. EA's don't get to see the official documentation, so can only go by what the EA is told by vendor & some vendors will be vague about some things, sometimes on purpose, other times because they have no real idea.

It's the job of your solicitor to check all the info regarding a leasehold purchase, it's what you pay handsomely for them to do.

Anyway, a 99yr lease is pretty standard for a new lease, so shouldn't put you off. Once purchased, you could ask at any point if the freeholder will agree to extension but they don't have to agree until you've owned the flat for 2 yrs.

I wouldn't say the ground rent is particularly high, I had a ground rent of £250 per yr quite some years back. Different leases have different terms & often when there has been a lease extension, the ground rent will rise.
The service charges are something you should be made aware of asap as these could be the deal breaker. Most EA's will list service charges as TBS or TBA (To be announced)

I don't think you qualify for any kind of price reduction on the grounds you've mentioned, but you've nothing to lose by asking. It sounds as if there is possibly a typo on the mortgage valuation report with it listing a 999yr lease. 999yr leases are considered virtual freeholds, but it wouldn't affect the price of a flat much, just make it more appealing to buyers.

A lot of people are scared of leasehold, but if you live in a busy city, flats make up the largest proportion of housing, so there are always plenty of people willing to buy.

[Deleted User]

You have to rely on the information you get via your solicitors, rather than the estate agent. If the lease says 99 years on the paperwork from your solicitor, it's 99 years.

My position was similar (115 years advertised, 96 years actual). I bought anyway.
a, It didn't affect mortgageability or the mortgage valuation once the bank were informed.
b, the cost of extending a lease goes up significantly when there's less than 80 years left, and this was still some way off:
http://www.moneysavingexpert.com/mortgages/extend-your-lease
c, I got a discount primarily because of upcoming major works to the block that would have to be paid for. However I also pointed out to the estate agent that if they had to start again with another buyer, they'd no longer be in blissful ignorance of the lease length, major works, and service charges, and would have to market as such. I don't know how much effect this had - more than likely the real reason the vendor said yes to the discount was because they wanted to finish the sale quickly, for their own personal reasons. I'll never know.

[Deleted User]

Agree with others that you need all this clarified by the solicitor for a leasehold flat, in order to work out the true cost, and whether you want it or not:
a, ground rent amount, whether fixed or rising
b, service charges (at least past years amounts, if this years not yet determined)
c, how major works are funded (as and when? sinking fund?)
d, building insurance (if not included in a and b).

All this needs to be from the freeholder via your solicitor, not from the vendor via the estate agent!

Phil000

Hello everyone, thanks for your replys! A few clarifications:

1. The vendor is the freeholder
2. They are developers, and the flat was recently bought at an auction, not aware of any other leaseholder at the moment
3. This is exactly what is written on the Report of Property re Service Charges: The Service Charge payments goes towards the following; Building Insurance, electricity,cleaning of the communal areas (if any), general repairs, redecorations, management fees,contribution to reserves & maintenance of landscaped areas. Your yearly service charge budget has yet to be formulated by the Landlord, however I will report to you once further information is received. The service charge could fluctuate yearly for a number of reasons,e.g. improvements to communal areas.
4. About Building Insurance: The building of the property is insured by the landlord. The building insurance is included in the service charge payments.
5. About Ground Rent: Your yearly ground rent shall be £350.00 per annum. The dates for payment have not been provided by the Lessor who has not budgeted a statement for these charges as yet.

Thanks again!

eddddy

cattie wrote: »

... often when there has been a lease extension, the ground rent will rise.

No. With a statutory lease extension the ground rent will always reduce to zero (a peppercorn).

Some freeholders will offer "cheap" lease extensions with high ground rents - but you have to be very cautious about agreeing to those. They will increase the cost of future lease extensions, and can therefore reduce the value of your flat.

eddddy

... in fact, this guy says he's done a comparison calculation for 2 lease extensions:

1) Informal lease extension - extended to 99 years at £250 ground rent - cost £10,400

2) Statutory lease extension - extended by 90 years at a peppercorn ground rent - cost £13,250

But option 1 ends up costing the leaseholder an extra £90,000 over the next 24 years.

Link: http://www.leaseholdknowledge.com/informal-lease-extensions-are-pure-poison

(I don't know who this guy is, and I haven't checked his calculations - but the thrust of what he's saying seems accurate.)

Hoploz

I suppose if the building is newly converted then that would explain why there is no service charge history to work from. Has a management company been appointed? Or is the freeholder going to act as the manager? What is going to happen about the common parts cleaning, for example? There will need to be cleaners tendering for the job I suppose. None of this has been put in place, so it is impossible for you to have any idea what the ongoing costs will be. You can't be expected to proceed on this basis. The developer needs to pull his finger out and get organised. Are there other flats for sale in the same building? It sounds as if you're first in and the seller is not yet organised.

AdrianC

Phil000 wrote: »

1. The vendor is the freeholder
2. They are developers, and the flat was recently bought at an auction, not aware of any other leaseholder at the moment

Are you sure you're getting your leaseholders and freeholders the right way round there?

The bought-at-auction sounds feasible. In fact, it makes a lot of sense. Flat with very short lease, bought for buttons, lease extended cheaply (can't use statutory, because <2yr ownership), resell for quick profit.

If the vendor really IS the freeholder, then you can negotiate with them on the lease. Just because that's the current lease doesn't mean it's the lease that has to apply from now on. The freeholder and leaseholder (currently, potentially, the same person) can agree to rip it up and re-write a new lease.