Buying an apartment with a reducing lease

3card

StumpyPumpy wrote: »

It is not expensive to start the ball rolling all they need to do is serve a Section 42 notice to start the lease extension process and assign the benefit of the notice to the purchaser (ie you), I'm sure your solicitor and their solicitor could come to an arrangement where you'd pay for it and all the vendor would need to do is sign on the dotted line, I doubt any sensible vendor would object.

When the Section 42 is served the clock stops ticking so it doesn't get two years more expensive as it would if you had to wait to qualify, not as important to you as some as it is already less than 80 years but still a consideration.


SP

Many thanks SP
That's filled in a few more queries
What did you mean by "not as important to you as some as it is already less than 80 years but still a consideration."


Thanks again

StumpyPumpy

3card wrote: »

Many thanks SP
That's filled in a few more queries
What did you mean by "not as important to you as some as it is already less than 80 years but still a consideration."


Thanks again

It is all to do with what is called the "marriage value". The marriage value is the difference between the market value of the property with the current lease and the value with an extended lease.

A leasehold with 80 or more years on it has zero marriage value (by law). Less than 80 years then 50% of marriage value is added to the cost, as the freeholder's share of the profit. Which, obviously, makes it more expensive. For example, suppose a property is worth £100k now and £120k after the lease is extended. The marriage value would be £20k. At 80 years this adds nothing to the cost of extending, just one year (or less) later it adds £10k.

Therefore a property with 80 years remaining costs a lot less (relatively) to extend than one with 79 years remaining as there is a leap from 0 marriage value to a marriage value of 50% of the potential profit in extending the lease. In such a case (which isn't yours) it is even more beneficial to get the Section 42 done as quickly as possible and not have to wait 2 years before you are eligible to start it yourself.

SP

3card

StumpyPumpy wrote: »

It is all to do with what is called the "marriage value". The marriage value is the difference between the market value of the property with the current lease and the value with an extended lease.

A leasehold with 80 or more years on it has zero marriage value (by law). Less than 80 years then 50% of marriage value is added to the cost, as the freeholder's share of the profit. Which, obviously, makes it more expensive. For example, suppose a property is worth £100k now and £120k after the lease is extended. The marriage value would be £20k. At 80 years this adds nothing to the cost of extending, just one year (or less) later it adds £10k.

Therefore a property with 80 years remaining costs a lot less (relatively) to extend than one with 79 years remaining as there is a leap from 0 marriage value to a marriage value of 50% of the potential profit in extending the lease. In such a case (which isn't yours) it is even more beneficial to get the Section 42 done as quickly as possible and not have to wait 2 years before you are eligible to start it yourself.

SP

Thanks again SP

Very educational for a newbie.
Just one question from this. Would teh estate agents be able to give me a valuation between the present valuation and one with the longer extended lease?
It might seem a stupid question to ask

StumpyPumpy

3card wrote: »

Thanks again SP

Very educational for a newbie.
Just one question from this. Would teh estate agents be able to give me a valuation between the present valuation and one with the longer extended lease?
It might seem a stupid question to ask

Yes they would.

ps. My description of the marriage value is slightly simplified because it really takes into account things like the ground rent the freeholder gets etc. but the internet is full of actual examples that you can look up if you want to know the gory details.