Lease extension/Time to give up?

otter1_2

This is a bit long - sorry, but would appreciate other people's views...

Found our dream place about 3-4 weeks ago, on at 425k with 115 year lease, so we offered £400k, with thought that we might end up at about 410k-415k. Agent took about an hour to reject the offer, saying that the vendors were not likely to be interested in anything lower than the 420s.

Having done a lot of research into prices in the area, I thought 425 wasn't that far off the current fair market value, but noted that it would be a record for the road it is on, and I wasn't prepared to be the person that breaks the high price record!

We held out for about a week, then I rang back to see how things were going, as I knew they had another couple of viewings coming up, and I was planning on offering 405 to see if they would bite. Before I got a chance to make my new offer, the agent told me that one of the viewings had resulted in an offer, which had been rejected, and that the vendors had discovered that the lease was 30 years less than advertised, i.e. down from 115 years to 85!! I immediately said that I would have to look into this to see how this changed our position.

Back to the research drawing board. Having read up on leaseholds and extensions, I discovered that the crunch time is 80 years and that the cost of extending the lease could increase dramatically once the existing lease reaches less than 80 years. I called the agent and asked him to get the vendors to get an estimate from the freeholder of how much it would cost to extend the lease. I said we were interested in making a new offer but that we could not do that until we knew how much we were in for in the relatively short term (i.e. in the next five years, assuming we would be seeking to extend the lease before it got to less than 80 years left to run).

Nearly two weeks followed, during which I exchanged a couple of calls with the agent who said that the vendor was waiting to hear from the freeholder, but that it could be delayed due to postal strike. I decided to ring again last night and was told that the vendors had accepted an offer of in the 420s from a buyer who did not care about the length of the lease, although said buyer was in a chain and he said he was not sure how 'serious' the offer was. I take this as estate agent speak for 'they have not even begun to market their own house yet'.

I can't help feeling that the vendors are silly to be taking this offer, as although it is more cash, the difference isn't massive. Also, they have no idea how long it is going to take for this buyer to find a buyer of their own and although this buyer may not care about the length of the lease, I'm sure their solicitor and mortgage company will! We are FTBs and have all our finances, solicitor, etc, lined up to move very quickly from the moment an offer is accepted.

It's the only place I've looked at that I've felt I actually wanted to buy, and I know that this is clouding my judgment. Should I just let it go? I am contemplating popping a note through to the vendors direct to point out that the highest offer may not be the best offer, but worry that this may be a bit stalker-ish?

I still don't know what our final offer would be because I don't have any idea how much the lease extension would be. So my other question is how do I find out how much it would cost to extend the lease? I don't know whether I am looking at £5k or £50k at the moment and obviously that makes a huge difference to what we could bid!

Doozergirl

Well you don't really know what the purchaser's position is, only that your offer isn't good enough. Without commiting to a higher offer then you're not going to get the place. If you want it, you'll have to offer high enough to grab their attention and then deal with the lease extension after.

Some people won't be worried about the lease; 85 years is okay. If you're going to be knocking moey off, then maybe you can't compete

For an idea on cost.
http://www.tenancy-agreements.co.uk/lease.php

Is it a house or a flat? The yield will be different.

otter1_2

Thanks Doozergirl.

I looked at that calculator when I first found out about all this, but I wasn't convinced, as it calculated the value at less than 10k, which didn't seem to make sense as it is less than the amount quoted in the example at the Lease Advice website, which was done on a property valued at 150k - three times less than the one I'm looking at. I don't understand how the values are worked out.

I'm coming round to the view that it is just not to be, but while there are still straws at which to clutch...!

Doozergirl

What yield did you use? Doesn't the LEASE example involve a much shorter lease? 60something years, no? It was almost identical to the flat I had last year. The number of years makes the biggest difference.

Over 80 years and it may well not be too much.

goldbyron

An 85 year lease in itself will not cause any problems for the mortgage company or solicitors. It would cost anywhere in the region (dep on the freeholder) from £8k-£15k to extend – could just extend to 99 years. The lease extension does increase in price once it drops to 79 years because of the ‘marriage value’. However it is still possible to extend after this time and it shouldn’t increase by 10’s of £k. It is when the lease hits 60 years that the property can become unsaleable – again it can always be extended but you become more vulnerable to a given price by the freeholder. You can always argue an extortionate price within legal proceedings.

As for your situation – I feel that the lease isn’t the main concern. The seller may indeed have to wait some time to get a response from the freeholder and the postal strike would have held this up (the conveyancing process hasn’t heard of e-mail yet). However the sellers seems a little indecisive and I wouldn’t fully trust them. You could pop a note through the door – leaving them with the option of contacting you. If they don’t – move on. There is always a better deal around the corner.

otter1_2

Oh I see! So it might only be a few thousand? I thought it was going to be 20k+!

I don't know how to get a more definitive figure on this now that I have lost leverage with the agent by not being the favoured prospective buyer. We would be pretty stretched if we ended up at the top of our budget, but I want to try if we possibly can!

goldbyron

I think you can only wait and hear what the freeholder quotes as they all differ in their costs. If you are not the favoured buyer - then the purchase will be difficult to go through anyway. Go for the direct approach if you feel the sellers will react okay to this. You can bypass the agent in terms of communication.

otter1_2

Thanks GB.

Apparently the agent is a personal friend of the vendors, which I suspect has much to do with the whole thing. At one point he said to me they "wouldn't be taking the property off the market", which I thought was a really odd thing to say, seeing as how they had rejected my only offer and I had never asked them to stop marketing it.

I will talk to the other half tonight though, now that I know that I was wildly wrong with my idea of how much it would cost to extend the lease!

otter1_2

GB - I think I would be the favoured buyer if I offered a bit more, as we have no chain and a substantial deposit.

goldbyron

Otter - You may be right - maybe sell yourself again to the agent. Make a higher offer conditional on the price of the lease extension and they take the property off the market. However with your further revelation about the agent being a friend of the vendor...don't trust the agent as well. He could well continue trying to get a better price for the property for his mate (and his commission) behind your back even if they accept your offer. Be careful and good luck!

otter1_2

Well, me and the OH discussed our options and went through the finances afresh and we came up with a new offer of 420k, but I rang the agent this morning and he said that they had had yet another offer, around the same as ours, with no chain, and they had decided to go with that one. I'm sad, as I loved the flat, but at least I know we did everything we could and in the end we just couldn't afford it.

Thanks again for your help - it was good to get a neutral POV.