selling flat and extending leasehold

flowerpower55

Hi,
I'm currently trying to sell my leasehold flat, but the lease only has 73 years left on it.
The estate agent has advised me that I should start the process of extending the lease, however my solicitor has said he advises not to start until I have a buyer, as I will need the money from the purchase to pay for the lease extension.
I was just wondering if anybody has any advice or experience in a similar situation.
Thank you

hazyjo

Yup - listen to your solicitor, not your EA

flowerpower55

Thank you for replying.
I'm very concerned that this is obviously going to put off any buyers though.
Would it not look better for buyers to have the paperwork all in place and extend on completion using the funds from the sale.
I know he knows best, but I'm worried I'm going to have to sell for a lot less if I don't start the extension process.

eddddy

Is your solicitor experienced in lease extensions? That advice sounds strange. (And the EA's advice sounds a bit vague.)

Broadly, there are two routes you can take:

1. Lease extension on completion (Informal route)
You do a deal with your freeholder that they will extend your lease to coincide with your sale.

So your buyer has a long lease from day 1.

You'd need to start discussing this with your freeholder well in advance, ideally not when you get to the stage of somebody making an offer.

But you cannot force your freeholder to sell you a lease extension, and the freeholder might ask for a stupid price, and/or stupid terms.


2. Formal Statutory Lease extension
This may be cheaper / better - but it typically takes 6 to 12 months, and you can't really make it coincide with the sale date of your flat.

In this case, you would serve a lease extension notice on the freeholder after you exchange contracts for your sale.

So the buyer is only getting a 73 year lease, but they know that in 6 to 12 months it will get extended.

And the buyer will pay for the extension at the end of the 6 to 12 months.

It's probably worth talking this through with a lease extension specialist - i.e a solicitor or a valuer. But probably not a solicitor who only specialises in conveyancing.

Here's a bit of info about it: https://www.lease-advice.org/article/lease-extension-of-leasehold-flats-the-two-routes/

Tom99

The easiest route is eddddy's option 2 above but the problem might be that the purchaser still has to get a mortgage on the 73yr lease.
As said you would either have to employ a solicitor familiar with serving a section 42 notice or, alternatively, agree to serve the notice as prepared by your buyers solicitor.
The reason you only serve the notice after exchanging contract is that once you serve notice you are responsible for the freeholders costs even if your buyer pulled out.

ethank

You can submit a section 42 notice to extend and convey this with the sale, although it is advisable not to do this before exchange of contracts otherwise you may have to pay for a lease extension for a sale which does not go through.

Some good info at https://www.fridaysmove.com/property-law-blog/tonyl/what-happens-when-buyer-wants-seller-extend-lease-completion

Tom99

ethank wrote: »

You can submit a section 42 notice to extend and convey this with the sale, although it is advisable not to do this before exchange of contracts otherwise you may have to pay for a lease extension for a sale which does not go through.

Some good info at https://www.fridaysmove.com/property-law-blog/tonyl/what-happens-when-buyer-wants-seller-extend-lease-completion

You can pull out at any time but will be liable for the freeholders costs to date and you cannot serve another S42 for 12 months after the date you pull out.

flowerpower55

Thank you all, really helpful.

eddddy

Just to highlight some other considerations - I'll use some example numbers.

Let's say...
- The flat is worth £180k - without a lease extension
- The lease extension will cost £15k
- The flat is worth £200k with a lease extension
- A potential buyer wants a 90% mortgage

• So if you sell it with a lease extension on completion at £200k, the buyer should get a £180k mortgage - so they need £20k in cash

• If you sell it without a lease extension at £180k, the buyer should get a £162k mortgage - so they need £18k in cash for the purchase, plus £15k in cash for the lease extension - a total of £33k in cash

Fewer people will have £33k in cash than £20k in cash (and some people might be put off by idea of completing the lease extension process.)

So it might be worth asking the freeholder what terms they would want for an informal lease extension.

You might find that the freeholder says £20k, whereas your valuer estimates £15k for a statutory lease extension - which might be worthwhile.

(But take advice on things like ground rent and any other new terms that the freeholder proposes.)