Lease extension prior to property purchase

bea0202

Hi,

We are trying to purchase a property which has 54 years left on the lease. As we would like to take a mortgage we will need to extend the lease prior or at completion. The seller has no funds to cover the costs and we agreed that we will do so upfront.
We cannot get anyone who would explain the process to us fully and we are confused what do we need to do. Our solicitor finally confirmed that we will need to pay a fee of cca £500 to draw up an agreement between the seller and ourselves for the upfront cost.
Previously they confirmed the lease would be extended at completion so there is no risk regarding the sum for the premium we will need to pay for the freeholder.
Has anyone been through such process who could give some advice please?
Thanks in advance.

Mollin

Sorry can't give you advice but you could look here: lease-advice.org

You can book a free 15min appointment: clients.lease-advice.org/Appointment/Appointment?isFireSafety=False

Sorry for funny links - I'm a new poster so can't post links yet!

rachel230

Has the current owner reached a legally binding agreement with the freeholder about the cost of the lease extension? Presumably this is an informal, rather than a formal lease extension, in which case you need to be very careful indeed. Informal lease extensions are risky business so if this is the case you should make sure your solicitor is very experienced in reading and interpreting leases and checking for any new clauses/conditions sneaked in. Especially the ground rent terms.

Tom99

bea0202 wrote: »

Hi,

We are trying to purchase a property which has 54 years left on the lease. As we would like to take a mortgage we will need to extend the lease prior or at completion. The seller has no funds to cover the costs and we agreed that we will do so upfront.
We cannot get anyone who would explain the process to us fully and we are confused what do we need to do. Our solicitor finally confirmed that we will need to pay a fee of cca £500 to draw up an agreement between the seller and ourselves for the upfront cost.
Previously they confirmed the lease would be extended at completion so there is no risk regarding the sum for the premium we will need to pay for the freeholder.
Has anyone been through such process who could give some advice please?
Thanks in advance.

What are the terms of the extended lease? Is it all agreed with the freeholder?
The only way I can see this working is if the leasehold seller enters a binding watertight contract to extend the lease at the same time you contract to buy the lease and also that your contract to buy is conditional on the extended lease being completed.
Doing this with a same day exchange of contracts and completion would lower the risk of things going wrong for you.
Does the freeholder require and upfront surveying/legal fees, if so who is paying these?
Would your mortgage co be happy with the fact that the extended lease will not yet be registered when they release funds?

bea0202

Thanks everyone for your reply.
The current owner hasn't entered into an agreement with the freeholder yet. The price that the seller accepted for the property includes the lease extension and legal fees, so from our side it is a fixed price for everything.
The current owner of the property does not have funds to cover the lease extension and the fees, so we need to cover the cost upfront in cash, which is fine with us, but how do we make this happen so we will not have the risk to lose this money if the purchase doesn't go through.
We cannot find a solicitor or anyone who could explain this process step by step. The estate agent offered to draw up an agreement, but not sure if that would be solid enough for us.
We are getting our mortgage through a broker and we can't get exact answers from our lender. It is more like everyone has an opinion on how things should go, but no one knows exactly.

Tom99

bea0202 wrote: »

Thanks everyone for your reply.
The current owner hasn't entered into an agreement with the freeholder yet. The price that the seller accepted for the property includes the lease extension and legal fees, so from our side it is a fixed price for everything.
The current owner of the property does not have funds to cover the lease extension and the fees, so we need to cover the cost upfront in cash, which is fine with us, but how do we make this happen so we will not have the risk to lose this money if the purchase doesn't go through.
We cannot find a solicitor or anyone who could explain this process step by step. The estate agent offered to draw up an agreement, but not sure if that would be solid enough for us.
We are getting our mortgage through a broker and we can't get exact answers from our lender. It is more like everyone has an opinion on how things should go, but no one knows exactly.

Be prepared for a long and possibly fruitless wait.
What lease extension terms have you agreed to pay for in your offer for the lease? Unless the vendor goes the statutory route there is no guarantee the freeholder with jump into line.
In fact, knowing the vendor wants to sell will be a lever for them to extract the maximum possible price whatever route is followed.

Do not take up the EA offer to draw up a legal agreement. Maybe if you get some ideas on the process from this forum you can approach solicitor with a better description of what you want. I would say some important points to include in your contract are:

1 - The lease extension to be legally completed either before you complete or on the same day.
2 - Keep your deposit as low as possible, say £1 if you can, because the risk of this deal not completing are high.
3 - The contract has a time limit. If completion has not taken place in say 4mths you have the right to pull out and receive your deposit back.
4 - Any money you pay towards the lease extension fees or premium is deducted from the contract purchase price and if the deal ultimately fails this money is returned to you.
5 - If you do exchange contracts make sure the completion cut-off date is on or before the date your mortgage offer expires.

Another option might be to delay exchange of contracts as long as possible with the vendor taking out a personal loan to cover their fees or, if that is not possible you providing the personal loan, if possible putting a charge on the property even if you don't go through with actually registering the charge.

I would say the deal has a high risk of failure with you left out of pocket either because it's not possible to complete the lease extension in a reasonable time or your mortgage deal runs out.