Leasehold

NevB

Hi everyone,

I'm new to the forum so apologies if I've posted in the wrong section or thread.

Basically, I'm trying to sort out my mother's finances. She's in her 80's and has lived in her current house for nearly 60 years. I've recently discovered that her property is leasehold and has only 15 years left on the lease. The market value of similar freehold houses is £220 to £250K. If my limited understanding is correct, this could cost thousands to renew with such a short term left ?

Not sure what to do for the best as she intends to leave the house to myself and sibling when she passes.

Any advice or similar experiences would be greatly appreciated.

Thanks in advance.

Retired_Mortgage_Adviser

What your mum needs to is to get the lease extended.

Either try to get an informal agreement with your freeholder or, if that doesn't work, because your mum has owned the property for more than two years, she can serve a legal notice on the freeholder that will add 90 years to your lease and reduce the ground rent to zero.

What this will cost, however, is impossible to say.

No internet forum or calculator can tell you the precise amount as you need to get a professional valuation from a valuer who has experience of leasehold valuations and so is able to calculate the price range that you should pay.

On top of what you have to pay the freeholder, you can expect to pay between £4,000 to £6,000 in fees for the solicitors and surveyors acting for both you and the freeholder.

As extending the lease will significantly improve its value when you do inherit it, you could consider contributing to the cost of the lease extension.

DISCLAIMER: I've never come across the case of a lease on a leasehold house being close to running out, the above is all based on a flat. Is it different in the case of a leasehold house, I don't know.

eddddy

If it's a house, it's often better to buy the freehold than to extend the lease.

But either way, you're right about the high cost - it could be well over £100k. It's probably worth getting an RICS valuer to value it to find out.

Unless you can raise that kind of money, probably the best thing to do is sell it to an investor, who will then buy the freehold - but the investor will expect to make a chunk of profit on it.

(e.g. If it costs £100k to buy the freehold, an investor might expect to buy it for £125k to £150k less than the cost of a similar freehold house.)

Your mother (or her executor) would make an application to buy the freehold, just before the sale went through, and the buyer would deal with the rest.


The cost of buying the freehold (or extending the lease) will escalate each year - and obviously, you shouldn't let the lease get down to zero.

need_an_answer

A lot can happen prior to anything happening to your mother.
She could require care and the property need to be sold to fund that care...in that case I'd not bother with a lease extension.Sel;l for what it achieves and be done.

The other scenario is what would you want to do with the property if you were to inherit it...sell...maybe the lease extension would be an advantage at that point...
but that raises the question of who pays for the extension...yep if mum pays it makes it a more attractive proposition if handed down with a longer lease and its ultimately worth a lot more to the seller.

but if you and your siblings for example just want to gain a passive income from it for maybe 10 years or so,you could go down the rental route and just hand it back at the end of the lease.

there are some calculators for costs of lease extensions online but they may not give accurate figures for something that only has such little left on it.
The best thing to do would be to obtain the costs of lease extension from the freeholder and make an informed decision on the way forward.

You may need to consider the moral/depravation of assets implications of your mother for example paying for a large legal fee to extend the lease if you all know she may not be reaping the benefit of it still in 15 years time.

Retired_Mortgage_Adviser

This website claims to calculate the cost to an accuracy of +/- 3% (I'd take that claim with a large pinch of salt!). And this is what they come up with (assuming a post extension market value of 220k).

Even so, that is probably within 10% of what an extension might cost.

eddddy

need_an_answer wrote: »

You may need to consider the moral/depravation of assets implications of your mother for example paying for a large legal fee to extend the lease if you all know she may not be reaping the benefit of it still in 15 years time.

No, extending a lease, or buying a freehold, will make a profit - not a loss.

So it would increase the value of her assets, not reduce them.

i.e. If she spent £100k extending the lease or buying the freehold, it would add more than £100k to the value of her house.


So if she eventually sold the house, she'd have more money for care.

(But I suspect the challenge is that she doesn't have £100k+)

need_an_answer

eddddy wrote: »

No, extending a lease, or buying a freehold, will make a profit - not a loss.

So it would increase the value of her assets, not reduce them.

i.e. If she spent £100k extending the lease or buying the freehold, it would add more than £100k to the value of her house.


So if she eventually sold the house, she'd have more money for care.

(But I suspect the challenge is that she doesn't have £100k+)

There is still a moral side to this...yes I agree it makes sense for mum to pay to increase the value of the property...but if its not for her benefit and only as a means to increase an inheritance then it becomes a grey area.

The OP has only given basic facts and his mothers age...the rest is assumption as to whether she is in good or poor health or indeed even has the funds to make the lease extension with her own mental capacity rather than for example the use of a POA who may have a potential conflicting interest at a later date.

NevB

Thanks for all your advice and replies.

My mother is in poor health and indeed does not have the funds to pay £100k plus to buy the freehold / extend lease. Unfortunately, neither do I.

Do you think it's worth contacting the Landlord informally to discuss the issue before carrying out any surveys etc.. Or is this a bad idea?

Retired_Mortgage_Adviser

Surveys for what purpose?

eddddy

NevB wrote: »

Do you think it's worth contacting the Landlord informally to discuss the issue before carrying out any surveys etc.. Or is this a bad idea?

There's no harm in contacting the landlord informally, but what outcome would you be hoping for?

I guess you you could suggest a short lease extension for less money, but I doubt you'd get a good deal.


Or if you were planning to sell the property, it might be sensible to discuss "freehold enfranchisement on completion" with the landlord...

e.g. You advertise the house as freehold for, say, £250k. And maybe £125k of that goes to your Mum for the leasehold, and £125k goes to the landlord for the freehold.


I guess you mean valuation rather than survey. The valuation would probably cost a few hundred pounds - if you're not planning to buy the freehold / extend the lease / sell now, it may not be worth doing.

NevB

Sorry, yes I meant valuation not survey.
Thanks again to all for your advice.