Lease extension on a flat

monaymadlol

Hi, I've been in my flat around 5 years. There are 89 or 90 years remaining on thd lease. 
I don't plan on being here forever, but no plans to move imminently. 
The management company have sent a newsletter with approximate costs to use the same solicitor to keep the costs low. 
They are roughly £1250 premium to freeholder, £650 freeholder legal and professional fees, £650 leaseholders legal fees. 
There are several hundred residents on my site I'd guess, most have same amount remaining. Some have extended to 999 years. 

I have some questions 

1) do these costs seem reasonable or do I still shop around?
2)  would costs increase if I left it a few years, but kept it above 85 years say?
3) do I pay the freeholder legal and professional fees?
4) if so, £2500 is looking like a mighty chunk to fork out at once, and could enable to pay solicitors fees to move elsewhere with freehold share or a longer lease!

Not sure what to do

MaryNB

You need to do a huge amount of research (start here: https://www.moneysavingexpert.com/mortgages/extend-your-lease). Below is a summary of what I learnt when researching the pitfalls of buying a leasehold (the result being I'm moving further out so I can buy a house.)

There are two ways to extend your lease. The informal route which I believe you've described above, and the statutory route.

The statutory route will be much more expensive than what you've described above but your freeholder cannot adjust the terms. It will increase your lease by 90 years and the ground rent will effectively be zero. Use this calculator to get an idea of the cost: https://www.lease-advice.org/calculator/
From what I've read the legal fees alone could be in the region of £4000. But given your lease is getting below 90, you'll probably make up the cost of the extension when you sell because you'll be increasing the value of your property by extending the lease (only seems to apply when the lease is less than 100 and nearing 80). The shorter your lease, the more expensive it is to increase but the more the value of your property will increase when you do.
Costs will increase the lower it goes but don't let it fall to 80 years (start the process before goes below 81 because it could take a year to sort out). Otherwise, you'll have an additional charge of 50% of the marriage value. Marriage value is the difference in the value of the leasehold before and after you extend the lease. 
When it gets to 70 years you're looking at cash buyers when you go to sell. Most banks won't lend if the lease is 70 years or less.
 
If you go down the informal route the freeholder can add any terms they like. Extending to 999 years at those costs seems like a very good deal BUT you need to see what else they intend on changing. I've read some horror stories (https://www.leaseholdknowledge.com/informal-lease-extensions-are-pure-poison/). Does the agreement include increasing ground rent? If it goes above £250 (or £1000 in London) the lease becomes an Assured Tenancy and it makes it much easier for the freeholder to take back the lease if you are a few months behind on ground rent. You may not think this is an issue but your lender will, and so will the lender of any future buyer. The lender may require indemnity insurance before they'll grant a mortgage.
If they add a doubling clause it could make the place unmortgageable. Banks won't want to get involved in a property if the ground rent doubles every 10 years or so.
There are also other things they could change in order to benefit themselves. I'd get legal advice if you intend to go down this route. It's a minefield.

monaymadlol

MaryNB said:

You need to do a huge amount of research (start here: https://www.moneysavingexpert.com/mortgages/extend-your-lease). Below is a summary of what I learnt when researching the pitfalls of buying a leasehold (the result being I'm moving further out so I can buy a house.)

There are two ways to extend your lease. The informal route which I believe you've described above, and the statutory route.

The statutory route will be much more expensive than what you've described above but your freeholder cannot adjust the terms. It will increase your lease by 90 years and the ground rent will effectively be zero. Use this calculator to get an idea of the cost: https://www.lease-advice.org/calculator/
From what I've read the legal fees alone could be in the region of £4000. But given your lease is getting below 90, you'll probably make up the cost of the extension when you sell because you'll be increasing the value of your property by extending the lease (only seems to apply when the lease is less than 100 and nearing 80). The shorter your lease, the more expensive it is to increase but the more the value of your property will increase when you do.
Costs will increase the lower it goes but don't let it fall to 80 years (start the process before goes below 81 because it could take a year to sort out). Otherwise, you'll have an additional charge of 50% of the marriage value. Marriage value is the difference in the value of the leasehold before and after you extend the lease. 
When it gets to 70 years you're looking at cash buyers when you go to sell. Most banks won't lend if the lease is 70 years or less.
 
If you go down the informal route the freeholder can add any terms they like. Extending to 999 years at those costs seems like a very good deal BUT you need to see what else they intend on changing. I've read some horror stories (https://www.leaseholdknowledge.com/informal-lease-extensions-are-pure-poison/). Does the agreement include increasing ground rent? If it goes above £250 (or £1000 in London) the lease becomes an Assured Tenancy and it makes it much easier for the freeholder to take back the lease if you are a few months behind on ground rent. You may not think this is an issue but your lender will, and so will the lender of any future buyer. The lender may require indemnity insurance before they'll grant a mortgage.
If they add a doubling clause it could make the place unmortgageable. Banks won't want to get involved in a property if the ground rent doubles every 10 years or so.
There are also other things they could change in order to benefit themselves. I'd get legal advice if you intend to go down this route. It's a minefield.

Thank you for this information. 

I'll most likely go this 'informal' route you describe. 

It's a huge amount of money though, and not sure it'll add much value. 

There have been no comments about additional terms or doubling service charge from what I hear, and those are basically being outlawed now. 

So given this, if all terms stay the same, extension to 999 years at this cost being apparently reasonable, can I wait up to a maximum of around 7 years to 82 years? As who knows where I'll be... May have moved (in fact definitely) and that cost could be towards another deposit... Ie the 2500 shouldn't exponentially increase if above 81/82 years left compared to 89/90?

Ps not in London and ground rent is £10 per annum and service charge £130 per month. Mortgage is around £360 or 380 per month 

Moonraker71

Some good advice above. Just for comparison, I paid £5k for a lease extension in 2012. At the time there was 82 years left on my lease. That extended it by 90 years. I went the informal route, but absolutely take legal advice. I'd do it sooner rather than later if you can. Time goes so fast. I never intended on staying in my flat as long as I did - when I moved in, and there was a 90 year lease, I didn't even think about it really. But suddenly I was staring down the 80-year marriage value barrel, and I realised that if I left it too long it was either going to be extortionate, or it would be an added hassle and expense if I wanted to sell. 

monaymadlol

Moonraker71 said:

Some good advice above. Just for comparison, I paid £5k for a lease extension in 2012. At the time there was 82 years left on my lease. That extended it by 90 years. I went the informal route, but absolutely take legal advice. I'd do it sooner rather than later if you can. Time goes so fast. I never intended on staying in my flat as long as I did - when I moved in, and there was a 90 year lease, I didn't even think about it really. But suddenly I was staring down the 80-year marriage value barrel, and I realised that if I left it too long it was either going to be extortionate, or it would be an added hassle and expense if I wanted to sell. 

Did you pay in cash or add to the mortgage 

Moonraker71

I actually put it on a 0% credit card. This worked out a lot cheaper than adding to the mortgage, and I didn't have enough savings at the time to leave me with enough of a buffer. I was able to pay it off quite quickly without paying any interest.

monaymadlol

Moonraker71 said:

I actually put it on a 0% credit card. This worked out a lot cheaper than adding to the mortgage, and I didn't have enough savings at the time to leave me with enough of a buffer. I was able to pay it off quite quickly without paying any interest.

Yes, I was thinking that. However, as I still have 89 years left, I doubt I'll be here til 81 years, so will just wait til nearer the mark and save if I do it 

Grumpy_chap

OP - Are you saying that for £2.5k they will extend the lease from 90 years remaining to 999 years remaining?
If so, bite their hand off!
I have just done a lease renewal from an 80-year remaining to add 90 extra years and the cost was £15k.  Obviously, there are lots of variables in the difference between two properties and two lease extensions, but the offer seems almost too-good-to-be-true.

Jon43

Hello, so myself and my two brothers inherited a simple 1 bed flat worth £230k with a 55 year lease left on it. My concern is extending the lease by adding 90 years on top of freeholders legal fees, property report, surveyors cost etc, capital gains?will lead to a lot of time and money with no or little profit return?. I have called both a surveyor and solicitor as our uncle did actually pay for a report and lease extension price in April 2018 but everyone we speak to demands a new report?. We reached probate Dec 2019 and had started paperwork to sign the property into our names but a solicitor told us to hold off as this will simply restart the clock and we then need to wait 2 years for this to become official. Has anyone had a similar experience and is the only way to pay for another property report to then see a true picture of what the financial commitments will be. personally I and my younger brother would like to just sell as is but I don’t think the eldest brother feels the same?. 😕

monaymadlol

Grumpy_chap said:

OP - Are you saying that for £2.5k they will extend the lease from 90 years remaining to 999 years remaining?
If so, bite their hand off!
I have just done a lease renewal from an 80-year remaining to add 90 extra years and the cost was £15k.  Obviously, there are lots of variables in the difference between two properties and two lease extensions, but the offer seems almost too-good-to-be-true.

£2700 to be exact. It's a very large development so maybe that's why costs are brought down - same solicitors used for all parties.
£15k?! Wow, I'd move ASAP if it was over 5 or 10k

RetSol

They are roughly £1250 premium to freeholder, £650 freeholder legal and professional fees, £650 leaseholders legal fees. 

I have extended the lease on the flat where I live (and participated in the purchase of the  of the building) in the last 10 years.  The freeholder was hostile and the leaseholders used the statutory route. 
In most circumstances, I would advise someone in your circumstances to instruct a surveyor and obtain their own valuation.  However, here the premium is so low that it is not worth the cost of doing that. 
You have a willing freeholder who has made you a reasonable offer and, in your circumstances, I would accept it and obtain a 999-year lease.  There is a a value to a potential future purchaser of your property in that you will have saved them the bother of doing it themselves. 
As @Grumpy_chap says, bite their hand off.
The professional fees appear to me to be reasonable.  The professional fees for this sort of transaction are often high in proportion to the premium involved.  I would prefer to instruct my own solicitors rather than have the same firm acting for both sides of the transaction - which appears to be the deal here.  There should be no difficulty with you proposing this.