Buyer insisting on Section 42 notice on a property they are acquiring the freehold on

skud_666

Hi

We have received an offer from a cash buyer on our leasehold flat (90 years remaining) on which we also own an equal share of freehold (which the buyer will also be acquiring).

The buyer does not want to wait two years to extend the lease so is insisting on us serving a section 42 notice after exchange so the benefit can be assigned to her on completion. They also want our solicitor to draft and serve the notice and they will cover the costs of the notice.

We have discussed this with our solicitor who said despite this being a very odd request and not something they have come across before (as the buyer is acquiring the freehold as well), as long as the notice is served correctly (at exchange) and we have it in writing that they have agreed to cover all costs then there is minimal risk to us and won't delay completion.

Has anyone come across this before? Is there something crucial that we're missing that means that this cannot be done or that could delay the process significantly?

Many thanks!

AdrianC

Are they acquiring the entire freehold of the whole block, or a share in it?
If just a share, then are they one of four or fewer named individuals, or are they simply buying a share in a company that happens to own the freehold?

eddddy

Why weren't the leases extended (maybe to 999 years) when the leaseholders originally bought the freehold?

And what is the current arrangement amongst the joint freeholders for extending leases?  If a leaseholder wants to extend a lease, do they have to pay a premium to all the joint freeholders?  Have you discussed extending your lease with the other joint freeholders, were they co-operative?

Perhaps your buyers don't trust the other joint freeholders to agree to a lease extension informally, so they're making sure they get a lease extension by starting the statutory process.

skud_666

AdrianC said:

Are they acquiring the entire freehold of the whole block, or a share in it?
If just a share, then are they one of four or fewer named individuals, or are they simply buying a share in a company that happens to own the freehold?

Property is a Victorian conversion so just two flats; First Floor (other freeholder and leaseholder who rent out to tenants) and Ground Floor (us).

So just a share and they will be one of four or fewer named individuals.

skud_666

eddddy said:

Why weren't the leases extended (maybe to 999 years) when the leaseholders originally bought the freehold?

And what is the current arrangement amongst the joint freeholders for extending leases?  If a leaseholder wants to extend a lease, do they have to pay a premium to all the joint freeholders?  Have you discussed extending your lease with the other joint freeholders, were they co-operative?

Perhaps your buyers don't trust the other joint freeholders to agree to a lease extension informally, so they're making sure they get a lease extension by starting the statutory process.

We purchased the property 4 years ago with 94 years remaining so didn't see the need to extend the lease as we knew we'd sell it well before it dropped to <85 years.

I'm not sure aware of any arrangement and we've not discussed it with the freeholder yet as a leasehold extension is not something we wanted to do or thought that we needed to do. There probably isn't a reason they'd say no but they can be very slow to respond/make decisions.

Yes I think you're probably right, the solicitor did say if we can get an informal agreement from the other freeholder that the buyer can do the extension after completion that would be better than the statutory route (from the buyers perspective).

Ultimately all I'm interesting in is the process that will have the least impact/effect on the completion of the sales process!

eddddy

skud_666 said:

Ultimately all I'm interesting in is the process that will have the least impact/effect on the completion of the sales process!

Serving a section 42 notice is a simple process. 

But a proposed price has to be stated, so the buyers might want to get a valuer to calculate a price first.

And I've heard of solicitors who have not included all the information required for section 42 notices which makes the notice invalid - so the buyer would then have to wait 2 years to serve another one. So the buyer might want their own solicitors to check the notice etc.

So all that might take some time.

TBH, I'd be a bit cautious about using a conveyancing solicitor to serve a section 42 notice, I might want a solicitor with specialist experience in lease extensions to do it. But I guess that's up to your buyer.


Edit to add...
But it would be more normal for everyone to give themselves free lease extensions - rather than offering to pay.  Your buyer could find that they pay the other joint freeholders for a lease extension, then the others all give themselves lease extensions for free. (Hence the questions in my previous post.)

So on the surface it looks like your buyer could be wasting money unnecessarily - if somebody (e.g. their solicitor) points this out to them, I guess it might hold up the sale.

skud_666

@eddddy

Sorry I should have clarified that I have been speaking to the specialist leasehold solicitor at the same firm who are doing the conveyancing for us.

We have it writing from the buyer that they want us to instruct our solicitor to do this for them and that they would pay for it. Our solicitor as long they obtain a deed of undertaking from her before they start then we would not be liable for anything.

Edit to add...

But it would be more normal for everyone to give themselves free lease extensions - rather than offering to pay.  Your buyer could find that they pay the other joint freeholders for a lease extension, then the others all give themselves lease extensions for free. (Hence the questions in my previous post.)

So on the surface it looks like your buyer could be wasting money unnecessarily - if somebody (e.g. their solicitor) points this out to them, I guess it might hold up the sale.

Yes that's exactly what we thought and we told the agent to tell them this but they seem completely set on doing it this way. Ultimately if they realise this after we formally accept the offer then they'll just have to proceed without or walk away.

Thanks for your advice!

NameUnavailable

I don't understand why there are shared freehold flats with short leases. Surely as part of buying the freehold the leaseholders would all extend to 999 years, given the minimal additional costs for the legal work at the time?

What am I missing?

I do know that it's not a given that extending the lease when you own a share of the freehold is 'free'. The other freeholders may decide they want you to pay X to them, or make other conditions, and mortgage co's will refuse to lend on short leases even with shared freehold for that very reason.