Buying a flat with a lease extension as part of the sale

paddymc88

Hi,
Has anyone purchased a flat / apartment and agreed for the seller to extend the lease as part of the sale? 

I am wanting to know if the seller could pull out of extending the lease after the sale has completed in order to not have to pay for it which would mean that I am stuck with a shorter lease on the property. 

I have read about section 42 however it does say that this can be withdrawn at any time so I am curious to know if anyone has experienced this. 

princeofpounds

Presuming that you are being assigned the process mid-way through, rather than specifying it before exchange/completion...

It depends on whether the process being assigned to you is via the informal route (a negotiated purchase with the freeholder) or the formal route (tribunal for a statutory lease extension). If the latter, the freeholder has no choice as long as the process continues. In the former, yes they could pull out in theory unless they have given an undertaking. Normally in this situation the formal process is used I believe, so as long as you follow through the lease extension will happen.

eddddy

It depends on how the lease extension is being done. There are many possible scenarios. (One important factor is whether you need the lease extended in order to get a mortgage.) Here are 2 example scenarios...

1. One approach is "Lease Extension on Completion" - technically that involves an "Informal Lease Extension"
It works like this (using a made-up example)...  You agree to buy 2 things

• You agree to buy a leasehold flat from the seller for £190k
• You agree to buy a lease extension from the freeholder for £10k

I.e. you end up with a long leasehold flat for £200k.

But this requires cooperation between seller and freeholder. And you have to carefully arrange this with your solicitor, so that both contracts are exchanged at the same time. (To make sure you don't end up with just 1 of those 2 things.)


2. Another approach is a "Statutory Lease" extension. In your case, it might roughly work like this:

• You exchange contracts with the seller of the leasehold flat
• The seller serves a statutory notice on their freeholder to extend the lease (because the contract says they must)
• You complete the purchase of the flat for £190k with a short lease
• You continue the lease extension process for between 6 months and 18 months
• You can't be sure of the final price of the lease extension, but let's say it ends up as £7k for the lease extension plus fees (maybe £2k to £4k)

So you might end up paying £197k (plus £2k to £4 fees) for a flat with a long lease.





Edit to add...
Just a warning. You can't rely on things said in letters or emails etc. For example, the freeholder might say in a letter that they will extend the lease for £10k after you purchase. But that would be "Subject to Contract" - which means they could change their mind after you've purchased the flat, and ask for £20k or refuse to give a lease extension later.

anewbuyer

We purchased our flat this way. The sellers would extend the lease at the same time that the completion was done and we didn't have to pay for the extension, they did pay the freehold and formalised the extension as soon as our money got to their solicitor. The process was the same as in a normal purchase, it just took 7 months... 

SeanG79

I have a flat sale going through now where condition of sale is lease extension prior to completion. We have agreed this informally with the Freeholder but the extension will be completed ahead of exchange/completion. 

The risk we (my wife and I run) is that the lease is extended and the sale falls through for whatever reason but we are comfortable with this as the Lease needs extending in any event and don't want to risk the Freeholder changing their mind or their price ahead of completion. In theory the Freeholder could increase the price at the last minute knowing the sale is reliant on the Lease being extended. 

eddddy

SeanG79 said:

I have a flat sale going through now where condition of sale is lease extension prior to completion. We have agreed this informally with the Freeholder but the extension will be completed ahead of exchange/completion. 

The risk we (my wife and I run) is that the lease is extended and the sale falls through for whatever reason but we are comfortable with this as the Lease needs extending in any event and don't want to risk the Freeholder changing their mind or their price ahead of completion. In theory the Freeholder could increase the price at the last minute knowing the sale is reliant on the Lease being extended. 

Yep - but in general, there are 2 potential issues with this approach 

1. As you say, the sale might fall through
2. The seller doesn't always have enough cash to pay for the lease extension (until they sell) - but it sounds like you do.

If you arranged it so that you exchanged contracts on both the lease extension and the flat sale at the same time, you could avoid those issues (as long as the freeholder cooperates) But as you say, you've chosen not to.


Edit to add...
And hopefully you've given a draft copy of the Lease Extension Deed to your buyer's solicitor, to make sure they are happy with it. (For example, the freeholder isn't slipping in some nasty ground rent increases.)

paddymc88

Thank you for your responses. Ideally we would want to have it all finalised on completion however as FTB, we are wanting to take advantage of the stamp duty holiday and we have been informed by the estate agent that the lease extension could take up to 12 months. 

eddddy

paddymc88 said:

Thank you for your responses. Ideally we would want to have it all finalised on completion however as FTB, we are wanting to take advantage of the stamp duty holiday and we have been informed by the estate agent that the lease extension could take up to 12 months. 

So that sounds like a statutory lease extension (and it could take longer than 12 months)

So your mortgage lender has to be happy with the lease length as it stands, in order for you to proceed.

As explained above, you will need to have a big chunk of cash to pay for the lease extension and fees - and you can't be sure of the final cost until the process is complete.

And you need to be comfortable that you're paying a fair price for the flat, once you've added in the cost of the lease extension.

olihiggy11

My partner and I are doing this as part of the sale of our flat.  it has taken the best part of a year and driven by the freeholders solicitors using the timeframe they have for the first step, the offer of premium to it's fullest. They agreed to our premium with 3 hours until the deadline. They've subsequently taken almost 2 months to get docs together and as a result we've lost the house were buying and are at risk of losing our buyer.  the whole transaction was going to be completed in one go when the time came to exchange to complete the chain.