Short lease flat - good discount - WWYD

htcclub

I am looking at a short lease flat - 56 years. FTB here. I can get a 10-15 year mortgage so I have 30+ yrs at the end of the mortgage left on the lease.

Seller refusing to sort lease or serve section 42 prior to completion.

Asking price of 120k. Informal lease extension estimate from 7 months ago of 25k from Freeholder. Obviously Freeholder could up the cost post purchase, but even if it went statutory (2 years wait yes), estimating 5k of legal fees and premium 23k-25k (online calculator) total cost is 150k.

Potential value post sale is 165-175, based on good comparables.

csgohan4

you will find it difficult to find a lender who will lend on that short lease. Plus even if they did, do you have 30k spare to extend?

yllop1101

See if you could get in writing from the freeholder the cost of the extension. I sold my flat recently and the freeholder agreed to fix the cost of the extension so that when the buyer could extend in 2 years time they knew the cost to expect. 

eddddy

yllop1101 said:

See if you could get in writing from the freeholder the cost of the extension. I sold my flat recently and the freeholder agreed to fix the cost of the extension so that when the buyer could extend in 2 years time they knew the cost to expect. 

Did the freeholder and your buyer enter into an irrevocable, binding contract?

Or to put it in more 'everyday-terms', did the freeholder and buyer exchange contracts on the lease extension?

As with a property purchase, nothing is binding with an informal lease extension until contracts are exchanged. 

If it was just a letter, or similar, it won't be binding on either party. They'll be nothing to stop the freeholder asking for a higher price in 2 years time.

But as you've sold the flat, it will be your buyer's problem not yours. But it would be a problem for the OP.

eddddy

htcclub said:

Seller refusing to sort lease or serve section 42 prior to completion.

Do you know why the seller is refusing?  Have they owned the lease for over 2 years?

Is it because of the legal and valuation fees? Presumably, you could offer to pay those, if it's an issue.


Have you actually spoken to a mortgage lender/broker who has confirmed that they'd lend on a 56 year lease?

The lender would disregard the fact that an s42 notice has been served, as there's no guarantee that you would complete the lease extension.

NameUnavailable

1 - have you actually had a mortage offer? Most lenders won't lend on short leaseholds.

2 - have you got the spare cash to pay for the lease extension?

If the answer to the above is yes, and everything else is OK, you could ask the freeholder to agree to a price now for a lease extension, to be actioned immediately after you complete (there's no need to wait 2 years if the freeholder is happy to extend and you are happy with the price they want).

Otherwise, keep looking.

eddddy

NameUnavailable said:

If the answer to the above is yes, and everything else is OK, you could ask the freeholder to agree to a price now for a lease extension, to be actioned immediately after you complete (there's no need to wait 2 years if the freeholder is happy to extend and you are happy with the price they want).

That's not watertight, and given those circumstances, there's a much better way.

To make it watertight, you would need to exchange contracts with the freeholder and the seller at the same time.

(Otherwise a sneaky freeholder might offer to sell you the freehold in writing for, say, £25k. Then change their mind after you purchase, because they then have the upper hand.)

So if you're exchanging contracts on both at the same, you can complete on both at the same time.

That means you'd have a long lease on completion (146 years or whatever).

With a long lease .on completion, the mortgage problem goes away.

htcclub

eddddy said:

Do you know why the seller is refusing?  Have they owned the lease for over 2 years?

Is it because of the legal and valuation fees? Presumably, you could offer to pay those, if it's an issue.

They don't want the hassle and yes they have owned for 10+ years

eddddy said:

NameUnavailable said:

If the answer to the above is yes, and everything else is OK, you could ask the freeholder to agree to a price now for a lease extension, to be actioned immediately after you complete (there's no need to wait 2 years if the freeholder is happy to extend and you are happy with the price they want).

That's not watertight, and given those circumstances, there's a much better way.

To make it watertight, you would need to exchange contracts with the freeholder and the seller at the same time.

(Otherwise a sneaky freeholder might offer to sell you the freehold in writing for, say, £25k. Then change their mind after you purchase, because they then have the upper hand.)

So if you're exchanging contracts on both at the same, you can complete on both at the same time.

That means you'd have a long lease on completion (146 years or whatever).

With a long lease .on completion, the mortgage problem goes away.

Thanks for all the comments guys. I have been doing some reading and I think exchanging contracts simultaneously for both (purchase and lease exchange) and completing simultaneously for both is something that is done often enough, but requires a skilled solicitor. Solicitor will arrange for monies to go to vendor and freeholder on completion day.

I don't have cash, so would need to use the mortgage to pay for the lease extension. (This does confuse me a bit, since I would need to complete on the mortgage technically first (where lease would be below their criteria) to pay the freeholder to complete on the lease extension, but will check with bank, probably it's fine)

I would be going the informal route in this case I think, and I suppose mainly I need to ensure nothing sneaky is added to the lease, like doubling of rent/increases to the rent (avoiding AST territory of course)

I am guesstimating around 5k of fees for the lease extension. I am liable for the valuation fees of the Freeholder whatever the route, but since it's informal do I have to pay the FH's legal fee's also?

eddddy

htcclub said:

I don't have cash, so would need to use the mortgage to pay for the lease extension. (This does confuse me a bit, since I would need to complete on the mortgage technically first (where lease would be below their criteria) to pay the freeholder to complete on the lease extension, but will check with bank, probably it's fine)

In that case, you definitely need an extended lease on completion.

The problem you describe above doesn't really exist. You would be buying a flat and a lease extension at exactly the same time - there would be no time gap in-between.

The bank is only concerned about what you end up with on completion day - a flat with a long lease. They're not bothered about how it was achieved.

But check this with your solicitor - rather than the bank. Mortgage advisers at a bank might not understand this kind of stuff. And the mortgage lender will be relying on whatever your solicitor's advice is anyway.