Removed text

AskAsk

Removed text

HampshireH

Can't they start the ball rolling so to speak?

Your friend may not get a mortgage without the extension or at least in being in progress

nicknameless

I would find a different flat with that uncertainty unless it's an absolute honking bargain.

We have just extended the lease on our flat (along with many other owners in the development) to 999 years for approx. £2k, but there were special circumstances and I think we got it cheap (Flat worth approx. £120k).  Our lease still had 85 years on it.  Below 80 cost rises substantially as I understand it and value of lease starts to drop commensurately.

I am no leasehold expert by any means though.

MaryNB

For a non statutory extension the freeholder can charge whatever they like. The danger with a non statutory extension is that the freeholder can also include unfavorable terms, e.g. excessive ground rent increases. Sometimes the freeholder will charge less than the statutory cost, but add in terms that over the long-term are far more favourable to the freeholder.  I even read one horror story where a couple were granted a non statutory extension but the extension was back dated so much that they only got a few extra years on the lease after spending thousands. 

For a statutory extension the costs are fixed but it's a complicated calculation that includes the ground rent, years left on the lease, value of the property and on top there are legal fees.

It's a much safer option. Ground rent becomes negligible (or zero, can't remember), lease is extended by 90 years and the freeholder can't just stick in whatever terms they like.

Below 80 years, a statutory extension cost includes the marriage value on top of the usual costs. This means the free holder is paid half the increase in value (total value to both the freeholder and the leaseholder)  - i.e. half of the difference in value of the flat at 74 years and 164 years. It can be a significant cost and why it's advisable to avoid flats with a lease near or below 80 years.

If you have the annual ground rent of your friend's desired flat as well you can check some online calculators to estimate the cost of the extension. I tried a few and the results for a flat with a 74 year with a post extension value of £200k starts at about 13k, even with zero ground rent (this is just an estimate). And there are legal fees on top. However that is for a 90 year extension, statutory extensions are only 90 years.

NameUnavailable

If you buy the flat you have to live there for 2 years before you can start a statutory lease extension application - which will add 90 years to the lease and reduce the ground rent to zero.

Freeholders will often offer less advantageous terms - as in this case, they are only offering to extend it to 125 years (and my add higher ground rents or other little 'enhancements' in their favour so be careful! - a doubling ground rent clause could make it very difficult to sell in future).

If your vendor is only offering an £8K reduction they are going to have a hard time selling the flat, as you don't know the costs at this stage plus the hassle and of course the legal costs to add in.

Finally, you need to find a lender who will lend on a short leasehold, which will limit your options further.

eddddy

AskAsk said:

The estate agent says the owner had asked the freeholder and was told £8,000 to extend the lease to 125 years.  The owner doesn't want to extend the lease and wants to sell the flat priced to take into account the cost of extending the lease.

Anyone got any opinion on this £8,000 cost?  It seems a bit low to me but I am no expert on lease extension cost.  I understand the details but I don't have experience of costs.

If that's the case, your friend can say that they will buy the flat with a lease extension on completion

i.e. They will buy 2 things at the same time -

1) the flat with the with the 74 year lease from the seller
2) a lease extension to 125 years from the freeholder

So they end up with a flat with a 125 year lease on completion. But first, you need to find out if the freeholder is wiling to cooperate wityh this approach

And two transactions will mean 2 lots of legal fees etc - and maybe twice the amount of negotiation, twice the work, twice the hassle, twice the stress and twice the fees lost, if the the sale falls through.

Personally, I would expect a bit of an extra discount on the flat price to compensate for the extra fees, extra hassle, extra risk etc.


(As others have said, you also need to make sure that the terms agreed with the freeholder are OK.)

london21

No way of knowing for sure without evidence that it is £8000.

your friend will pay freeholder’s solicior’s fees for extension, his solicitor fees and valuation also. 

Slithery

AskAsk said:

the estate agent states the ground rent is £1,100pa.  she said there is no service charge, which seems very odd to me but then the ground rent is extraordinarily high so that includes the service charge in there I guess.

I wouldn't guess that at all. It probably just means that there isn't a fixed service charge but instead the owners get billed for everything that a service charge would usually cover as and when they happen.

NameUnavailable

£1100 ground rent??!!!! I doubt your friend would get a mortgage on it - ground rent over £250 outside London or £1000 inside London means the lease is an AST (google it).

Ground rent is not service charges. When work is needed they will get billed for their share of the costs.

Tell your friend to run away from this as fast as possible.

MaryNB

AskAsk said:

MaryNB said:

For a non statutory extension the freeholder can charge whatever they like. The danger with a non statutory extension is that the freeholder can also include unfavorable terms, e.g. excessive ground rent increases. Sometimes the freeholder will charge less than the statutory cost, but add in terms that over the long-term are far more favourable to the freeholder.  I even read one horror story where a couple were granted a non statutory extension but the extension was back dated so much that they only got a few extra years on the lease after spending thousands. 

For a statutory extension the costs are fixed but it's a complicated calculation that includes the ground rent, years left on the lease, value of the property and on top there are legal fees.

It's a much safer option. Ground rent becomes negligible (or zero, can't remember), lease is extended by 90 years and the freeholder can't just stick in whatever terms they like.

Below 80 years, a statutory extension cost includes the marriage value on top of the usual costs. This means the free holder is paid half the increase in value (total value to both the freeholder and the leaseholder)  - i.e. half of the difference in value of the flat at 74 years and 164 years. It can be a significant cost and why it's advisable to avoid flats with a lease near or below 80 years.

If you have the annual ground rent of your friend's desired flat as well you can check some online calculators to estimate the cost of the extension. I tried a few and the results for a flat with a 74 year with a post extension value of £200k starts at about 13k, even with zero ground rent (this is just an estimate). And there are legal fees on top. However that is for a 90 year extension, statutory extensions are only 90 years.

the estate agent states the ground rent is £1,100pa.  she said there is no service charge, which seems very odd to me but then the ground rent is extraordinarily high so that includes the service charge in there I guess.

reading through the responses, I am starting to think it would be impossible to value this flat to make an offer where we would think it was a bargain because of the uncertainty of the lease extension.

reading up on statutory extension, it states the owner can ask for this and then assign the notice rights to the buyer.

does sound very complicated so i may have to tell my friend to leave it.

he is putting down 90k deposit so he is only going to borrow a small amount.  the mortgage therefore becomes less of an issue.

the plan would be to buy the flat and do the lease extension as part of the purchase transaction.

i just put looked for the calulator you mentioned and put the details in, and it says between 22k and 25k, so the owner is obviously lying!  i did think that 8k sounds far too low.

The owner isn't lying. That's what they want for a non statutory extension, they're not bound by the same calculation, the informal route is a negotiation. They can extend it for a fiver if they want. Also the freeholder is offering 51 years instead of the statutory 90.

Does the informal extension they're offering include a reduction in ground rent? If not, at an insane £1.1k a year the freeholder will be doing well! A statutory extension brings that down to a peppercorn rent (essentially nothing). For a non statutory extension a freeholder can add whatever ground rent terms they like into the lease. If the leaseholder doesn't agree the freeholder can refuse to extend and the leaseholder has to go down the statutory route.

Also, as has been said above, that ground rent is an issue in itself. Outside of London a lease becomes an Assured Tenancy if the ground rent is above £250. This means it is much much easier for the freeholder to take back the lease if the leaseholder is a few months late paying the ground rent. For this reason, lenders see it as a risk and either refuse to lend or require the buyer purchase  an indemnity policy to protect their lender's interests.

MaryNB

AskAsk said:

MaryNB said:

AskAsk said:

MaryNB said:

For a non statutory extension the freeholder can charge whatever they like. The danger with a non statutory extension is that the freeholder can also include unfavorable terms, e.g. excessive ground rent increases. Sometimes the freeholder will charge less than the statutory cost, but add in terms that over the long-term are far more favourable to the freeholder.  I even read one horror story where a couple were granted a non statutory extension but the extension was back dated so much that they only got a few extra years on the lease after spending thousands. 

For a statutory extension the costs are fixed but it's a complicated calculation that includes the ground rent, years left on the lease, value of the property and on top there are legal fees.

It's a much safer option. Ground rent becomes negligible (or zero, can't remember), lease is extended by 90 years and the freeholder can't just stick in whatever terms they like.

Below 80 years, a statutory extension cost includes the marriage value on top of the usual costs. This means the free holder is paid half the increase in value (total value to both the freeholder and the leaseholder)  - i.e. half of the difference in value of the flat at 74 years and 164 years. It can be a significant cost and why it's advisable to avoid flats with a lease near or below 80 years.

If you have the annual ground rent of your friend's desired flat as well you can check some online calculators to estimate the cost of the extension. I tried a few and the results for a flat with a 74 year with a post extension value of £200k starts at about 13k, even with zero ground rent (this is just an estimate). And there are legal fees on top. However that is for a 90 year extension, statutory extensions are only 90 years.

the estate agent states the ground rent is £1,100pa.  she said there is no service charge, which seems very odd to me but then the ground rent is extraordinarily high so that includes the service charge in there I guess.

reading through the responses, I am starting to think it would be impossible to value this flat to make an offer where we would think it was a bargain because of the uncertainty of the lease extension.

reading up on statutory extension, it states the owner can ask for this and then assign the notice rights to the buyer.

does sound very complicated so i may have to tell my friend to leave it.

he is putting down 90k deposit so he is only going to borrow a small amount.  the mortgage therefore becomes less of an issue.

the plan would be to buy the flat and do the lease extension as part of the purchase transaction.

i just put looked for the calulator you mentioned and put the details in, and it says between 22k and 25k, so the owner is obviously lying!  i did think that 8k sounds far too low.

The owner isn't lying. That's what they want for a non statutory extension, they're not bound by the same calculation, the informal route is a negotiation. They can extend it for a fiver if they want. Also the freeholder is offering 51 years instead of the statutory 90.

Does the informal extension they're offering include a reduction in ground rent? If not, at an insane £1.1k a year the freeholder will be doing well! A statutory extension brings that down to a peppercorn rent (essentially nothing). For a non statutory extension a freeholder can add whatever ground rent terms they like into the lease. If the leaseholder doesn't agree the freeholder can refuse to extend and the leaseholder has to go down the statutory route.

Also, as has been said above, that ground rent is an issue in itself. Outside of London a lease becomes an Assured Tenancy if the ground rent is above £250. This means it is much much easier for the freeholder to take back the lease if the leaseholder is a few months late paying the ground rent. For this reason, lenders see it as a risk and either refuse to lend or require the buyer purchase  an indemnity policy to protect their lender's interests.

thanks for the info.  really helpful.

yeah, i did think after i had posted that comment that the owner was telling the truth as the online calculator would be statutory extension valuation, where the ground rent is zero.  the freeholder is giving out a lease extension on a healthy ground rent of £1,100 so this subsidise the lease extension cost.

i didn't know about the ground rent creating an AST until the NameUnavailable commented.  glad i posted on here to ask!

The high ground rent creates an assured tenancy, not an assured shorthold tenancy (AST). While the assured tenancy can be problematic for leaseholders, a leaseholder on an assured tenancy still has far greater security of tenure than a tenant under an AST