Lease extension

ElieseKM

I am in the process of buying a property with a low lease. The seller has obtained a price for extension from the freeholder, is there anyway I can get this price guaranteed as part of the sale? Ie written into legals or is there another channel 

MaryNB

You need to check the terms of the extension as well as the price. I presume it's a non-statutory extension which means the freeholder has more freedom to change the terms. How long is the extension and what will the ground rent be afterwards?

ElieseKM

Thanks for. your reply. They will extend to 125 years (currently under 80 years) they have said the ground rent will increase by £150 pa

MaryNB

ElieseKM said:

Thanks for. your reply. They will extend to 125 years (currently under 80 years) they have said the ground rent will increase by £150 pa

What is the ground rent currently? If it goes above £250 outside of London, or above £1000 in London it could be problematic. 
Is it a flat?

A statutory lease extension would increase the lease by 90 years and bring the ground rent to zero (or peppercorn). The cost of it is a bit more complicated than the freeholder saying I'll accept "X amount" but they have significantly less say in how much it will be and cannot refuse the extension. 

eddddy

ElieseKM said:

I am in the process of buying a property with a low lease. The seller has obtained a price for extension from the freeholder, is there anyway I can get this price guaranteed as part of the sale? Ie written into legals or is there another channel 

In simple terms, you would need to 'exchange contracts' with the freeholder to make the terms legally binding.

(It's the same as when you 'exchange contracts' to buy a flat/house. Once that's done, neither party can change the price or back out etc.)

Essentially, you would 'exchange contracts' on 2 things at the same time on the same day:

1. You'd exchange contracts with the flat owner to buy the flat
2. You'd exchange contracts with the freeholder to buy a lease extension

Your solicitor would arrange things to make sure you either got both those things or none (i.e. You don't just want one of them)


Do you need a mortgage? If so, does your lender require the longer lease? If so, you'll have to get the lease extension done on the completion date of your purchase.

ElieseKM

MaryNB said:

ElieseKM said:

Thanks for. your reply. They will extend to 125 years (currently under 80 years) they have said the ground rent will increase by £150 pa

What is the ground rent currently? If it goes above £250 outside of London, or above £1000 in London it could be problematic. 
Is it a flat?

A statutory lease extension would increase the lease by 90 years and bring the ground rent to zero (or peppercorn). The cost of it is a bit more complicated than the freeholder saying I'll accept "X amount" but they have significantly less say in how much it will be and cannot refuse the extension. 

It’s currently £100 pa, it is a flat and in London. 

ElieseKM

eddddy said:

ElieseKM said:

I am in the process of buying a property with a low lease. The seller has obtained a price for extension from the freeholder, is there anyway I can get this price guaranteed as part of the sale? Ie written into legals or is there another channel 

In simple terms, you would need to 'exchange contracts' with the freeholder to make the terms legally binding.

(It's the same as when you 'exchange contracts' to buy a flat/house. Once that's done, neither party can change the price or back out etc.)

Essentially, you would 'exchange contracts' on 2 things at the same time on the same day:

1. You'd exchange contracts with the flat owner to buy the flat
2. You'd exchange contracts with the freeholder to buy a lease extension

Your solicitor would arrange things to make sure you either got both those things or none (i.e. You don't just want one of them)


Do you need a mortgage? If so, does your lender require the longer lease? If so, you'll have to get the lease extension done on the completion date of your purchase.

I’m a cash buyer, would we be able to do two contracts straight away? I thought we had to wait two years or do we need the seller to start the process?

MaryNB

ElieseKM said:

eddddy said:

ElieseKM said:

I am in the process of buying a property with a low lease. The seller has obtained a price for extension from the freeholder, is there anyway I can get this price guaranteed as part of the sale? Ie written into legals or is there another channel 

In simple terms, you would need to 'exchange contracts' with the freeholder to make the terms legally binding.

(It's the same as when you 'exchange contracts' to buy a flat/house. Once that's done, neither party can change the price or back out etc.)

Essentially, you would 'exchange contracts' on 2 things at the same time on the same day:

1. You'd exchange contracts with the flat owner to buy the flat
2. You'd exchange contracts with the freeholder to buy a lease extension

Your solicitor would arrange things to make sure you either got both those things or none (i.e. You don't just want one of them)


Do you need a mortgage? If so, does your lender require the longer lease? If so, you'll have to get the lease extension done on the completion date of your purchase.

I’m a cash buyer, would we be able to do two contracts straight away? I thought we had to wait two years or do we need the seller to start the process?

The two years is for a statutory extension. The law for statutory extension requires the leaseholder to be living in the property for two years before they can avail of their right to have the lease extended, or they can get the seller to start the process and they pick it up once they purchase the flat.

ElieseKM

This the advice the current seller got, not sure about some of the terms such as the ground rent doubling:

I would have to take our Client’s instructions but would be prepared to recommend them to enter into a Deed of Variation, or a new Lease, so as to extend the existing Lease to create a new 125 year Lease from a current date on the following terms:-

1. Payment of a capital consideration of £17,000.

2. An increase in the ground rent to £250 per annum doubling at 25 year intervals.

3. Payment of our fees in the matter in the sum of £650 plus VAT, payable whether the matter proceeds to completion or not.

4. Payment of our Client’s legal costs, payable whether the matter proceeds to completion or not.

5. Inclusion in the Deed of Variation other matters of a relatively minor nature so as to modernise the Lease as considered appropriate by our Client’s Solicitors. It is anticipated that this would cover for updating the fee for Notices, providing for payment of Landlord’s costs in respect of breaches of covenant and interest on arrears of rent.

eddddy

ElieseKM said:

I’m a cash buyer, would we be able to do two contracts straight away? I thought we had to wait two years or do we need the seller to start the process?

You're muddling together 2 different processes for extending a lease...

1. An 'informal' lease extension
2. A statutory lease extension

Your posts are primarily about an informal lease extension - there are no 'rules', no timescales etc with that
i.e. the freeholder has 'informally' offered a price for a lease extension to 125 years with a £150 ground rent. That can be done at any time.


Your comments about the seller starting the process, and/or waiting 2 years relate to a statutory lease extension. (That would add 90 years to your lease and reduce the ground rent to zero.)

They are very, very different processes. There's some info here: https://www.lease-advice.org/advice-guide/lease-extension-getting-started/

eddddy

ElieseKM said:

This the advice the current seller got, not sure about some of the terms such as the ground rent doubling:

I would have to take our Client’s instructions but would be prepared to recommend them to enter into a Deed of Variation, or a new Lease, so as to extend the existing Lease to create a new 125 year Lease from a current date on the following terms:-

1. Payment of a capital consideration of £17,000.

2. An increase in the ground rent to £250 per annum doubling at 25 year intervals.

3. Payment of our fees in the matter in the sum of £650 plus VAT, payable whether the matter proceeds to completion or not.

4. Payment of our Client’s legal costs, payable whether the matter proceeds to completion or not.

5. Inclusion in the Deed of Variation other matters of a relatively minor nature so as to modernise the Lease as considered appropriate by our Client’s Solicitors. It is anticipated that this would cover for updating the fee for Notices, providing for payment of Landlord’s costs in respect of breaches of covenant and interest on arrears of rent.

That's not 'advice' as such.

It's an informal lease extension offer from the freeholder.

Typically, freeholders informal offers are poor value for money. You'd typically get a better deal with a statutory lease extension. (But you can't be sure of the exact cost at the outset.)

As you're a cash buyer, you can go for a statutory lease extension. You can get an 'estimate' of the cost from a Lease Extension Valuer.

Or you can get a rough idea from the online calculators, like this one: https://www.lease-advice.org/calculator/

As mentioned above, with a Statutory Lease extension, either the seller would start the process - or you'd have to wait 2 years.