Short lease dilemma

mlz1413

Hi All, I'm looking for some opinions on my dilemma because there doesn't seem to be one 'best' option and I'm worried I've not thought of everything!

So I bought a leasehold flat in 2007 with 80 years on the lease .  It had had a short lease of 55 years which I insisted was extended before purchasing.   The flat was in probate and the freeholder agreed to a 25 year extension that seller paid for.

The flat has been rented out for 10 years, the tenant has just passed away (had been ill for at least 2 years) but now i have an empty flat that needs extensive work and has a short lease.

But, is it worth doing up?
Is it worth extending the lease?

COST 1 - DO UP - new kitchen, bathroom,  electrics,  carpets and decorating.  I can get this done for approx £6k to £10k as partner is a builder. 

COST 2 - LEASE - I enquired 2 years ago and the cost was around £15k to £20k.  Freeholder wants their surveyor and solicitor costs paying so approx £1k due before any negotiation. Due to lease being under 70 years I can't use the government calculator but £17k was the figure freehold advised informerly.

I've got to get a valuation but think flat in current state is worth approx £115-120k.  But due to lease length could take a while to sell. 

I think the valuation if done up and lease extended would be around £140-145k and would sell quicker.

So on above I'm not convinced it is worth extending lease.

If I rented out again I could get £800pcm and it could be ready at end of January. 


On top of this my mortgage fixed rate is ending in February, I only have a 40% LTV mortgage so going to SVR won't be a deal breaker, but it is yet another thing to consider!

If I sold would CGT be due? I paid £117k, from memory I spent about £3k renewing kitchen and carpets.  I do have records of the spend.

Any help, advise, thoughts and opinions please.

anselld

Do a lease extension properly this time.  A statutory lease extension will add 90 years and reduce ground rent to zero.  It is the only way to protect the value of the flat.

bouicca21

The shorter the lease the more expensive it will be to renew, plus it is unmortgageable so your chances of selling are severely limited.  Like anselld I’d  go the statutory route.

eddddy

The theory is that you should always make a profit out of doing a statutory lease extension.

The downside is that it can take 6 months to 18 months to complete.

You can try negotiating strategies with your freeholder like...

"My valuer says a statutory lease extension would cost £17k - so I'm prepared to offer you £19k to do it quickly, on the same terms" (i.e. 90 years added, with zero ground rent.)

Gentoo365

If it's an investment property then it seems that

(1) You may want/need to improve it by redecorating so you can increase the rental value

(2) You may want to extend the lease to maintain the capital value

So the main question should be how to do both of these in the most cost effective, and tax efficient way.

mlz1413

anselld said:

Do a lease extension properly this time.  A statutory lease extension will add 90 years and reduce ground rent to zero.  It is the only way to protect the value of the flat.

I've never done a lease extension before. But wish I'd have know more when buying and pushed for more than the 25 years.

mlz1413

eddddy said:

The theory is that you should always make a profit out of doing a statutory lease extension.

The downside is that it can take 6 months to 18 months to complete.

You can try negotiating strategies with your freeholder like...

"My valuer says a statutory lease extension would cost £17k - so I'm prepared to offer you £19k to do it quickly, on the same terms" (i.e. 90 years added, with zero ground rent.)

Thanks Eddddy I don't think the time it takes is my issue as once the ball is rolling I could rent it out again.  But I had no idea it could take 6 months to 18 months!

dimbo61

It's an asset which would be hard if not impossible to sell right now so bite the bullet and upgrade the property to a good standard.
Has it got a valid EICR ? 
Pay for a 90 year lease extension and continue to rent out 
Long term it's a good investment.
You have already done much of the hard work as you own the rental and know what needs doing.
BTL mortgages are very cheap and unless your a higher rate tax payer you should make money.
Think of this as retirement income !

seven-day-weekend

My son had a lease extension on his flat.  It went from 55 years to 125 years.  It cost around £13k, all in.  But his flat is now worth around £85-£90k (based upon the selling price of others with lease extensions in the same block) instead of about £50k (the price of those without extensions.).

It has also made it mortgageable and therefore much easier to sell.

I'd do the lease extension.

mlz1413

Thanks all. I've booked an agent to come round next week to value for sale and rent. I'll discuss the lease implications with them too.

The freeholder wants £1250 solicitors fees and £995 surveyor fees lodging with them to start a lease negotiation!!!  So with my own  solicitors bill I can see that be being a £5k before knowing what the marriage value is.

Once I have the estate agent valuation I can see what a mortgage company will lend me as I simply don't have £20k to £30k to do the refurbishment and extend lease.

eddddy

mlz1413 said:

The freeholder wants £1250 solicitors fees and £995 surveyor fees lodging with them to start a lease negotiation!!!  So with my own  solicitors bill I can see that be being a £5k before knowing what the marriage value is.

So that sounds like your freeholder is proposing an "informal lease extension" - do you understand the implications and risks of doing that?

Do you understand the differences between an "informal lease extension" and a "statutory lease extension"?


The freeholder is asking you to pay for a valuer to produce a valuation report for the freeholder and advise the freeholder. You will probably never see the valuation report, and you will never know what the valuer advises the freeholder. (So for example, the valuation report might suggest a price of £15k for a lease extension, but the freeholder asks you for £25k.)


Given the potential cost of the lease extension, it might be a better first step to instruct your own valuer to produce a valuation report for you and advise you on the different options for moving forward.


There is lots of scope for "nasty" freeholders to play dirty tricks on leaseholders as part of the lease extension process - your valuer (or your own specialist solicitor) should be able to warn you about them.