Renegotiation following lender concerns about lease length

AxMix

Hi all,

A friend suggested I  ask my question here in case someone is familiar with the matter. So far in my trawl through the forum I haven't seen anyone ask this question (but it may have just not gone back far enough).

My question is about renegotiating after the offer has been accepted. I just saw the valuer’s report (done by the lender's surveyor) and it said that it thought the flat I want to buy was the correct value but their valuation was based on the seller extending the lease upon completion. I don’t have a lot of time left on the lease - it’s got 85 years left, which effectively means I have 5 years to extend before marriage value (and I can't do any lease variation within 2 years anyway). If seller agrees to extend at completion that would be ideal but  on a previous occasion (before I had seen the valuer's report but after I had submitted my offer) the estate agent said the reason he hadn't extended it before was because he was waiting for the leasehold reforms to come into effect, which (if successful at Parliament) mean from April 2023 that you would have the right to extend for 990 (for the same price).  so think the seller will say no to extending now (although I will ask him nonetheless). Therefore, I was wondering is it okay to renegotiate for a lower amount even though I already knew there were 85 years on the lease left at the time I made the offer?

If okay to renegotiate, how do you practically do it? Where should you start with the negotiating position?

Also, should I wait to do a full survey (homebuyer report) and searches to come back (in case there are further things to negotiate on? Or should I let the  seller (via estate agent) know my concerns now in case I need to walk away now and don't waste more money on survey etc (the searches are already paid for) and save them time too?

In case you are wondering, yes I’ve appointed a solicitor but they are really unresponsive. The length of the lease of the first thing I alerted them of and they provided me with no advice. They also never provided me with the valuer's report until I informed then that my lender said it had gone to them directly. And even today when they finally sent me the valuer's report  they didn’t even mention what was said about the lease extension or provide any advice, they just said please see attached. I noticed the lender's lease concerns myself and have asked them questions about how to proceed - but who knows when they will get back to me. Nevertheless, even then I am assuming they will just confirm whether what's written in the report is a condition of my offer or just a point at which I can renegotiate price (as they think its worth less without the extension). Therefore i still think practical advice in the meantime would be helpful.

As further context, I made 2 offers before it was accepted. My first offer was lower, but was pressured to make a much higher offer because the estate agent insisted someone else had already made an offer but my 2nd offer had to be my  final offer as 'they weren't allowed to take further offers'. As I am a first time buyer, I took this seriously and offered at my top end (but still slightly below asking price), I know this is my own fault, so I'm not seeking to rectify my bad deal by renegotiation. However, I just thought it would be helpful context for anyone advising me about whether can renegotiate. 

Thanks for reading my very long message. I would be grateful for advice on renegotiation even if you don't have experience of short leases (or leasehold at all), but have renegotiated on other bits. I would also appreciate advice on short leases if you have it as well. 

Best,

Ax

yksi

Of course you can renegotiate - you're entitled to change your offer for any reason that has meaning for you. Is there also a share of the freehold? If not, are the other leaseholders considering banding together to buy it (enfranchisement)? I viewed a leasehold with a similar remaining lease, and another owner in the building said hello and just happened to casually mention there was an enfranchisement in the works! It's a complete game changer, so it might be worth firstly checking the paperwork to see if it's already started, and secondly having a little word with the other leaseholders.

As for what it (otherwise) all means, do take the "concerns" with a grain of salt. They are largely "possible future scenarios" that the solicitors and banks throw at you so that they've covered their backsides. Although the seller hasn't extended because they were hoping for a ka-ching law change, that ONLY affects what bonus price it have been worth to them. The seller, correctly, sees no reason to extend right now as 85 years does not "yet" affect getting a mortgage, therefore, their selling price is pretty much unaffected. 85 doesn't really stop people buying. 80 is when the panic stations hit, which is why you're being cautioned to pay attention, as it would hurt you in 2027 if you tried to sell or tried to extend the lease then.

You can get around the two year wait time if the seller commences the lease extension process before the sale, and then you'll complete it. You can certainly say that you need this to happen for you to continue. It is not a hideous expense for the seller to commence this and not difficult to initiate. The agent and seller's solicitors will not be surprised by this request. I would very much not expect a seller to refuse to do this for you.

Sandtree

AxMix said:

Therefore, I was wondering is it okay to renegotiate for a lower amount even though I already knew there were 85 years on the lease left at the time I made the offer?

If okay to renegotiate, how do you practically do it? Where should you start with the negotiating position?

Also, should I wait to do a full survey (homebuyer report) and searches to come back (in case there are further things to negotiate on? Or should I let the  seller (via estate agent) know my concerns now in case I need to walk away now and don't waste more money on survey etc (the searches are already paid for) and save them time too?

Until you have exchanged contracts neither of you are under any commitments at all... you can both decide to pull out, change the monies involved or anything else.

Is the lease a deal breaker for you? If it is then consider if its worth spending more costs on something you may be walking away from. If its not then you may want to hold up until the homebuyers report, particularly if the vendor is not in any rush etc, keep coming back to knock more money off may feel like your trying to nickle and dime them in which case they could pull out. If they are a distressed seller they may have to accept your proposals if they cannot restart the whole process.

When selling my mothers house it went to sealed bids, the buyer knocked off a bit for a crack in the survey which was reluctantly accepted and then 10 minutes before exchange they said they'd changed their mind and knocked £2k off their offer. Removal van was already booked, family had already arrived to say goodbye to the property etc and she couldnt face restarting the whole process so accepted.

eddddy

AxMix said:

I just saw the valuer’s report (done by the lender's surveyor) and it said that it thought the flat I want to buy was the correct value but their valuation was based on the seller extending the lease upon completion. I don’t have a lot of time left on the lease - it’s got 85 years left, which effectively means I have 5 years to extend before marriage value (and I can't do any lease variation within 2 years anyway). If seller agrees to extend at completion that would be ideal but  on a previous occasion (before I had seen the valuer's report but after I had submitted my offer) the estate agent said the reason he hadn't extended it before was because he was waiting for the leasehold reforms to come into effect, which (if successful at Parliament) mean from April 2023 that you would have the right to extend for 990 (for the same price).  so think the seller will say no to extending now (although I will ask him nonetheless). 

The valuer would typically use the information you provided in your mortgage application.

What lease length did you specify in your application? Did the seller ever suggest that they'd extend the lease?

(If you didn't specify a lease length, a valuer would normally assume it was 85 years for valuation purposes.)

If the valuer has been given incorrect information about the lease length, your solicitor would probably inform the mortgage lender. The lender would then inform the valuer, and the valuer would say if the valuation needs to be changed.





FWIW, it seems somebody has misunderstood lease extensions and the planned leasehold reforms. They've muddled informal lease extensions and statutory lease extensions, and made some assumptions about the leasehold reforms which are almost certainly wrong. Briefly...

• If somebody is talking about a lease extension on completion, it will be an informal lease extension, not a statutory lease extension. An informal lease extension can extend the lease by any amount -  e.g. adding 1 year,  adding 100 years, totalling 990 years, or totalling 999 years.

• Similarly, you don't have to wait 2 years to do an informal lease extension. You can do it at any time. (But you cannot force the freeholder to agree to an informal lease extension. But after 2 years you can usually force the freeholder to give you a statutory lease extension.)

• Currently a statutory lease extension adds 90 years to the lease. If the law changes to extend them to 990 years, there is no suggestion that the cost will be the same. It's likely to be more expensive.

• If you do a statutory lease extension adding 90 years now, it is likely to be cheaper to extend it to 990 years after the reforms. The total cost of the 2 extensions probably won't be much different from a single extension to 990 years. (Although the professional fees for 2 extensions are likely to cost more.)

• If you want to do a statutory lease extension now, without waiting 2 years, you can ask the seller to start the process before completion, and you can finish it after completion