Idiots guide to London short leases?

Jaco70

Pretty much as the title. I see flats for sale in the best areas of London at low prices, i.e. 500k in Knightsbridge. Obviously they have very short leases. I have googled this looking for info but haven’t found anything very explanatory, or at least that I could understand. I don’t live in London so don’t know anybody who’d have hands on experience of this.
If you buy a flat for this amount, with say 20 years left on the lease, are you essentially buying it to use for these years and then handing it back?
Or do people snap these up and then somehow extend the lease? 

My first house was leasehold (I appreciate that houses and flats are different) but I was able to buy the freehold for a few grand without any hassle.

TripleH

You might be able to extend the lease but it would cost a lot to do so.

Sandtree

If you've not extended the lease then at the end it returns to the freeholder.

The problem is that once you get below 80 years then for a statutory lease increase you have to pay the freeholder half the increase in value of the property gained by the extended lease and there can also be stamp duty considerations.

Jaco70

Sandtree said:

If you've not extended the lease then at the end it returns to the freeholder.

The problem is that once you get below 80 years then for a statutory lease increase you have to pay the freeholder half the increase in value of the property gained by the extended lease and there can also be stamp duty considerations.

Sorry, you clearly know what you’re talking about but I didn’t quite grasp it. What is a ‘statutory lease increase’, and how does the 50% increase work? 

Does that mean that if a property is work 500k with a 20 year lease, but 1.5m with a 100 year lease, you’d automatically have to pay 375k to the freeholder, plus the ‘stat lease increase’? 

RAS

Jaco70 said:

Sorry, you clearly know what you’re talking about but I didn’t quite grasp it. What is a ‘statutory lease increase’, and how does the 50% increase work? 

Does that mean that if a property is work 500k with a 20 year lease, but 1.5m with a 100 year lease, you’d automatically have to pay 375k to the freeholder, plus the ‘stat lease increase’? 

The sums are

£1.5m (new value) minus £.5m (current value)/2 = £.5m to be paid on top of the purchase price, plus Stamp duty. Rather than the £375K you suggest.

Not sure how the SD is calculated; on the additional £.5m at 5% or on the new £1m value at 10%? Or 10% on the increase  in value?

Sandtree

https://www.lease-advice.org/advice-guide/lease-extension-getting-started/
https://www.lease-advice.org/lease-glossary/marriage-value/ 
https://www.lease-advice.org/advice-guide/lease-extension-valuation/

The above pages are probably best for you to read (and the rest of the site to be honest). 

The law gives you a right to extend a lease and sets out how it should be done and if you take that path its a statutory extension. The parties can agree a different path if they both want, eg if you've not been there 2 years yet, and this is then much more down to negotiation 

Jaco70

RAS said:

Jaco70 said:

Sorry, you clearly know what you’re talking about but I didn’t quite grasp it. What is a ‘statutory lease increase’, and how does the 50% increase work? 

Does that mean that if a property is work 500k with a 20 year lease, but 1.5m with a 100 year lease, you’d automatically have to pay 375k to the freeholder, plus the ‘stat lease increase’? 

The sums are

£1.5m (new value) minus £.5m (current value)/2 = £.5m to be paid on top of the purchase price, plus Stamp duty. Rather than the £375K you suggest.

Not sure how the SD is calculated; on the additional £.5m at 5% or on the new £1m value at 10%? Or 10% on the increase  in value?

Thank you. Not sure how I deducted 500k from 1.5m, divided by two, and came up with 375k. It’s been a long day 😂

katejo

Jaco70 said:

Pretty much as the title. I see flats for sale in the best areas of London at low prices, i.e. 500k in Knightsbridge. Obviously they have very short leases. I have googled this looking for info but haven’t found anything very explanatory, or at least that I could understand. I don’t live in London so don’t know anybody who’d have hands on experience of this.
If you buy a flat for this amount, with say 20 years left on the lease, are you essentially buying it to use for these years and then handing it back?
Or do people snap these up and then somehow extend the lease? 

My first house was leasehold (I appreciate that houses and flats are different) but I was able to buy the freehold for a few grand without any hassle.

Mortgage lenders won't give you a mortgage on a property with only 20 years left. Extending leases can be very expensive. I bought mine with a new 99 year lease and managed to sell it  with 86 years before it got too close to the 80 year point.