Simultaneous lease extension and sale

Alexandra2022

Hello,
I want to sell my flat which has a 62 year lease remaining. If I can't find a cash buyer I would like to extend the lease in the following way:
1. A buyer pays for the extension on completion
2. I use the voluntary rather than the statutory extension route
My freeholder is happy to extend the lease and has done this for several of my neighbours.

My questions are
1. Will the buyer be able to secure a mortgage with this route?
2. Is it normal for the buyer to pay for legal fees for the extension?
3. Do I need a formal survey for this or, providing the freeholder is happy, use the estate agent valuation?
4. What are the risks for me/the buyer in this approach

Many thanks in advance

eddddy

Alexandra2022 said:

My questions are
1. Will the buyer be able to secure a mortgage with this route?
2. Is it normal for the buyer to pay for legal fees for the extension?
3. Do I need a formal survey for this or, providing the freeholder is happy, use the estate agent valuation?
4. What are the risks for me/the buyer in this approach

1. Yes - as long as the buyer's mortgage lender is happy with the lease extension terms, that should be fine.

2. You can advertise the price / costs in any way you choose. For example, if the lease extension costs £20k and the fees will be £5k... For example...

A  ) You could advertise the price / cost as:

• £250k for the flat with a 68 year lease
• £20k for a lease extension of 90 years (or whatever)
• £5k for legal fees

B  ) Or you could advertise the price as:

• £275k for a flat with the lease extended to 158 years on completion

Personally, I would opt for option B. (I definitely wouldn't just exclude the lease extension costs from the advert - so the buyer gets a nasty surprise when they find out.)


3. I'm not quite sure what you mean. You and the freeholder have to agree a price for the lease extension. It's like haggling in a market - you might offer £10k... the freeholder might ask for £50k. You have to keep negotiating until you agree a price.

You can hire a valuer and ask their opinion if you want. Or you can ask the estate agent's opinion, if you want. Or you can ask anyone else's opinion. But the freeholder won't necessarily take notice of anyone else's opinion (even if it's the opinion of a qualified, experienced RICS valuer.)

For example, the freeholder might just say "It's £50k or I'm not interested". And if you don't agree to £50k, you won't get a lease extension.


4. The risks include...

• that the freeholder messes you about - for example, pretends they'll give you a lease extension, then changes their mind

• the freeholder says they'll give you a lease extension for £20k - then on the day before exchange of contracts, increases the price to £40k

• the freeholder won't agree a sensible price with you in the first place

• the freeholder completely ignores your request for a lease extension - or just replies saying "no"

eddddy

.... just to add.

I would look for an estate agent who understands lease extensions, and has sold 'Lease extension on Completion' before.

Then they can explain it all to the buyer - otherwise it might all seem a bit scary.


And hopefully, the estate agent will chase all 3 parties to make a sale happen... i.e. chase you, chase the freeholder and chase the buyer.

Alexandra2022

Thanks very much - The freeholder has quoted the extension price as a % of the value OR selling price, which ever is the greater. On that basis option A would presumably be better for a buyer as the sales price and consequently the extension price would be lower?

eddddy

Alexandra2022 said:

Thanks very much - The freeholder has quoted the extension price as a % of the value OR selling price, which ever is the greater. On that basis option A would presumably be better for a buyer as the sales price and consequently the extension price would be lower?

It sounds like there's some important details that you and the freeholder need to agree on...

• Which 'value' does the freeholder mean - the value with a lease extension, or the value without a lease extension?

• You and the freeholder need to agree how the valuation is done. Do you instruct a valuer - who might value low? Does the freeholder instruct a valuer - who might value high? Or do you jointly instruct a valuer?

• If you ask an estate agent for a valuation - they generally suggest a value to advertise the property at, which might be more than they expect it to sell for. (You could also ask them what they expect it to sell for.)

And similarly,

• Does the freeholder mean the selling price inclusive of the lease extension cost, or the selling price exclusive of the lease extension cost?

Once that's clarified, it doesn't matter if you go with option A or option B.

Ask the estate agents which is the best way to advertise - I suspect they'll say option B. But maybe not.

Alexandra2022

Really helpful advice - thank you so much.