Leaseholder asking to increase lease.

hibiscus93

My mother recently died, so I have inherited the freehold of the building she owned. It is made up of four flats. She owned two, the other two are leasehold and owned by other people.

One of the owners has put his flat up for sale, and asked if I am willing to increase the lease (I think there are like 80 years left on it and he wants 125).

I had debated selling/ splitting the freehold at some point in the future. 

Would this be effected?

Does him increasing the lease cost anything?

I am so overwhelmed with everything!

anselld

If the lease is extended the value of the freehold is reduced.  Hence why the freeholder (you) would require payment from the Leaseholder.   You can estimate the value of the extension ... https://www.lease-advice.org/calculator/

Legal fees would be necessary on top of the extension cost and it is normal for the Leasholder to pay your fees on top of their own.  If you make an offer they may accept or they may serve a Section 42 notice to start the statutory process ... https://www.lease-advice.org/advice-guide/lease-extension-getting-started/

The bottom line is that it is potentially good news if you can get your head round the paperwork on top of everything else.

Jonboy_1984

You would normally appoint a RICS surveyor to value the premium on your behalf, but at the leaseholders expense to make an informal offer. They can then accept or go to statutory route of issuing a section 42 notice. This is basically a “let’s open negotiation with a fixed timeframe or I will get a tribunal to decide a figure” notice.

Note if they go the formal route then there are strict deadlines for each stage, so be on the ball. Also make sure you have a solicitor and surveyor with experience in this area.

There are big changes in the valuation calculations once it gets below 80 years, so make sure you know exactly how long is left before you start.

I have been through my own extension and supported a relative through one as leaseholders, and they can be incredibly stressful if the freeholder chooses to be awkward or is slow in responding.

eddddy

Many freeholders (like you) would handle it like this...

Tell the leaseholder that you need to get a valuer to calculate the cost of a lease extension - and you require the leaseholder to pay the valuer's fee in advance.

You could phone a few leasehold extension valuers, and they'd tell you the process they'd want you to follow.


Or if you feel confident, you can try negotiating the price without the help of a valuer.


In due course, you'll also need a specialist lease extension solicitor.

Jonboy_1984

Also if the other flats haven’t extended yet they could save a fair chunk of legal fees if they group together and do it simultaneously.

Or if you are thinking of selling the freehold anyway, the value often isn’t much more to them financially if they were to go down the collective enfranchisement route, and take on the freehold themselves. They can then all mutually extend their leases after purchasing the freehold from you.

hibiscus93

Thank you.

Sorry there are 94 years left on the lease, and he wants to extend to 150 or so.

He said he didn't think it would make much difference to the freehold value!

eddddy

hibiscus93 said:

He said he didn't think it would make much difference to the freehold value!

Well... I'm not sure that you should take too much notice of what of the leaseholder says about that.

It's a bit like somebody who wants to buy your car telling you "Your car isn't worth very much, so you should sell it to me really cheaply."

Jonboy_1984

hibiscus93 said:

Thank you.

Sorry there are 94 years left on the lease, and he wants to extend to 150 or so.

He said he didn't think it would make much difference to the freehold value!

If they go the statutory route part of the calculations takes the ground rent  to eye end of the lease, and rolls up it’s net present value today and pays that to the freeholder, then reduces the ground rent to peppercorn(effectively zero). 

This means there is no ground rent income for the next 184 years and so the freehold is probably worth much less on the resale market.

This is also why some companies are buying freeholds and then looking for potential lease breaches to capitalise on as an income stream….