Advice for flat lease extension with 50% ownership.

James19791

My partner wants to sell her flat so that we can buy a house together.  She brought it as 50% ownership with Help to Buy with VIVID housing association owning the other 50%.  She still has around 50K on the mortgage and the flat is worth around 180k.  She brought it in 2006 with 100 year lease so the lease is now 83 years remaining. 

She was required to get a valuation prior to putting the flat on the market to sell by VIVID.  The surveyor said that it would be hard for a buyer to get a mortgage on an 83 year lease.  So we are looking into extending the lease.  VIVID is also the freeholder and has said that we need to pay for a lease extension valuation followed by paying for the cost to extend the lease as well as paying for our and VIVIDS solicitors costs. I've looked at a few resources on the internet and think the cost will be 4-5k (for the lease extension cost alone).

My first though was:  VIVID are 50% owners of the property.  It is in their interest to extend the lease (since it will increase the value of their asset).  Since they are the freeholders too (and can grant a lease extension), why dont they encourage and do it for not cost?  It will benefit both parties.  If we cant afford to extend, they will see their asset devalue.

Also since my partner is 50% owner, my understading is that she does actually not have the right to 'formally' extend the lease .  VIVID are doing it 'informally'  It will still be binding but only 'formally' extending would give us the right to take it to a tribunal if we disagreed on the price.  It is possible to buy out the other 50% and then take the formal route but the whole reason people buy part ownership is because they cannot afford to buy 100% in the first place!  So if they come back with a high price to extend we would have to try to buy out 100% but we couldn't  get a mortgate for 100% since mortgage lenders do not lend on 83 year leases!

I would appreciate any feedback/advice 

Thanks.

eddddy

James19791 said:

My first though was:  VIVID are 50% owners of the property.  It is in their interest to extend the lease (since it will increase the value of their asset).  Since they are the freeholders too (and can grant a lease extension), why dont they encourage and do it for not cost?  It will benefit both parties.  If we cant afford to extend, they will see their asset devalue.

Not really.

In simple terms...

• If, say, a lease extension costs £10k - doing a lease extension will reduce the value of the freehold by £10k, and increase the value of the leasehold by £10k.

• So VIVID will lose £10k from the reduced value of their freehold - but gain £5k from the increased value of their leasehold

But the above calculation suggests that your partner should only pay £5k - i.e. 50% of the £10k lease extension cost - as she only owns 50% (and VIVID should pay the other 50%)

But I believe that only a few housing associations would charge the leaseholder 50% of the cost - most housing associations would charge the leaseholder 100% of the cost.


(To be honest, I don't really understand the justification for charging a 100% in this case, as opposed to 50%. It may be due to the way they calculate the staircasing price.  If you can get an explanation from VIVID, maybe post it here.)

James19791 said:

Also since my partner is 50% owner, my understading is that she does actually not have the right to 'formally' extend the lease .  VIVID are doing it 'informally'  It will still be binding but only 'formally' extending would give us the right to take it to a tribunal if we disagreed on the price. 

That's correct - but it's probably much less important than you imagine.

The tribunal will use a statutory formula for calculating the price. The RICS surveyor who you instruct will use the same formula for calculating the price.

There are some variables in the formula. But to be honest, with an 83 year lease, you might end up arguing about £500 either way.

Going to tribunal is likely to cost you an extra £1k to £2k in fees, and cost VIVID an extra £1k to £2k in fees. So it's not economic, if you're arguing over £500.


The situation might be different with a 'nasty' private freeholder, who is trying to fleece a leaseholder for thousands - but housing associations don't do that.

James19791 said:

Also since my partner is 50% owner, my understading is that she does actually not have the right to 'formally' extend the lease .  VIVID are doing it 'informally'  It will still be binding but only 'formally' extending would give us the right to take it to a tribunal if we disagreed on the price.  It is possible to buy out the other 50% and then take the formal route but the whole reason people buy part ownership is because they cannot afford to buy 100% in the first place!  So if they come back with a high price to extend we would have to try to buy out 100% but we couldn't  get a mortgate for 100% since mortgage lenders do not lend on 83 year leases!

It's only shared ownership properties that require a minimum 85 years lease to get a mortgage.

If your partner owns 100% of the property, the mortgage requirements are much more relaxed, and it should be no problem getting a mortgage on an 83 year lease.

James19791

Thank you that's helpful, clarified some things.

Codename66

Hello 
I recently completed a lease extension on my flat where the freehold is owned by the local authority. Since we are required to pay for the survey I wrote to them and said can I have a copy of it and they have refused saying it’s for them and they don’t share them .
can they do this ?

eddddy

Codename66 said:

Hello 
I recently completed a lease extension on my flat where the freehold is owned by the local authority. Since we are required to pay for the survey I wrote to them and said can I have a copy of it and they have refused saying it’s for them and they don’t share them .
can they do this ?

(It's better to start a new thread with a new question.)

It sounds like the surveyor / valuer  was instructed to do a survey / valuation for the freeholder - which you agreed to pay for.

The freeholder isn't required to disclose information to you that they get from their professional advisors (such as their surveyor, their solicitor etc). But they can choose to, if they want.

If you wanted your own survey / valuation, you would need to have instructed your own surveyor / valuer.




FWIW, if it was a private freeholder, the valuer might have produced a valuation report saying something like this (using made up numbers)...

If the lease extension premium was decided by a tribunal...

• The best case might be a premium of £10k
• The worst case might be a premium of £5.5K
• The most likely outcome might be a premium of £8k

• Therefore we recommend that you make an initial offer of £12k to start the negotiations
  

But hopefully a local authority freeholder wouldn't take that approach.

Hopefully, they would have just asked for the "most likely" number, and refused to negotiate.


But either way, the valuation report might contain information that the freeholder doesn't want you to see.