Very short lease - costs to extend

Miri_J

I'm viewing a flat next week. It's got only 37 years left on the lease. On the EA website it said that the owner would extend on completion. However when I called to book the viewing they said that the owner was having second thoughts about that and couldn't afford it. I'm guessing this is a 'how long is a piece of string?' question. But does anyone know how much it might cost to extend the lease for such a place. It's on the market for £170k. I think you might get that if there were no issues with the lease but I'm guessing it's virtually worthless with that length of lease. I have emailed a solicitor but it's their day off today.

Albermarle

On the EA website it said that the owner would extend on completion.

When you say 'the owner' do you mean the freeholder?

DullGreyGuy

Miri_J said:

I'm viewing a flat next week. It's got only 37 years left on the lease. On the EA website it said that the owner would extend on completion. However when I called to book the viewing they said that the owner was having second thoughts about that and couldn't afford it. I'm guessing this is a 'how long is a piece of string?' question. But does anyone know how much it might cost to extend the lease for such a place. It's on the market for £170k. I think you might get that if there were no issues with the lease but I'm guessing it's virtually worthless with that length of lease. I have emailed a solicitor but it's their day off today.

Is the "owner" the freeholder or the leaseholder?

Cost to extend a lease is in part linked to the ground rent and any escalations in it but also need to consider what the property would be worth with a 100 year (or longer) lease. 

It also depends if you are going down the statutory or discretionary route, the former not being immediately open to you; the later is simply what the parties agree and no requirement for the freeholder to be reasonable 

Miri_J

Albermarle said:

On the EA website it said that the owner would extend on completion.

When you say 'the owner' do you mean the freeholder?

I mean the flat owner, so the leaseholder.

theartfullodger

The leaseholder who presumably owns a share in the freehold?

NameUnavailable

theartfullodger said:

The leaseholder who presumably owns a share in the freehold?

Why do you assume that?

OP, it sounds like the leaseholder (who you are talking to) has looked into the cost of extending the lease and realised how much it's likely to be. If the agent was marketing it with an extended lease it also sounds like the asking price doesn't reflect the very short lease. 

Your vendor needs to understand that they will either need to sell the flat to a cash buyer for its correct market value or find a way of funding a lease extension and then selling.

To get a truly accurate idea of the cost to extend (formal process) you'd need to invest in a valuation but even then you would still have to negotiate on that with the freeholder. The leaseholder can start the process to extend so that you don't have to wait the usual 2 years from buying to do so yourself.

Or, it might be easier for you to look for another property.

eddddy

Miri_J said:

On the EA website it said that the owner would extend on completion. However when I called to book the viewing they said that the owner was having second thoughts about that and couldn't afford it. 

FWIW, what the EA told you doesn't seem to make complete sense.

The seller doesn't really have to "afford" the lease extension.

In simple, terms you would pay the £170k on completion - and, using some made up numbers, let's say...

• £120k goes to the leaseholder for the flat with a 37 year lease
• £50k goes to the freeholder for the lease extension, of say, 90 more years

So the leaseholder doesn't need money to "afford" anything. (But maybe they mean the seller can't "afford" to walk away with only £120k.)


Or maybe it's a slightly different issue.

JM68

Don't bother viewing it would be my advice.

A statutory lease extension takes a very long time, so would not be done anytime soon for you to buy.  Ours took nearly 18 months and part of the 'game' was the freeholder waiting until the latest point possible to do everything in the process to try and get more money out of us.

An informal lease extension could be done quicker, and is often the 'plan' with these 'new lease on completion' EA  listings, but the freeholder could demand loads of money extra from the seller or simply drop out up to a day before completion, and you will not be able to proceed and will lose all your costs of buying (and selling if you are).

In all likelihood the seller is going to have to sell to a cash buyer, at a huge discount to a flat with a long lease, and is probably in denial about that.

Just look for and view flats with 'healthy' leases.  Some people consider that to be 100+ years, but I always think at least 115 years is a safer bet as those you sell on to in the years to come will also want 100+ years.

Albermarle

An informal lease extension could be done quicker, and is often the 'plan' with these 'new lease on completion' EA  listings, but the freeholder could demand loads of money extra from the seller or simply drop out up to a day before completion, and you will not be able to proceed and will lose all your costs of buying (and selling if you are).

That is what I was thinking as well. What does this 'new lease on completion' really mean?

eddddy

Albermarle said:

What does this 'new lease on completion' really mean?

A better description would be "extended lease on completion".

In simple terms, it means you are buying 2 things (on the same day)...

• A flat with a 37 year lease - bought from the leaseholder (flat owner)

• A lease extension of maybe 90 years - bought from the freeholder

So the buyer ends up with a flat with a 127 year lease.

NameUnavailable

eddddy said:

Albermarle said:

What does this 'new lease on completion' really mean?

A better description would be "extended lease on completion".

In simple terms, it means you are buying 2 things (on the same day)...

• A flat with a 37 year lease - bought from the leaseholder (flat owner)

• A lease extension of maybe 90 years - bought from the freeholder

So the buyer ends up with a flat with a 127 year lease.

It could be done that way, with a cooperative freeholder, but of course the advice is to usually follow the formal process for a lease extension to avoid the freeholder slipping in higher ground rent charges etc.