Advice in buying a flat with 82 yrs lease

cherry76

According the ea, seller is looking to extend the lease. What questions should I be asking regarding the lease? I understand it can take up to six months or more for a lease extension to be granted. Flat £365,000 in London, How much will the extension cost, ground rent £10? Any advice pl? Thanks

RHemmings

How much the extension costs depends on a lot of factors. However, if the ground rent is £10 then I guess there are no doubling or RPI clauses involved. In which case you can use an online calculator to get an estimate. E.g.

https://www.lease-advice.org/calculator/

I plugged in some figures from you and made some assumptions, Prime Central London, flat worth £500k after lease extension (deliberately unrealistically high), and the figure I got for a statutory lease extension was about £10k, not including various costs such as legal costs. Which compared to the price of the flat isn't all that much. 

Current law is that you can't start a leasehold extension via the Section 42 route until you have lived in the property for two years. And, if you waited, then your leasehold extension would become more expensive (from some guessed figures, maybe 29-33k) as there will be less than 80 years remaining on the lease. 

Those figures should be somewhere in the ballpark. Note that the statutory leasehold extension isn't the only way to extend the lease, but otherwise you need to negotiate with and agree a price with the freeholder. 

Note that new laws have been voted in, but have not yet taken effect. But, when/if they do, the costs of lease extensions may change. 

Others who are more knowledgeable will be along. But, if the lease extension is through the section 42 route, then it's important that the notice is served properly. There is more information here: https://www.leaseholdvaluations.com/everything-you-need-to-know-about-section-42-notice/

EDIT: More information on when a section 42 notice may be invalid here: https://www.naylorllp.co.uk/2016/07/19/when-is-a-section-42-notice-invalid/   As it says, fortunately there are only a few reasons why such a notice may be invalid, unlike, say, a S21 notice to start the process of evicting a tenant. 

I'm not a lawyer and can't give legal advice. I'm wondering if there is a way that the S42 notice being served correctly and the process continued correctly could be added to the contract for purchase of the flat. That would be a question for your solicitor if that's plausible. (I'm not sure it's plausible.) EDIT: Ignore that, read this instead: https://homehold.org/standard-article/assign-a-lease-extension-from-seller-to-buyer/

eddddy

cherry76 said:

According the ea, seller is looking to extend the lease. What questions should I be asking regarding the lease? I understand it can take up to six months or more for a lease extension to be granted. Flat £365,000 in London, How much will the extension cost, ground rent £10? Any advice pl? Thanks

How is the lease being extended?

In the circumstances you describe, it's likely to be either...

• 1) An 'informal lease extension' on completion, or

• 2) The seller starts the process for a 'statutory lease extension' before you buy (by serving a section 42 notice), and you complete the process after you've bought it

Both options have their advantages and drawbacks (and if the freeholder happens to be 'nasty', you need to watch out for traps).

As above, you could check some of the online lease extension calculators, to get an idea of what a tribunal would value a 'statutory lease extension' at. That might give you an idea of how much you might have to pay.

cherry76

Not sure I think the freeholder is Islington council, will need to check with EA. It will be a formal lease extension. Reading the info lease extension from seller to buyer is a bit off putting. The other option is to wait two years and then apply and factor the cost when putting an offer. Hopefully by then the lease reform will have been implemented and instead of 90 yrs it could be 999 yrs. Am I being too hopeful!

RHemmings

cherry76 said:

Not sure I think the freeholder is Islington council, will need to check with EA. It will be a formal lease extension. Reading the info lease extension from seller to buyer is a bit off putting. The other option is to wait two years and then apply and factor the cost when putting an offer. Hopefully by then the lease reform will have been implemented and instead of 90 yrs it could be 999 yrs. Am I being too hopeful!

It is more complicated and risky. Maybe the lease going under 80 years won't be a problem if the new law is put into effect. But, until that happens, that's unknown. 

If you do extend now and get an extra 90 years, then that would make the lease quite long. 999 years may not be that much of an advantage. It would probably have been better for the seller to do the lease extension before selling. However, if you do put in the work to do the lease extension yourself (after being started by the seller), then does this mean that in the end you should have bought a bargain? In that the same property with the lease already extended would be worth more? 

cherry76

Agree it will be more complicated and risky if it started by the seller and I take over esp as pretty clueless. Just wonder whether my solicitor could handle the lease extension as well or do I need a specialist! Could ask seller to reduce asking price by £10,000 to factor the cost of the least extension after two years. Does £10,000 seem high for a flat on market for £365,000. Will seek solicitors advice.  Thanks

Bookworm105

cherry76 said:

. Does £10,000 seem high for a flat on market for £365,000. 

no one on here can answer that
we have not seem the flat nor, more importantly, have we seen the price of its competitors that already have longer leases

RHemmings

cherry76 said:

Agree it will be more complicated and risky if it started by the seller and I take over esp as pretty clueless. Just wonder whether my solicitor could handle the lease extension as well or do I need a specialist! Could ask seller to reduce asking price by £10,000 to factor the cost of the least extension after two years. Does £10,000 seem high for a flat on market for £365,000. Will seek solicitors advice.  Thanks

Unless the new law comes into effect, and without too many changes, it will cost more than £10,000 to extend the lease because it will have fallen under 80 years remaining. I put in guessed figures into the calculator I linked to, and the price to extend for a 79 year lease was about £29-33k. I guestimated that your flat would be worth about £450k after the lease extension, and it probably would be worth less. I wanted to put in a higher figure than I believed likely so that I didn't underestimate. If the flat would only be worth, say, £380k after the lease extension, then the figures would be different. But, I can only wildly guess at the value after extension. I'm also assuming that the £365k is what the flat is worth before the lease extension. It's possible that a valuer may value it (before extension) as less, which increases the 'marriage value'. 

If I was in your situation, the first thing I would do is work out the potential increase in value after the lease extension. Then I would ask the solicitor if they can handle this (including being the one to draft the S42 notice and handle the process), as it would keep things simple if one solicitor was handling everything. Also, if your solicitor does this as a paid service you may have some comeback if it's not done properly. 

Others may well disagree and it will be interesting to see if others would prefer using a separate leasehold extension service. Or that it is unlikely you will be able to claim if your solicitor makes errors and the S42 process fails. 

eddddy

cherry76 said:

Not sure I think the freeholder is Islington council, will need to check with EA. It will be a formal lease extension. Reading the info lease extension from seller to buyer is a bit off putting. The other option is to wait two years and then apply and factor the cost when putting an offer. Hopefully by then the lease reform will have been implemented and instead of 90 yrs it could be 999 yrs. Am I being too hopeful!

cherry76 said:

Agree it will be more complicated and risky if it started by the seller and I take over esp as pretty clueless. Just wonder whether my solicitor could handle the lease extension as well or do I need a specialist! Could ask seller to reduce asking price by £10,000 to factor the cost of the least extension after two years. Does £10,000 seem high for a flat on market for £365,000. Will seek solicitors advice.  Thanks

If the freeholder is Islington Council, it should be less risky.  A council isn't likely to try to trick you or cheat you.

Typically, councils will only do 'Statutory Lease Extensions' (i.e. not informal ones.)


Just to clarify the process...

Step 1
The flat owner serves notice on the freeholder - offering a price (e.g. £10k) for a lease extension
(So this is the step that the seller would do before completing the sale to you.)


Step 2 (You do this bit onwards)

• The freeholder replies with a counter offer (e.g. £15k)
• The flat owner (or their valuer) negotiates with the freeholder (or their valuer) over the price

This is likely to be an 'argument/negotiation' about technical issues - like what 'yield rate' and 'deferment rate' should be used for calculating the price.


Step 3 (still you)
You agree a price - let's say £13k - and

• you have to pay that price
• plus your own solicitors / valuers fees (maybe £1k to £2k)
• plus the councils solicitors / valuers fees (possibly over £2k)

So you can't be sure at the outset how much the lease extension will cost.

And (based on the guesstimated numbers above), you'd need around £17k in cash left over after buying the flat to pay for the lease extension.


Conveyancing solicitors don't tend to know about lease extensions - so I'd suggest you get a specialist lease extension solicitor to check things out before the seller starts step 1.

And you might want to have a valuer to do the negotiation in step 2 - unless you trust the council's valuer to offer a fair price.

cherry76

I have emailed my solicitor and this is his response. I did not discuss it any further with him as I think the seller can only negotiate the premium if section 42 notice has been served and a valuer appointed. I might be wrong. What do you all think!

I think the best option for you from a cost certainty point would b e for the seller to negotiate the terms of the lease extension as a condition of the sale – usually the premium is paid from the sale proceeds and we register the new lease along with our own application. Is that good advice.
 

Waiting response from EA about lease and viewing not until Saturday. Am just considering my options if I like the flat. Looks like it will be an open day as flat is tenanted.

eddddy

 Is the following bit in bold you speaking your words, or the solicitor speaking his words?

I have emailed my solicitor and this is his response. I did not discuss it any further with him as I think the seller can only negotiate the premium if section 42 notice has been served and a valuer appointed.

But either way...

• Anyone can serve a section 42 notice - you don't need a solicitor or a valuer involved

• But it's often sensible to have an experienced lease extension solicitor involved - to make sure there are no mistakes

• (I was talking to somebody recently who used a conveyancing solicitor to serve a section 42 notice, and the conveyancing solicitor made some mistakes. That could invalidate the notice, and mean you have to wait 2 years to serve another notice.)

• It's also useful to have a valuer involved, so you have a sensible idea of what the lease extension will eventually cost

• (If you don't have a valuer involved and you propose a 'silly price', that could be considered an invalid application - so again you 'll have to wait 2 years to apply again)

• The freeholder and leaseholder can negotiate a premium at any time - there's no need to serve a section 42 notice. But Islington Council probably have their own internal rules, that they'll only negotiate if a s42 notice is served. 

Again, is the following bit in bold you speaking your words, or the solicitor speaking his words?

I think the best option for you from a cost certainty point would b e for the seller to negotiate the terms of the lease extension as a condition of the sale – usually the premium is paid from the sale proceeds and we register the new lease along with our own application.

If it's your solicitor's advice, your solicitor sounds like he might not understand about lease extensions.

• Your solicitor seems to be describing an "Informal Lease Extension on Completion"

• According to their website, Islington Council will only consider formal "Statutory Lease Extensions" and not "Informal Lease Extensions"  See:  https://www.islington.gov.uk/housing/council-homeowner-services/your-lease/extending-your-lease

• A Statutory Lease Extension typically takes 6 months to 12 months to complete - are you willing to wait that long before buying the flat?  And it's difficult to arrange the lease extension and sale to happen on the same day.

Or does you solicitor have evidence that Islington Council will agree to an "Informal Lease Extension"?