Buying a Leasehold Property with Lease Extension under Section 42

Fely2006

Hello , help needed please .. I'm just before the Exchange but my solicitor won't continue my case due to Lease Extension Complication and Issues ..Below  are the solicitor comments :

Wondering if anyone have had similar experience

1.  As the seller is proposing to submit the Section 42 notice to request a lease extension to the landlord after exchange, there is no guarantee that the proposed premium will be the premium that is eventually agreed so you could be liable for more costs later on.
2. There is also no guarantee that the landlord will agree to grant the lease extension as the section 42 notice is only a request for one to be granted.
3. I have asked the seller’s solicitors several times to request confirmation from the landlord that they will abide by the terms of the Deed of Assignment to transfer the rights to extend the lease to you on completion rather than you having to wait the standard two years. They will not provide a valid response to this and keep telling me that this is not necessary. I feel that this will offer you more protection if this is confirmed as the Deed of Assignment is only between yourself and the seller. The landlord could decide not to abide by the terms and then you wouldn’t be able to ask for a lease extension for another two years.
4. If we exchange contracts and the landlord then refuses the section 42, you will then be legally bound into a transaction that you probably won’t be able to get a mortgage on as the lender is only willing to lend if the lease extension takes place.

If we exchange and complete before the landlord replies to the section 42 and the landlord then refuses, you would then be in breach of your mortgage terms and may be forced to pay back your mortgage or surrender the property to your lender

eddddy

This sounds strange.

How long is the lease without the extension?

Is your solicitor saying that the current lease length (without the extension) is unacceptable to your mortgage lender?

If so, I would have thought that a section 42 notice was never going to be acceptable to your mortgage lender. So your purchase was doomed to fail from the outset.

Your solicitor and/or your mortgage broker should have told you that at the outset.

When you applied for a mortgage, you would have been asked how long the lease is - what did you answer?

Was there any discussion about the planned section 42 notice with your mortgage lender?

Fely2006

The current lease is 78 years old . The vendor confirmed the lease will be extended for another 99 years under Statutory route and all the premium will be paid by the vendor . The lender has approved the mortgage ONLY based on these facts , that the lease would be extended by the vendor ..I'm definitely confused now what to do !

Fely2006

**Sorry Lease extension will be 90 years and not 99 (Statutory route)

eddddy

Fely2006 said:

The current lease is 78 years old . 

Do you mean there's 78 years left on the lease? Are you saying that 78 years is not acceptable to your mortgage lender?

Fely2006 said:

The vendor confirmed the lease will be extended for another 99 years under Statutory route and all the premium will be paid by the vendor . The lender has approved the mortgage ONLY based on these facts , that the lease would be extended by the vendor ..I'm definitely confused now what to do !

(A statutory lease extension adds 90 years to the lease.)

I'm guessing there has been a misunderstanding / miscommunication...

• Your mortgage lender has said that they will give you a mortgage, if the vendor extends the lease (before completion)

• Your vendor has offered to serve a section 42 notice. But serving a section 42 notice doesn't extend the lease.

• Serving a section 42 notice starts the process to extend the lease. The whole process will probably take between 6 months and 18 months (if everything works out.)

So, based on what you've said, your mortgage lender will be happy to lend once the lease extension is completed by the vendor in about 6 months to 18 months time.




As background info, there are 2 ways to extend a lease...

• The statutory route
• The informal route

I suspect your mortgage lender assumed that your vendor would take the informal route - which can be much quicker.


However, if your mortgage lender is happy to lend on a 78 year lease - there's still a whole bunch of other issues. (For example, who pays for the lease extension when it completes in 6 months to 18 months time.)

Fely2006

 Yes the lender has accepted the mortgage ONLY on the Lease Extension , otherwise wouldn't have been approved with 78 years old only remaining .. Now I need to go back to the Estate Agent - and if they want to sell tis flat the Lease Extension must be done before the Exchange / Completion . Noted what you saying on Section 42 . Thank you !

Alesisman

Hi I am currently going through this myself at the moment, buyer wants me to extend lease before completion. I am going down the informal route, but I have 85 years left on mine. Could you not go down this route as it could be quicker for both of you ?
Freeholder has agreed to an informal lease so lets see what happens ? Good luck with it!