New to Leasehold Tenure Properties

bery_451

Hi,

I read the leasehold guide on MSE and like to clarify on a few things to clear my possible misunderstandings with the following examples:

- Buyer sees short lease property with less than 80 years remaining on Right Move. Ad says Cash Only or Auction. Who is selling this property, is it the current leaseholder of the property or the freeholder owner or is it the freeholder is not allowed to sell until the current remaining lease with the current leaseholder has lapsed? For example single occupier leaseholder dies with no relatives to claim for it however there's 79 years remaining on the lease. This means the freeholder has to wait 79 years before legally be allowed to sell the property?


- Current leaseholders that are advertising short lease properties on rightmove for cash only or auction that looks cheap below market value because they cant afford to extend the lease because lease extensions is paid by cash only and cannot be paid by debt finance? Or they are selling because there are future proposed works by the freeholder that the leaseholder cant afford to pay towards to or there's a existing huge repair bill like a roof needs replacing with a new roof that the freeholder has billed all the leaseholders in the block building where leaseholders in that block cant afford to pay so the only way to escape is for the leaseholder to sell the current lease to another new unexpected property buyer leaseholder? Is it illegal to advertise a short lease property without declaring such issues or is the legal onus is on the new potential buyer to pay solicitor/surveyor legal fees to find out before making a decision to buy or not? Is there any other reasons for selling short leased properties or I covered all the reasons?

- Can the freeholder owner disguise hide ground rent in the service charge? For example you see properties advertised with £200 annual ground rent & £1000 annual service charge but you see another similar property with £2 a year annual ground rent but £2000 a year service charge. When searching for leasehold properties online how do you verify that the ground rent and service charges are genuine the same as the other leaseholders in that block building pay?

- Instead of a lease extension can the leaseholder buy the freehold tenure instead however for this 50% of the leaseholders occupiers in that block building must agree vote to buy correct otherwise as a single leaseholder occupier your only option is lease extensions?


Everything mentioned above when do the New Lease Laws come into force and will the New Lease Laws increase the market value of the short leased properties or will the new lease laws eradicate short lease properties off the market because the new lease laws help the existing leaseholders of these short leased properties so short leaseholders are not pressured to sell?

DullGreyGuy

bery_451 said:

Hi,

I read the leasehold guide on MSE and like to clarify on a few things to clear my possible misunderstandings with the following examples:

- Buyer sees short lease property with less than 80 years remaining on Right Move. Ad says Cash Only or Auction. Who is selling this property, is it the current leaseholder of the property or the freeholder owner or is it the freeholder is not allowed to sell until the current remaining lease with the current leaseholder has lapsed? For example single occupier leaseholder dies with no relatives to claim for it however there's 79 years remaining on the lease. This means the freeholder has to wait 79 years before legally be allowed to sell the property?


- Current leaseholders that are advertising short lease properties on rightmove for cash only or auction that looks cheap below market value because they cant afford to extend the lease because lease extensions is paid by cash only and cannot be paid by debt finance? Or they are selling because there are future proposed works by the freeholder that the leaseholder cant afford to pay towards to or there's a existing huge repair bill like a roof needs replacing with a new roof that the freeholder has billed all the leaseholders in the block building where leaseholders in that block cant afford to pay so the only way to escape is for the leaseholder to sell the current lease to another new unexpected property buyer leaseholder? Is it illegal to advertise a short lease property without declaring such issues or is the legal onus is on the new potential buyer to pay solicitor/surveyor legal fees to find out before making a decision to buy or not? Is there any other reasons for selling short leased properties or I covered all the reasons?

- Can the freeholder owner disguise hide ground rent in the service charge? For example you see properties advertised with £200 annual ground rent & £1000 annual service charge but you see another similar property with £2 a year annual ground rent but £2000 a year service charge. When searching for leasehold properties online how do you verify that the ground rent and service charges are genuine the same as the other leaseholders in that block building pay?

- Instead of a lease extension can the leaseholder buy the freehold tenure instead however for this 50% of the leaseholders occupiers in that block building must agree vote to buy correct otherwise as a single leaseholder occupier your only option is lease extensions?


Everything mentioned above when do the New Lease Laws come into force and will the New Lease Laws increase the market value of the short leased properties or will the new lease laws eradicate short lease properties off the market because the new lease laws help the existing leaseholders of these short leased properties so short leaseholders are not pressured to sell?

A sub 80 year lease is going to be sold by the leaseholder (which may have become the bank if the leaseholder hasn't kept up their mortgage payments etc)

If anyone dies without a will or any descendants their property passes the Crown, the Treasury Solicitor will ultimately sell the lease and the funds raised pass to the public purse. 


You will struggle to get a mortgage on a short lease which is why they are advertised as cash only. Major works can also result in people selling properties at below market value, the difference is that buying a leasehold where its imminent then the paperwork will tell you this, if its freehold its up to you/your surveyor to spot the problem. Most sellers of domestic property are private individuals, there is very little law on what they must tell you of their own volition however they must answer questions accurately/to the best of their knowledge. So no, they dont have to tell you up front that the lease only has 15 years left to run but you will ask for a copy of the lease long before exchanging contracts and it will be very obvious from that what's left on it. 


Ground rent and service charge are two totally different things so no, ground rent cannot be hidden in the service charge. The rent will be fixed in the lease (or the way to calculate is fixed in the lease), its a major thing because failure to pay it gives the freeholder an easy(ish) route to forfeit the lease. It's also important on how it increases because if it goes above certain thresholds (depends if in or outside London) it effectively becomes a tenancy agreement which makes it easier for the freeholder to cancel the lease. 

Service charge covers the cost of running the building, this can be cleaners, electricity for the lights in the shared corridors, gardeners for the grounds, repairing the roof etc. It is highly variable depending on how much these things cost but the lease will say how much each unit contributes. In our current place each flat pays the same share, in our last place it was divided based on the square footage of the units. 

You won't necessarily pay the same as others, as mentioned above in our old place it was based on size so those having a 4 bed penthouse were paying much more than the studio flats. They can be divided up in any way as long as the total percentages add to no more than 100%. You can purchase copies of leases from Land Registry but generally it's more about being happy with what your share is than worrying if your neighbour is paying more or less. 

It's much harder for the freeholder to get a forfeiture based on non-payment of service charges, but not impossible. 


Purchase of the freehold is a separate thing and in most cases you become (joint) freeholder of the whole building plus a leaseholder still. There is a statutory process to buy the lease in certain circumstances where the freeholder has no option but to sell and fixed way to calculate the price. If you dont have statutory rights there is also discretionary processes to buy the freehold (though other may have to be given first refusal) and freeholds can pass between people without anyone in the building becoming a freeholder. 

Assuming you collectively buy the freehold you will still need to do a lease extension else if you have a 25% share then when your lease runs out it returns to the freeholder so you would need to pay the others 75% of the value of the new lease (you obviously wouldn't pay yourself for the share you already own). 

eddddy

bery_451 said:

- Buyer sees short lease property with less than 80 years remaining on Right Move. Ad says Cash Only or Auction. Who is selling this property, is it the current leaseholder of the property or the freeholder owner or is it the freeholder is not allowed to sell until the current remaining lease with the current leaseholder has lapsed? For example single occupier leaseholder dies with no relatives to claim for it however there's 79 years remaining on the lease. This means the freeholder has to wait 79 years before legally be allowed to sell the property?

Leasehold property is bought and sold in a similar way to freehold property.

As an example...

• You buy a flat with a lease with 90 years remaining 
• You live in it for 5 years
• Then you sell the flat with the lease which now has 85 years remaining

And then maybe...

• The new owner has bought the flat with a lease with 85 years remaining 
• They live in the flat for 6 years
• Then they sell the flat with the lease which now has 79 years remaining

(Unless/until the lease is extended - which would increase the years remaining on the lease.)

The freeholder isn't heavily involved in the selling/buying of a flat.

If somebody dies without a will and without relatives, the process is the same - whether they own a freehold house or leasehold flat (and/or whether they own anything else of value - like cars, jewellery, shares etc).

bery_451 said:

- Current leaseholders that are advertising short lease properties on rightmove for cash only or auction that looks cheap below market value because they cant afford to extend the lease because lease extensions is paid by cash only and cannot be paid by debt finance? 

People might sell flats with short leases (without extending the lease) for reasons like...

• Nobody advised them to get a lease extension
• They can't be bothered to get a lease extension
• They are daunted/scared by the lease extension process
• The lease extension process would take too long
• They don't have cash to pay for a lease extension
• They can't get a loan to pay for a lease extension
• They can't remortgage to cover the cost of a lease extension

bery_451 said:

Or they are selling because there are future proposed works by the freeholder that the leaseholder cant afford to pay towards to or there's a existing huge repair bill like a roof needs replacing with a new roof that the freeholder has billed all the leaseholders in the block building where leaseholders in that block cant afford to pay so the only way to escape is for the leaseholder to sell the current lease to another new unexpected property buyer leaseholder?

That's not connected with short leases.

A leaseholder with a long lease or a short lease might decide to sell if they can't afford the service charges. (i.e. the cost of repairs.)

You can ask the seller about service charges (i.e. repair costs) before making an offer. You solicitor will make further formal enquiries during conveyancing.

bery_451 said:

- Can the freeholder owner disguise hide ground rent in the service charge? For example you see properties advertised with £200 annual ground rent & £1000 annual service charge but you see another similar property with £2 a year annual ground rent but £2000 a year service charge. 

No. But why would a freeholder want to disguise that?

bery_451 said:

When searching for leasehold properties online how do you verify that the ground rent and service charges are genuine the same as the other leaseholders in that block building pay?

You can ask the seller to show you a ground rent bill and service charge bill, if you want.

Different flats in a building might be required to pay different levels of ground rents and different levels of service charge.

bery_451

DullGreyGuy said:

A sub 80 year lease is going to be sold by the leaseholder (which may have become the bank if the leaseholder hasn't kept up their mortgage payments etc)

Alright if bank then the bank can hold onto the property for 80 years or sell it at auction within those 80 years remaining correct or is the bank at this stage the freeholder so no time limits apply to the bank and they can do whatever they want with the property?


You will struggle to get a mortgage on a short lease which is why they are advertised as cash only. Major works can also result in people selling properties at below market value, the difference is that buying a leasehold where its imminent then the paperwork will tell you this, if its freehold its up to you/your surveyor to spot the problem. Most sellers of domestic property are private individuals, there is very little law on what they must tell you of their own volition however they must answer questions accurately/to the best of their knowledge. So no, they dont have to tell you up front that the lease only has 15 years left to run but you will ask for a copy of the lease long before exchanging contracts and it will be very obvious from that what's left on it. 

Ok to confirm the legal paperwork will say in it whether there are major works proposed in future or any major repairs that needs doing now and the buyer can clearly see and read this before buyer signs the contract to purchase the property or the buyer requires a solicitor to read all the small print & legal jargon so solicitor will know for sure and advise the buyer before signing the contract? So if this is the case where solicitor is needed then that means the buyer can spend £1000s on legal fees to find out about the property only to find out at the end its not worth signing to meaning buyer wasted £1000s on legal fees? Is there a way or methods for the buyer to do the Due Diligence like finding out about this stuff without spending £1000s on legal fees like the money saving expert way? Like get a copy of the lease for free via email or email the freeholder directly and ask will there be any future proposed works or any major repairs that needs doing now?


Ground rent and service charge are two totally different things so no, ground rent cannot be hidden in the service charge. The rent will be fixed in the lease (or the way to calculate is fixed in the lease), its a major thing because failure to pay it gives the freeholder an easy(ish) route to forfeit the lease. It's also important on how it increases because if it goes above certain thresholds (depends if in or outside London) it effectively becomes a tenancy agreement which makes it easier for the freeholder to cancel the lease. 

Ok ground rent prices is fixed meaning freeholder cannot increase the ground rent in future for leasehold properties outside London? Failing to pay ground rent anywhere in England gives the freeholder easy way to forfeit the lease meaning the freeholder can evict the leaseholder from the property & put the property back on the market?

Service charge covers the cost of running the building, this can be cleaners, electricity for the lights in the shared corridors, gardeners for the grounds, repairing the roof etc. It is highly variable depending on how much these things cost but the lease will say how much each unit contributes. In our current place each flat pays the same share, in our last place it was divided based on the square footage of the units. 

So annual service charges should cover one-off expensive repairs or they only cover maintenance & servicing costs? For example freeholder says the cladding is not safe not fire proof & to change the cladding will cost £10 million for the whole block building and there's 100 leaseholder occupiers in 100 flats in that building. So this means each leaseholder in that building has to cough up £100k each for this cladding bill or the annual service charge covers this? 


It's much harder for the freeholder to get a forfeiture based on non-payment of service charges, but not impossible. 

Do freeholders pursue non payment of service charges via debt collection agencies & bailiffs however it is difficult for them to forfeit the lease meaning they cannot evict you correct but for non-payment of ground rent they can?


Purchase of the freehold is a separate thing and in most cases you become (joint) freeholder of the whole building plus a leaseholder still. There is a statutory process to buy the lease in certain circumstances where the freeholder has no option but to sell and fixed way to calculate the price. If you dont have statutory rights there is also discretionary processes to buy the freehold (though other may have to be given first refusal) and freeholds can pass between people without anyone in the building becoming a freeholder. 

So a joint freeholder is still a leaseholder unless becomes freeholder of the whole building or own more than 50% of the building? What certain circumstances that must be met before beginning the statutory process or discretionary processes of buying the freehold?

Assuming you collectively buy the freehold you will still need to do a lease extension else if you have a 25% share then when your lease runs out it returns to the freeholder so you would need to pay the others 75% of the value of the new lease (you obviously wouldn't pay yourself for the share you already own). 

In other words to avoid pay lease extension fees, the leaseholder has to become the freeholder that owns 100% of the whole building/block?

When you say collectively buy the freehold, you mean I cannot buy the freehold tenure for my single flat in that block building and I need to team up with other leaseholders in the block building to buy the freehold in shares that go up by 25 percentage points and once leaseholders get 50% freeholders share in that block building then we are not at mercy at the the freeholders? 

Hi quoted & responded above^^

user1977

If the bank repossesses any property they will be wanting to sell as soon as possible, why would they hold onto it for a substantial period? They cannot “become the freeholder”, they are in possession of the leasehold interest. 

bery_451

eddddy said:

Leasehold property is bought and sold in a similar way to freehold property.

As an example...

• You buy a flat with a lease with 90 years remaining 
• You live in it for 5 years
• Then you sell the flat with the lease which now has 85 years remaining

And then maybe...

• The new owner has bought the flat with a lease with 85 years remaining 
• They live in the flat for 6 years
• Then they sell the flat with the lease which now has 79 years remaining

(Unless/until the lease is extended - which would increase the years remaining on the lease.)

The freeholder isn't heavily involved in the selling/buying of a flat.

If somebody dies without a will and without relatives, the process is the same - whether they own a freehold house or leasehold flat (and/or whether they own anything else of value - like cars, jewellery, shares etc).

So basically it is like hot potato where the more owners it has the more chances of the lease falling below 80 years remaining unless one of the previous owners has extended the lease before the 80 number has reached however extending the lease should increase market value of the property for the owner before the owner sells correct? I cannot see why would the owner sell at a below market value loss on 79 years lease remaining. Can the current owner leaseholder just extend the lease from 79 years for another few years to like extended to 82 years so leaseholder owner can sell at normal market value because it attracts more buyers because the mortgage debt market is now open for the property meaning not just cash buyers with deep pockets right? 


People might sell flats with short leases (without extending the lease) for reasons like...

• Nobody advised them to get a lease extension
• They can't be bothered to get a lease extension
• They are daunted/scared by the lease extension process
• The lease extension process would take too long
• They don't have cash to pay for a lease extension
• They can't get a loan to pay for a lease extension
• They can't remortgage to cover the cost of a lease extension

Usually how long does a Lease extension process takes to complete? What is so daunted/scared about completing a lease extension form or you mean the lease extension fee is expensively scary? Any leaseholder has the right to apply for a lease extension and this application cannot be legally refused right?



You solicitor will make further formal enquiries during conveyancing.

This legal fee I have to pay before I decide to sign the contract?

Hi responded above!

bery_451

user1977 said:

If the bank repossesses any property they will be wanting to sell as soon as possible, why would they hold onto it for a substantial period? They cannot “become the freeholder”, they are in possession of the leasehold interest. 

The bank pays off the freeholder when the freeholder sells their property to a mortgage debt buyer correct? This means the bank is now the freeholder and owns the property outright right?

user1977

bery_451 said:

user1977 said:

If the bank repossesses any property they will be wanting to sell as soon as possible, why would they hold onto it for a substantial period? They cannot “become the freeholder”, they are in possession of the leasehold interest. 

The bank pays off the freeholder when the freeholder sells their property to a mortgage debt buyer correct? This means the bank is now the freeholder and owns the property outright right?

No, nothing about that is either correct or right!

The bank merely steps into the shoes of the leaseholder. They’re not acquiring any rights over the freehold.

eddddy

bery_451 said:

So basically it is like hot potato where the more owners it has the more chances of the lease falling below 80 years remaining unless one of the previous owners has extended the lease before the 80 number has reached however extending the lease should increase market value of the property for the owner before the owner sells correct?

No. Having more owners doesn't shorten the lease.

For example, a 150 year lease granted in 2020 will end in 2170.

It doesn't matter if the lease has one owner who owns it for 150 years, or if the lease is bought/sold 30 times by 30 different owners.

The lease will still end in 2170.

(Unless the lease is extended.)



Maybe think of the lease like this...

The lease is a piece of paper which says "The owner of this piece of paper has the right to live in this flat until 2170"

So you might buy that piece of paper, and start living in the flat. When you've finished living in the flat and want to move on, you sell that piece of paper to somebody else. (The end date on the piece of paper doesn't change.)

bery_451 said:

Usually how long does a Lease extension process takes to complete? What is so daunted/scared about completing a lease extension form or you mean the lease extension fee is expensively scary? Any leaseholder has the right to apply for a lease extension and this application cannot be legally refused right?

A statutory lease extension typically takes 6 months to 18 months to complete. (There is no such thing as a lease extension form.)

Typically, you hire a solicitor and a valuer. The freeholder hires a solicitor and a valuer.

In simple terms, they serve legal notices on each other. Then argue with each other about how much the lease extension should cost.

Sometimes they will use bluff, they will spread confusion, and they will play 'nasty' games, in an attempt to get a better price.

If they can't agree a price, it will end up at a tribunal (which is like a court) and your legal costs will be huge.


(If you imagine a divorcing couple each paying solicitors to fight for the best possible settlement, negotiating a lease extension can sometimes be very similar.)

bery_451

eddddy said:

A statutory lease extension typically takes 6 months to 18 months to complete. (There is no such thing as a lease extension form.)

Typically, you hire a solicitor and a valuer. The freeholder hires a solicitor and a valuer.

In simple terms, they serve legal notices on each other. Then argue with each other about how much the lease extension should cost.

Sometimes they will use bluff, they will spread confusion, and they will play 'nasty' games, in an attempt to get a better price.

If they can't agree a price, it will end up at a tribunal (which is like a court) and your legal costs will be huge.


(If you imagine a divorcing couple each paying solicitors to fight for the best possible settlement, negotiating a lease extension can sometimes be very similar.)

Alright there's a huge difference in time between 6 to 18 months. For better understanding can you give examples/circumstances of what can alter the time between 6 to18months? Shall I assume the 6 months is when freeholder agrees with the lease extension submitted by leaseholder and everything goes smoothly in time no delays & 18 months if when the freeholder plays nasty games causing delays hence the longer 18 months wait correct? 

The freeholder will pay for their solicitor & valuer? Regarding hiring solicitors and valuers, once the marriage value is abolished by law then will these new lease laws help the leaseholder and stop nasty games being played by the freeholder to bump up the price by the freeholder's valuer so lease extensions should not take longer than 6 months right?

Isn't the lease extension cost based on the loss of ground rent income for the freeholder? For example I want to extend the lease by 10 years and the ground rent is £200 a year so lease extension cost for 10 years should be 10 x £200 = £2000 total for 10 years lease extension correct? Can I extend the lease by any custom length in years I want or do I choose out of how many extension years?

If price not agreed then who takes it to court, the leaseholder or freeholder? and the loser pays all legal costs for both parties?

eddddy

bery_451 said:

Alright there's a huge difference in time between 6 to 18 months. For better understanding can you give examples/circumstances of what can alter the time between 6 to18months? Shall I assume the 6 months is when freeholder agrees with the lease extension submitted by leaseholder and everything goes smoothly in time no delays & 18 months if when the freeholder plays nasty games causing delays hence the longer 18 months wait correct? 

• If everyone cooperates and both parties quickly agree a price - it could take 6 months

• If both parties can't agree a price - it could take 18 months

• If the freeholder (or leaseholder) plays games - it could take 18 months

• If the freeholder ignores your request for a lease extension - I guess it could take 12 to 18 months

• If you can't trace the freeholder - it might take even longer than 18 months

bery_451 said:

The freeholder will pay for their solicitor & valuer? 

No - not under the current law. You (the leaseholder) have to pay the freeholder's costs. But the reforms are meant to be changing that.

bery_451 said:

 Regarding hiring solicitors and valuers, once the marriage value is abolished by law then will these new lease laws help the leaseholder and stop nasty games being played by the freeholder to bump up the price by the freeholder's valuer so lease extensions should not take longer than 6 months right?

I suppose that's the goal of the new laws. But the new laws haven't been decided yet, and different groups are arguing about how the new laws should work. So who knows?

bery_451 said:

Isn't the lease extension cost based on the loss of ground rent income for the freeholder? For example I want to extend the lease by 10 years and the ground rent is £200 a year so lease extension cost for 10 years should be 10 x £200 = £2000 total for 10 years lease extension correct? Can I extend the lease by any custom length in years I want or do I choose out of how many extension years?

Unfortunately, what you've said is wrong in a number of different ways.

• A statutory lease extension currently adds 90 years to a lease. The new reforms should mean that a statutory lease extension extends a lease to 990 years.

• Loss of ground rent is one part of a lease extension price calculation. But your approach to calculating the loss is completely wrong.

If you want to get an idea of what a statutory lease extension might cost, you can put some numbers into a lease extension calculator, like this one...
https://www.lease-advice.org/calculator/

You probably need to add legal/valuation fees of £3k to £4k on top.