New to Leasehold Tenure Properties

bery_451

eddddy said:

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.

Okay to confirm a lease extension only comes in 1 option and that is 90 years, there's no other lengths as of now? 

Apart from ground rent part, what other parts make up the calculation?

So its £3-4k legal fees each for the leaseholder & freeholder meaning leaseholder pays £6-8k fees in total for a lease extension that will take 6 months and that's without going to the tribunal courts correct?

So if the leaseholder is paying legal fees for the freeholder then can the leaseholder choose & nominate which solicitor to choose for the freeholder or the freeholder choose their solicitor that the leaseholder has to pay for? If that is the case then the freeholder can choose the best property real estate lease solicitor in the country that might charge £1000 per hour consultation meaning the leaseholder will be guaranteed to lose against the freeholder in any dispute and the leaseholder ends up footing all the legal bills at the end lol? 

Yes the lease calculator link is asking for value of the property after a lease extension, how do I work this out?

eddddy

bery_451 said:

Apart from ground rent part, what other parts make up the calculation?

Just to be clear - your calculation relating to the ground rent was completely wrong.

Here's a description of the whole calculation: https://tartarus.org/martin/leasehold.htm

bery_451 said:

So its £3-4k legal fees each for the leaseholder & freeholder meaning leaseholder pays £6-8k fees in total for a lease extension that will take 6 months and that's without going to the tribunal courts correct?

 £3k to £4k is likely to be the total fees for both leaseholder and freeholder.

bery_451 said:

So if the leaseholder is paying legal fees for the freeholder then can the leaseholder choose & nominate which solicitor to choose for the freeholder or the freeholder choose their solicitor that the leaseholder has to pay for? If that is the case then the freeholder can choose the best property real estate lease solicitor in the country that might charge £1000 per hour consultation meaning the leaseholder will be guaranteed to lose against the freeholder in any dispute and the leaseholder ends up footing all the legal bills at the end lol? 

The freeholder chooses their own solicitor and valuer.

If you believe that the the resulting fees are unreasonable, you can challenge them at the tribunal. (I challenged a freeholder's fees and got them reduced by £2.5k. But I had to put together a strong case.)

bery_451 said:

Yes the lease calculator link is asking for value of the property after a lease extension, how do I work this out?

You look for comparable flats nearby, but with long leases, which have sold recently and see what they have sold for. Or you could try asking local estate agents for their opinions.

(When you instruct a valuer to do a valuation, that's what they will do.)

DullGreyGuy

bery_451 said:

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^^

Unfortunately not in the easiest way....

1) The bank would cease the lease, either they sell it or surrender it, whilst they hold it they are liable for the costs such as service and ground rent.

2) Few proceed with a purchase without a solicitor/conveyancer. If you need a mortgage you can't do so as your bank won't and your liable for their lawyer so normally you instruct someone that acts for both of you. During the process of purchase the seller and the freeholder will be asked about any known/planned works so those will be known/declared. Obviously a leaseholder may speculate about major future works and not declare their hunches which is why you still get a survey done.

3) Ground rent isn't necessarily unchanging but the formula is fixed. It could be £100 a year for the full duration. It could be £100 for the first year doubling every 5 years. It could be £100 increasing by RPI every year. The point is its not an arbitrary decision, it cannot be £100 this year, £200 next year and £600 the following year because the freeholders had a bad couple of years and needs the money. 

The difference between London and the rest of England is the level of ground rent at which point the rules around a rental kick in is different. London allows a much higher ground rent for obvious reasons.

4) It covers both and the third option which is building up a fund to pay for future works. So you have the basic maintenance as previously highlighted. It will also cover one off events (that insurance doesn't), in our building the small amount of flat roof leaked 2 years ago so we had to pay 1/34th of the cost of replacing the flat roof. In our previous building the service charge was £9,000 per year but that was because the roof and windows needed replacing after 45 years and the quote for scaffolding alone was over £1m

There are protections in place though... other than emergency any significant works have to go through a process before work is done. Whilst costs dont have to be the cheapest possible they do have to be reasonable and you can take the freeholder to tribunal if you dont think they are. We got £2,000 (total, not just our share) removed from the roof replacement when we challenged the agent's oversight cost estimate.

5) Ultimately they can forefiet the lease and reposes the unit for both ground rent and service charge non-payment. My understanding is the former is easier than the latter. 

6) A complex subject but it's the most common situation, at least in London and certainly when there are more than 2-3 units in the building. Some people may convert their large home into a few flats so retain the full freehold and sell the new units as leasehold in which case there is no lease on the property they retain. Take the aforementioned precious property. It has circa 350 flats. 200 or so bought the freehold and so formed a company that bought the development (technically its 2 buildings) so 200 owners are both leaseholders and 1/200th shareholders of the company that owns the buildings and the other 150 are purely leaseholders. 

7) Discretionary purchases are purely by agreement. In principle with the above 1 person could have bought the freehold to both buildings if others weren't interested in participating. 

Often, at least in modest developments where everyone is a share of freeholder, one of the first actions after the purchase is to renew everyone's lease for 999 years with no ground rent. Everyone benefits so everyone agrees. However, it's not automatic. Take a modest development with 4 flats, 3 flats have 120 years left and one has 4 years left. It's unlikely the 3 will agree to the 1 extending the lease to 999 years without cost as they can simply wait 4 years and then claim 25% each of the value of selling a new lease. This is why if you buy share of freehold you need to understand how decisions are made etc. In many cases the freeholder is a company and what you get is a share in the company, in that case there will be Articles of Association publicly available on Companies House, these define how decisions are made. Some will be a majority vote, some will require a unanimous vote with reference to "experts" if unanimous is unachievable etc.

bery_451

eddddy said:

Just to be clear - your calculation relating to the ground rent was completely wrong.

Here's a description of the whole calculation: https://tartarus.org/martin/leasehold.htm

 £3k to £4k is likely to be the total fees for both leaseholder and freeholder.

The freeholder chooses their own solicitor and valuer.

If you believe that the the resulting fees are unreasonable, you can challenge them at the tribunal. (I challenged a freeholder's fees and got them reduced by £2.5k. But I had to put together a strong case.)

bery_451 said:

Yes the lease calculator link is asking for value of the property after a lease extension, how do I work this out?

You look for comparable flats nearby, but with long leases, which have sold recently and see what they have sold for. Or you could try asking local estate agents for their opinions.

(When you instruct a valuer to do a valuation, that's what they will do.)

Alright in any lease extension calculation you are required to know the approx. market value of the property with a 90year lease extension added to it? So for e.g. a short lease property has 70 years left remaining so you need to know the value when 90 years is added to it so 90 + 70 = 160 years lease, but what if you find similar long lease properties in the same area that do not have 160 years lease so how u find the market value of a 160 year long lease property? Is there a way to find out approx. valuation of a property online without paying ££££'s in fees to a valuer or whoever? There must be a MSE way to do this. I cannot understand a potential buyer who will spend ££££s in fees before even signing a contract on the property or change of mind do not buy at the end.

Okay so its £1.5k to £2k that the leaseholder pays in legal fees and to cover the freeholder legal fees its this amount x2 paid all by leaseholder.

Okay how much it cost you in court fees to get your freeholder to reduce their fees by £2.5k and after winning your tribunal did you get these court costs back & how long your court tribunal process took?

eddddy

bery_451 said:

Alright in any lease extension calculation you are required to know the approx. market value of the property with a 90year lease extension added to it? So for e.g. a short lease property has 70 years left remaining so you need to know the value when 90 years is added to it so 90 + 70 = 160 years lease, but what if you find similar long lease properties in the same area that do not have 160 years lease so how u find the market value of a 160 year long lease property? Is there a way to find out approx. valuation of a property online without paying ££££'s in fees to a valuer or whoever? There must be a MSE way to do this. I cannot understand a potential buyer who will spend ££££s in fees before even signing a contract on the property or change of mind do not buy at the end.

The value of a property is whatever a buyer is prepared to pay for it.

There's no 'secret formula' that can work that out. As I said, valuers will look at what other similar properties have sold for (and maybe adjust a little, if required). So you can do the same.

FWIW, a buyer would probably pay the same for a property with 100 year lease or 125 year lease or 160 year lease.

And if, for example, you put a property value of £225k vs £250k vs £275k into the calculator, you'll see it probably doesn't make a huge difference.

bery_451 said:

Okay so its £1.5k to £2k that the leaseholder pays in legal fees and to cover the freeholder legal fees its this amount x2 paid all by leaseholder.

No, probably more like £1.2k or £1.5k to your solicitor+valuer, and £2.2k to £2.5k to the freeholder's solicitor+valuer.

Your solicitor + valuer will probably be working for a fixed fee, the freeholder's probably won't. Plus the freeholder's solicitor has to draft the lease extension deed.

bery_451 said:

Okay how much it cost you in court fees to get your freeholder to reduce their fees by £2.5k and after winning your tribunal did you get these court costs back & how long your court tribunal process took?

That lease extension took over 2 years in total. The total fees I had to pay (after the £2.5k reduction) were around £6k.

But a number of factors combined to make that an exceptionally 'difficult' lease extension. Most lease extensions would be much simpler and cheaper.

bery_451

eddddy said:

There's no 'secret formula' that can work that out. As I said, valuers will look at what other similar properties have sold for (and maybe adjust a little, if required). So you can do the same.

Ok you mentioned I can do the same, please remind me how do I do this please?

FWIW, a buyer would probably pay the same for a property with 100 year lease or 125 year lease or 160 year lease.

Okay to confirm similar properties in the same location with long leases over 80 years all have similar market values whether its 81 years, 99 years, 100 years, 125 years, 160 years or even 990 years remaining as long they do not fall under 80 years correct?

bery_451 said:

Okay so its £1.5k to £2k that the leaseholder pays in legal fees and to cover the freeholder legal fees its this amount x2 paid all by leaseholder.

No, probably more like £1.2k or £1.5k to your solicitor+valuer, and £2.2k to £2.5k to the freeholder's solicitor+valuer.

Your solicitor + valuer will probably be working for a fixed fee, the freeholder's probably won't. Plus the freeholder's solicitor has to draft the lease extension deed.

Alright its nearly double the costs on the freeholder side because they have the extra task of drafting the lease extension deed?

bery_451 said:

Okay how much it cost you in court fees to get your freeholder to reduce their fees by £2.5k and after winning your tribunal did you get these court costs back & how long your court tribunal process took?

That lease extension took over 2 years in total. The total fees I had to pay (after the £2.5k reduction) were around £6k.

But a number of factors combined to make that an exceptionally 'difficult' lease extension. Most lease extensions would be much simpler and cheaper.

I mean how much it cost you in extra legal fees to take your freeholder to tribunal court on grounds of the fees on the freeholder side were too high & you won your case and the judge reduced it by £2.5k? 

Hi quoted above ^^ !

eddddy

bery_451 said: 

eddddy said:
There's no 'secret formula' that can work that out. As I said, valuers will look at what other similar properties have sold for (and maybe adjust a little, if required). So you can do the same.

Ok you mentioned I can do the same, please remind me how do I do this please?

You look at 'Sold Prices' on Rightmove (and/or other websites). You ask estate agents.

But it sounds like you've been looking at flats to buy. So you probably already have a good idea of local prices.

And you only need rough numbers to put into a lease extension calculator anyway.

bery_451 said: 

Okay to confirm similar properties in the same location with long leases over 80 years all have similar market values whether its 81 years, 99 years, 100 years, 125 years, 160 years or even 990 years remaining as long they do not fall under 80 years correct?

You're looking for 'magical formulas' for determining property values again. They don't exist.

It's more like this...

My friend George wants to buy a flat. He's a typical kind of person. He's seen 3 very similar flats....

• One has 100 years remaining on the lease
• One has 125 years remaining on the lease
• One has 160 years remaining on the lease

George is happy to pay roughly the same for any of those flats. The difference in lease length doesn't bother him. (And most other typical buyers think the same as George.)

And you only need rough numbers to put into a lease extension calculator anyway.

bery_451 said: 

I mean how much it cost you in extra legal fees to take your freeholder to tribunal court on grounds of the fees on the freeholder side were too high & you won your case and the judge reduced it by £2.5k? 

The lease extension claim was already at tribunal. I wasn't there. My solicitor asked for the reduction in costs, and the judge agreed.

bery_451

eddddy said:

bery_451 said: 

I mean how much it cost you in extra legal fees to take your freeholder to tribunal court on grounds of the fees on the freeholder side were too high & you won your case and the judge reduced it by £2.5k? 

The lease extension claim was already at tribunal. I wasn't there. My solicitor asked for the reduction in costs, and the judge agreed.

Alright so I assuming as part of your £1.2k to £1.5k fees to cover you, these fees also included costs for your solicitor to fight on your behalf for the reduction of £2.5k reduction in fees from the freeholder side?

So if general if a leaseholder likes to do the lease extension and pays the normal fees for this to cover the leaseholder side then the leaseholder solicitor will fight automatically for the reduction of fees from the freeholder side if solicitor believe freeholder fees are too high right? There's no extra fees to fight on your behalf to bring costs/fees down?

Lastly do properties with lets say an 82 year lease remaining have the same market value of a used property with a 100 year lease remaining? As long its above 80 years it will fetch full market value?