Lease extension when putting a flat on sale

AskAsk

We have a flat in London that has 86 years left on the lease.  We are planning to sell the property in March / April and wonder if we should do the lease extension as part of the sale?

If we were to start the process now, how does that work with the sale anyone know?

That is, do we have to complete it as part of the sale process or can the buyer take it on part way during the process?

Will doing the extension now delay the sale process?

The property is an ex-local property in the borough of Wandsworth.

eddddy

In general, there are 2 routes for getting a lease extension...

1. The informal route
2. The statutory route

But it sounds like your freeholder is a council. Most councils won't do informal lease extensions, only statutory ones.

A statutory lease extension usually takes between 6 months and 18 months to complete - but hopefully, being a council freeholder, it will be nearer 6 months.


Realistically, you probably have 2 choices:

• 1) Get the statutory lease extension completed before you sell the property (so assume you'll have to wait 6 to 18 months, before you can sell). Plus you'll have to find a chunk of money to pay for the lease extension.

or

• 2) Advertise the property for sale with an option something like this "If the buyer wants to, the seller will start the statutory lease extension process between exchange and completion. The buyer can then complete the process."

If you go for option 2, I'd strongly suggest that you use an estate agent who understands statutory lease extensions, and has maybe sold properties in similar situations before.

Otherwise you could end up with a confused estate agent who confuses a buyer - and everything falls down into a messy heap.

AskAsk

eddddy said:

In general, there are 2 routes for getting a lease extension...

1. The informal route
2. The statutory route

But it sounds like your freeholder is a council. Most councils won't do informal lease extensions, only statutory ones.

A statutory lease extension usually takes between 6 months and 18 months to complete - but hopefully, being a council freeholder, it will be nearer 6 months.


Realistically, you probably have 2 choices:

• 1) Get the statutory lease extension completed before you sell the property (so assume you'll have to wait 6 to 18 months, before you can sell). Plus you'll have to find a chunk of money to pay for the lease extension.

or

• 2) Advertise the property for sale with an option something like this "If the buyer wants to, the seller will start the statutory lease extension process between exchange and completion. The buyer can then complete the process."

If you go for option 2, I'd strongly suggest that you use an estate agent who understands statutory lease extensions, and has maybe sold properties in similar situations before.

Otherwise you could end up with a confused estate agent who confuses a buyer - and everything falls down into a messy heap.

it will be through the statutory lease extension.  we had started it last year but because of the issue with the building safety act wording on new leases, we had to abandon and wait for that to clear it.  it is now cleared up so our solicitor has asked us if we want to proceed.

not much has been done except the surveyor valuation and the solicitor approaching the council, who is the freeholder, to ask if they would agree to a wording in the lease about the building safety act safeguard, which the council refused, so it was a stale mate.

that is all water under the bridge now so we can start again but I rememberred incorrectly that it takes 3-4 months to get the statutory lease estension done and that it takes 6 months due to the land registry taking a few months themselves to register the new lease.

sounds like option 2 for us then as we don't want to hang on for 6 months!

AskAsk

@eddddy - can we start the statutory lease extension now and say that the buyers can continue with the extension if it is not complete by the time of exchange?

is it possible for the process to be transferred to the new owner or has the process have to start all over again when a new owner gets involved?

eddddy

AskAsk said:

@eddddy - can we start the statutory lease extension now and say that the buyers can continue with the extension if it is not complete by the time of exchange?

is it possible for the process to be transferred to the new owner or has the process have to start all over again when a new owner gets involved?

In theory, you can do what you suggest.

But in practice - either you'd probably have to do 100% of the lease extension process before you sell, or the buyer does 100% of the lease extension process after they buy (you just kick off the process between exchange and completion).

It will probably be super messy if you try to switch over half way through.


In practice, when the process starts...

• You don't know how much the lease extension will cost at the end
• You don't know what legal and professional fees you'll have to pay at the end
• You don't know how long the process will take
• You don't know if your application will be deemed invalid and rejected

Plus, if you transfer the process to the buyer half way through...

• They might mess-up the negotiation and overpay for the lease extension
• They might mess-up negotiation and end up having to pay higher legal and professional fees
• They might mess-up negotiation and end up having the application cancelled
• Or the buyer might find out that you messed up before the transfer, meaning they have to pay more and/or the application gets rejected
  

Plus, you don't know if the lease extension...

• will happen before the sale - so you have to pay for it
• or the extension will happen after the sale - so the buyer has to pay for it

(So will you want to change the purchase price? Meaning that a buyer has to get their mortgage changed etc.)


I think you'll find it difficult (and expensive) to have a sale/purchase contract drawn up that deals with all the different possible situations, and is acceptable to you and the buyer.


In short, I think the following might happen...

• An inexperienced buyer might walk away, because of all the complexity, risks and uncertainty

• An experienced/sophisticated buyer might take on the risks and uncertainty - but expect the property to be sold at a bargain price, because of the risks/uncertainty

AskAsk

eddddy said:

AskAsk said:

@eddddy - can we start the statutory lease extension now and say that the buyers can continue with the extension if it is not complete by the time of exchange?

is it possible for the process to be transferred to the new owner or has the process have to start all over again when a new owner gets involved?

In theory, you can do what you suggest.

But in practice - either you'd probably have to do 100% of the lease extension process before you sell, or the buyer does 100% of the lease extension process after they buy (you just kick off the process between exchange and completion).

It will probably be super messy if you try to switch over half way through.


In practice, when the process starts...

• You don't know how much the lease extension will cost at the end
• You don't know what legal and professional fees you'll have to pay at the end
• You don't know how long the process will take
• You don't know if your application will be deemed invalid and rejected

Plus, if you transfer the process to the buyer half way through...

• They might mess-up the negotiation and overpay for the lease extension
• They might mess-up negotiation and end up having to pay higher legal and professional fees
• They might mess-up negotiation and end up having the application cancelled
• Or the buyer might find out that you messed up before the transfer, meaning they have to pay more and/or the application gets rejected
  

Plus, you don't know if the lease extension...

• will happen before the sale - so you have to pay for it
• or the extension will happen after the sale - so the buyer has to pay for it

(So will you want to change the purchase price? Meaning that a buyer has to get their mortgage changed etc.)


I think you'll find it difficult (and expensive) to have a sale/purchase contract drawn up that deals with all the different possible situations, and is acceptable to you and the buyer.


In short, I think the following might happen...

• An inexperienced buyer might walk away, because of all the complexity, risks and uncertainty

• An experienced/sophisticated buyer might take on the risks and uncertainty - but expect the property to be sold at a bargain price, because of the risks/uncertainty

thanks, that is very informative.

AskAsk

@edddy - you had mentioned in option 2 that we could offer the buyer to start the process between exchange and completion and they continue with it.  what is the advantage of this over them just doing it when they complete?

eddddy

AskAsk said:

@edddy - you had mentioned in option 2 that we could offer the buyer to start the process between exchange and completion and they continue with it.  what is the advantage of this over them just doing it when they complete?

Currently, the law says you have to own the property for 2 years before you can start a statutory lease extension.

So, assuming you've owned the property for 2 years, you can start it between exchange and completion.

But if you don't do that, the buyers will have to wait 2 years - when the lease will be down to 84 years. If the buyer is happy to wait 2 years, that's fine.


That's why it might be good to give buyers a choice - you can start the process for them now, or they can wait 2 years and start it themselves.

(But there is talk of removing the 2 year ownership rule - but no clear date for when it will happen.)

AskAsk

eddddy said:

AskAsk said:

@edddy - you had mentioned in option 2 that we could offer the buyer to start the process between exchange and completion and they continue with it.  what is the advantage of this over them just doing it when they complete?

Currently, the law says you have to own the property for 2 years before you can start a statutory lease extension.

So, assuming you've owned the property for 2 years, you can start it between exchange and completion.

But if you don't do that, the buyers will have to wait 2 years - when the lease will be down to 84 years. If the buyer is happy to wait 2 years, that's fine.


That's why it might be good to give buyers a choice - you can start the process for them now, or they can wait 2 years and start it themselves.

(But there is talk of removing the 2 year ownership rule - but no clear date for when it will happen.)

we have already started the process last year, which is put on hold with our solicitor as she has not applied to the council yet.  we could offer to leave that with her and to start the process after exchange if the buyer would like us to do this.

we have owned the property for many years.  the council had already confirmed last year that they are happy to grant a lease extension through the statutory process and they advised us on their costs and the estimated cost of the extension.

so we could just leave it as it is and let the buyer continue from here after completion.

I thought they had already agreed the removal of the 2 years wait and that it is expected to be passed into law this year.

eddddy

AskAsk said:

we have already started the process last year, which is put on hold with our solicitor as she has not applied to the council yet.  we could offer to leave that with her and to start the process after exchange if the buyer would like us to do this.

"Starting the process" means serving a section 42 notice on the council.  That freezes the valuation date, and the clock starts ticking.

Until you serve the s42, as far as the law is concerned, you haven't started the process. It doesn't sound like you've served a s42 notice.

Looking at your previous post, it sounds like you discussed the possibility of starting the process with your solicitor (and the council), but decided against starting the process - because of issues caused by the Building Safety act.

AskAsk said:

so we could just leave it as it is and let the buyer continue from here after completion.

Unless you serve a s42 notice, that won't work.

And you should only really serve a s42 notice with your buyer's agreement and involvement. Otherwise you might lose a chunk of money.

AskAsk said:

I thought they had already agreed the removal of the 2 years wait and that it is expected to be passed into law this year.

The Leasehold and Freehold Reform Act was passed in May 2024. However most of the changes it contains (such as the 2 year rule) require secondary legislation to be drafted.

In May 2024, the changes were expected to come into effect in late 2025/26. But some people are now saying that's doubtful.

(And some freeholders are threatening to challenge it in court, on the basis that it infringes their Human Rights.)


So personally, I wouldn't be betting too much money on this happening by end of 2025.

AskAsk

@edddy - yeah, you are right, technically we haven't formally started the process as the solicitor hasn't served the S42 notice to the council as she couldn't get the council to agree to the terms so she said we should wait for legislation to change, which it has for the building safety act.

we have left £1,000 with her on account and she wants to know if we want to start the process now so if she should close the file and return the money.  i think we will ask her to keep the file open until we have sold the property as it will make it easier to start the process if everything is already in place, should the new buyer want us to start it after exchange or we find we struggle to sell the flat with 86 years left on the lease, which hopefully won't be the case.