is it worth extending share of freehold lease?

cuileann

Hi all,

I’m the new (first-time) owner of a flat in London with a share of freehold and about 86 years left on the lease. I’m wondering whether it’s worth paying around £1,500 to extend the lease now. I’d only need to cover solicitor fees for a 999-year extension.

With the upcoming leasehold reform, I’m unsure whether this extension is necessary. Could it turn out that I’ve wasted money if the reform automatically gives longer leases, or is there a chance the cost of extending could increase after the reform?

The other share of freeholders (6 of them) seem to think it is unnecessary, but my understanding is that it could still add value and protect me. 

I’d really appreciate any advice or experiences you have with this situation.

Thanks in advance!

eddddy

cuileann said:

Could it turn out that I’ve wasted money if the reform automatically gives longer leases, or is there a chance the cost of extending could increase after the reform?

It has not been suggested that the reform act would extend leases for free.

In terms of costs - it sounds like you're trying to compare doing an "Informal  Lease Extension" now, with doing a "Statutory Lease Extension" after the reforms come into force. That's a bit like comparing apples to oranges.


So it sounds like you're saying:

• You're considering an informal lease extension (as opposed to a statutory lease extension) to 999 years

• You're being offered the lease extension for free (i.e. zero premium)

• You'll have to pay the freeholders' legal fees of £1,500

• Presumably you'll also want your own solicitor, who might charge you £1k to £1.5k

And you're wondering if it might be better to wait for the changes planned by the Leasehold and Freehold Reform Act 2024, and then do a statutory lease extension.

• A statutory lease extension would then increase your lease length to 990 years

• The lease extension would not be free - you would have to pay for it. (At this stage, it's difficult to guess how much it would cost.)

• But as a leaseholder, you wouldn't have to pay the freeholders' legal fees. So the freeholders would pay their own legal fees directly - but you are a joint freeholder, so you might have to contribute to those fees. 

• But you'd probably still need to pay your own solicitor

So a future "Statutory Lease Extension" might or might not be cheaper than an "Informal Lease Extension" now.

But there's no reason why the costs of a future "Informal Lease Extension" should be different from an "Informal Lease Extension" now.

cuileann said:

The other share of freeholders (6 of them) seem to think it is unnecessary...

Have they explained why they think it's unnecessary?

ExEstateAgent

With a lease of 86 years and reducing daily, it will make the flat difficult to sell, even with a share of freehold. 

Owning a SoF doesn't mean that extending a lease is 'free'. Other freeholders may want the market price so the usual rules would apply, although you would effectively get your share of the charge back. 

If they are offering a 'free' extension I would do it now, just to avoid any issues in the future when people's opinions may not be the same! 

cuileann

Thank you for your responses. 

@eddddy, the other freeholders said that since the flats all come with a share of the freehold, then the short lease left (approximately 86 years) doesn’t really matter.

My understanding is that it's still important to keep the lease from going towards the 80-year mark to maintain the property value, even though all 7 of us flatowners hold a share of the freehold

In total, it looks like I will have to pay about 2.4k - just in solicitor's fees (mine and the freeholders') - for the 999y lease extension

theartfullodger

Depends on the price..

eddddy

cuileann said:

@eddddy, the other freeholders said that since the flats all come with a share of the freehold, then the short lease left (approximately 86 years) doesn’t really matter.

It sounds like your joint freeholders don't fully understand.,

• As the lease gets shorter, it will eventually become more difficult to mortgage - even though you are a joint freeholder.

• Your current joint freeholders seem to be saying you can have a lease extension for free (you just pay legal costs), but...

•          ...They might change their minds later and say you must pay (e.g. out of spite, because you've annoyed them about something)

•          ... Some of the flats might be sold, and the new owners might not be so generous, and insist that you pay them for the lease extension

In simple terms, you are being offered a valuable "free gift" by your joint freeholders, so perhaps you should take it.

In 6 months time or 1 years time they might change their minds and withdraw their offer of a "free gift" and tell you that you must pay for the lease extension.


It's extremely unlikely that anything in the planned leasehold reforms will give you a better deal than the "free gift" that you're being offered now.

cuileann said:

My understanding is that it's still important to keep the lease from going towards the 80-year mark to maintain the property value, even though all 7 of us flatowners hold a share of the freehold

Yes - it's important not to let the lease get too short.

cuileann said:

In total, it looks like I will have to pay about 2.4k - just in solicitor's fees (mine and the freeholders') - for the 999y lease extension

Yep - that's solicitors' fees for you!

Lease extensions are complicated, and if you get it wrong, you could make the flat unsaleable - so I would always use a solicitor for a lease extension.

Do you have a mortgage? If so, your mortgage lender will insist that you use a solicitor.

You'll also need your mortgage lender's consent for the lease extension (and they might charge a fee for that), but I can't see them refusing consent for a straightforward lease extension.