Extending Lease - "Bulk Buying"

peterhjohnson

A close friend owns a leasehold flat in a block of six. The building is owned by a limited company which all the leaseholders are members/directors of.

Recently she was looking at (re)mortgage options and was told that she'd need at least 90 (ninety) years left on the lease but she (and all the other leaseholders) have 8X years left.

I told her that I believe that these flats would become difficult to sell/mortgage if they got below 80 (eighty) years and that it could be advantageous for all of the leases to be adjusted to 999 years and that if done as a job lot now, it might be much cheaper.

However, all the solicitors she's approached basically want to charge 6 x what they'd charge her as an individual if it was just her doing just her own flat :-(

Does anyone know of a firm or process that could get this collectively sorted for a decent discount on the one person rate? My guess is that unless she can get a £500/head deal for everyone, she'll be stuck with a bill for £2K+ just to sort her flat :-(

In my amatuer way, it seems to me that all that's needed is some sort of amendment document that says "for 125 years, read "999 years"!

poseidon1

Sounds to me when they originally negotiated to buy out the previous freeholder they merely established a limited company for that purpose, but left the underlying leases as they were complete with the declining term of years and in all likelihood the annual ground rents intact.

The issue is the Freehold company is a separate legal entity from the leaseholders even though they own the company. From the company's perspective it is holding leases which in its hands has a capital value being the investment return on the ground rents, and the 'marriage value' of the declining leases.

This is where your friend and her co shareholders in the company have a less than straightforward tax issue if they now purport to 'cancel' the leases ( and ground rents) and replace with 999 year leases at peppercorn rents.

The company in this scenario will be making a de facto disposal of its 'investment' at nil consideration, since presumably the leaseholder/ shareholders will not be charging each other a premium to extend each other's leases. However from HMRC's viewpoint there is still a taxable disposal by the company for which they may want corporation tax on the capital gain the company has chosen to forego.

When face with this kind of situation, and with potential tax issues to address or advise the company, most solicitors will charge for the additional responsibility of advising not just the leaseholder but also the company. If corporation tax is an issue, most property lawyers do not in any event have competency to assist and may specifically exclude tax as part of their brief to handle a lease extension in this circumstance.

The article from Taxadviser in the link below highlights the tax problem here, with examples which will no doubt resonate with your friend and her co leaseholders. Perhaps you should share it so that she has a better idea of the issues at stake here.

https://share.google/mXQgo0uo7sadLLknv

As you may have gathered by now it is not a 'simple' issue of striking out 125 years on a lease and replace with 999 years.