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Private loan friend to friend to pay for a lease extension

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Private loan friend to friend to pay for a lease extension

edited 8 January at 11:41AM in Loans
82 replies 4.2K views
chucknorrischucknorris Forumite
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edited 8 January at 11:41AM in Loans
A friend of mine owns a leasehold flat which is an investment property, she has allowed the lease to drop to 40 years. She wants to sell the property, but obviously it is seriously blighted by only having 40 years left on the lease. She is married, and they are both currently unemployed, so a mortgage extension is probably not a solution due to their status. An old quote from the freeholder (now expired) leads them to believe that the lease extension would now be about £70k, if so, the equity in the property would be about £160k net (after paying for the leasehold extension, the mortgage, CGT and miscellaneous costs). So there is plenty equity.

I have already loaned them £5k over 2 years ago, which was to try and sort this out so that they could sell, but they decided not to sell, so they still owe me that. They have asked me for advice, the best value solution that I can see for them is if I lend them another £80k (ish) to cover the lease extension, the freeholder's costs, their solicitor, my solicitor for securing a charge on the property and some cash to cover their loss of rental income during the sale (they would need this).

I would rather not be involved, but I think I am their only way out of their problem, so I am willing to do this. But what I would like from them is:

1. A written agreement acknowledging:
The fact that it is a loan (not a gift)

A stated specific interest percentage to me (yet to be agreed, but it would only cover my opportunity cost).

Acknowledgement that they agree to sell the property as soon as reasonably possible. With a time limit that would give me to recover the loan by forcing a sale (probably about 12 to 18 months).

2. Agreement that a charge is placed on the property for the loan (including the initial £5k too).

I just wondered if anyone can spot something that I might have missed, or has any other comments?
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Replies

  • zx81zx81 Forumite
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    Just don't do it.

    A contract is one thing, but it still needs to be enforced and there needs to be funds to pay it.
  • powerful_Roguepowerful_Rogue Forumite
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    If you can afford to lose the £80k, then go ahead and loan it to them. If not, don't.
  • chucknorrischucknorris Forumite
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    zx81 wrote: »
    Just don't do it.

    A contract is one thing, but it still needs to be enforced and there needs to be funds to pay it.

    If I don't do it, she will end up losing out badly. I don't want to see her losing out.

    I take your point about enforcement costs though, that probably needs to be worded into the contract.
    Chuck Norris can kill two stones with one bird
    The only time Chuck Norris was wrong was when he thought he had made a mistake
    Chuck Norris puts the "laughter" in "manslaughter".
    I've started running again, after several injuries had forced me to stop
  • chucknorrischucknorris Forumite
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    If you can afford to lose the £80k, then go ahead and loan it to them. If not, don't.

    I can't see the scenario where I would lose out, with what I have proposed where am I vulnerable?
    Chuck Norris can kill two stones with one bird
    The only time Chuck Norris was wrong was when he thought he had made a mistake
    Chuck Norris puts the "laughter" in "manslaughter".
    I've started running again, after several injuries had forced me to stop
  • Gaz83Gaz83 Forumite
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    I can't see the scenario where I would lose out, with what I have proposed where am I vulnerable?
    She doesn't pay you back? The funds from the sale don't cover the money she owes you?

    Plenty of stories on this forum of people who have loaned thousands of pounds to their best friends, who would never dream of not paying them back, and then not getting their money back.
    "Facism arrives as your friend. It will restore your honour, make you feel proud, protect your house, give you a job, clean up the neighbourhood, remind you of how great you once were, clear out the venal and the corrupt, remove anything you feel is unlike you... [it] doesn't walk in saying, "our programme means militias, mass imprisonments, transportations, war and persecution."
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  • edited 8 January at 12:02PM
    chucknorrischucknorris Forumite
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    edited 8 January at 12:02PM
    Gaz83 wrote: »
    She doesn't pay you back? The funds from the sale don't cover the money she owes you?

    Plenty of stories on this forum of people who have loaned thousands of pounds to their best friends, who would never dream of not paying them back, and then not getting their money back.

    I would only lend the money if a second charge is placed on the property (second to the mortgage), and obviously confirmation of what the first charge (mortgage) is. Just like the mortgage lender the value of the second charge would come directly to me (not via the seller) at completion of the sale. If they tried to avoid selling, I could instigate the sale (I need to confirm this).
    Chuck Norris can kill two stones with one bird
    The only time Chuck Norris was wrong was when he thought he had made a mistake
    Chuck Norris puts the "laughter" in "manslaughter".
    I've started running again, after several injuries had forced me to stop
  • edited 8 January at 12:06PM
    DCFC79DCFC79 Forumite
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    edited 8 January at 12:06PM
    Its not something I would do, its alot of my money you could potentially lose.

    If you choose to go through with it get the paperwork written up by a solicitor.
  • chucknorrischucknorris Forumite
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    DCFC79 wrote: »
    Its not something I would do, its alot of my money you could potentially lose.

    If you choose to go through with it get the paperwork written up by a solicitor.

    Thanks. yeah the plan would be to get a solicitor to deal with this (securing the charge on the property and dealing with the paperwork).
    Chuck Norris can kill two stones with one bird
    The only time Chuck Norris was wrong was when he thought he had made a mistake
    Chuck Norris puts the "laughter" in "manslaughter".
    I've started running again, after several injuries had forced me to stop
  • DCFC79DCFC79 Forumite
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    Thanks. yeah the plan would be to get a solicitor to deal with this (securing the charge on the property and dealing with the paperwork).


    I do hope it does work out.
  • Gaz83Gaz83 Forumite
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    I would only lend the money if a second charge is placed on the property (second to the mortgage), and obviously confirmation of what the first charge (mortgage) is. Just like the mortgage lender the value of the second charge would come directly to me (not via the seller) at completion of the sale. If they tried to avoid selling, I could instigate the sale (I need to confirm this).
    What if the property doesn't sell for its expected value, and after the first charge is paid there isn't enough to pay you?
    "Facism arrives as your friend. It will restore your honour, make you feel proud, protect your house, give you a job, clean up the neighbourhood, remind you of how great you once were, clear out the venal and the corrupt, remove anything you feel is unlike you... [it] doesn't walk in saying, "our programme means militias, mass imprisonments, transportations, war and persecution."
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