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  • FIRST POST
    • chucknorris
    • By chucknorris 8th Jan 20, 11:38 AM
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    chucknorris
    Private loan friend to friend to pay for a lease extension
    • #1
    • 8th Jan 20, 11:38 AM
    Private loan friend to friend to pay for a lease extension 8th Jan 20 at 11:38 AM
    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?
    Last edited by chucknorris; 08-01-2020 at 11:41 AM.
    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
Page 4
    • chucknorris
    • By chucknorris 9th Jan 20, 1:03 PM
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    chucknorris
    I think I have got everything I wanted from this thread now, things are starting to be repeated again and again. So thanks for everyone's contribution but I will stop contributing now. I will come back though much later, when it is done and declare what happened.
    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
    • JimmyTheWig
    • By JimmyTheWig 10th Jan 20, 11:23 AM
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    JimmyTheWig
    Regarding the inheritance, you are way off the mark, the situation is that I (we) can't spend what we have (without just wasting it), and we have no family to leave it to.
    Originally posted by chucknorris
    In which case, would it be a ridiculous idea to give the £80k as a gift?
    • femalemonarchfemalecanine
    • By femalemonarchfemalecanine 10th Jan 20, 1:03 PM
    • 46 Posts
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    femalemonarchfemalecanine
    The way I view it is that if things went that way (which I don't think that they would), it would be them that loses a friend, I lose someone that I 'thought' was a friend (but as I said, I don't think that is the situation).
    Originally posted by chucknorris
    you are a nice kind person doing this, and I really hope it all works out well, because helping people doesn't always end in disaster. Fair play to you
    excuse the username, what I wanted wasn't allowed. It's just a song title...
    • phillw
    • By phillw 10th Jan 20, 4:55 PM
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    phillw
    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?
    Originally posted by Gaz83
    Surely the transaction can't go ahead unless both charges are fulfilled (if written properly).

    Doesn't the mortgage lender have to agree to a second charge though?

    Regarding the inheritance, you are way off the mark, the situation is that I (we) can't spend what we have (without just wasting it), and we have no family to leave it to.
    Originally posted by chucknorris
    I really can't see why you are wasting money on solicitors then. Just write your own loan agreement, it doesn't sound like would ever take them to court anyway but it leaves the door open. If they stiff you then remove them from your will and move on.
    Last edited by phillw; 10-01-2020 at 5:02 PM.
    • MadgeT
    • By MadgeT 10th Jan 20, 5:07 PM
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    MadgeT
    To me it would depend on how much you value your friendship. Lending money is ok if your prepared for possibly losing it and not getting it back. Even with the best will in the world, if things go per shaped and she cannot pay it back - that would put nasty blip on your friendship - either by you because your angry about not getting your money back or from her as she is embarrassed about not paying you back. Yes, by all means put contracts in place as it may prove something of a safeguard, but if the contracts get broken well ??????
    • -taff
    • By -taff 10th Jan 20, 7:02 PM
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    -taff
    Just one thing, if you have left part of your estate to a charity and you have a friend or family member as an executor, make sure you've left them a specified amount of money, not a percentage, because if you leave them a percentage, the excecutor will curse you for all the extra work and stress that will cause.
    • sailinglegend
    • By sailinglegend 13th Jan 20, 2:18 AM
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    sailinglegend
    Don't lend money to a friend.....my thread under LOANS.

    There are some good comments on there that I am grateful for.

    Under your agreement add 27 pages of small print to cover all situations as this would be an unregulated loan. Santander's Terms and Conditions could just be copy and pasted.
    • chucknorris
    • By chucknorris 14th Jan 20, 8:15 PM
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    chucknorris
    Surely the transaction can't go ahead unless both charges are fulfilled (if written properly).

    Doesn't the mortgage lender have to agree to a second charge though?



    I really can't see why you are wasting money on solicitors then. Just write your own loan agreement, it doesn't sound like would ever take them to court anyway but it leaves the door open. If they stiff you then remove them from your will and move on.
    Originally posted by phillw
    First of all I have found out that there is no mortgage lender, they paid off the mortgage a few years ago (just found out today). I also brought that up earlier about the second charge, so why ask! But now that I will have the first charge, this looks quite straight forward.

    Secondly, you don't seem to understand that if someone acted totally different to the way that you thought that you knew their character, and thought that you understood them, then you would change your attitude and take them to court. Life is a fluid situation!

    I am not wasting money on solicitors, it is a legitimate cost that they will have to pay, it is far less costly than any other alternative that they have.
    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
    • glennstar
    • By glennstar 15th Jan 20, 6:21 AM
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    glennstar
    I am not wasting money on solicitors, it is a legitimate cost that they will have to pay, it is far less costly than any other alternative that they have.
    Originally posted by chucknorris
    Make sure you use a solicitor with experience in this area. They aren't all the same and they don't all know their own limits. It's critical you choose wisely.

    Have you looked into government policy changes regarding lease and freehold? They were abandoned in Scotland a number of years ago and Westminster is talking about doing the same in England and Wales. I know it's hard to judge how quickly legislation will change but you may well be spending £80K on nothing... well, more than the nothing you are spending it on at the moment, as it were.

    Finally, you're plainly a nice person but completely bonkers. This will end badly for everyone!
    The views expressed here are my own. I am not a Solicitor nor am I affiliated with any of the parties I mention. If you disagree with any of my comments please say in whatever way feels most natural to you. No one self improves in a bubble!
    • chucknorris
    • By chucknorris 15th Jan 20, 7:30 AM
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    chucknorris
    Make sure you use a solicitor with experience in this area. They aren't all the same and they don't all know their own limits. It's critical you choose wisely.

    Have you looked into government policy changes regarding lease and freehold? They were abandoned in Scotland a number of years ago and Westminster is talking about doing the same in England and Wales. I know it's hard to judge how quickly legislation will change but you may well be spending £80K on nothing... well, more than the nothing you are spending it on at the moment, as it were.

    Finally, you're plainly a nice person but completely bonkers. This will end badly for everyone!
    Originally posted by glennstar
    With respect you don't know me, so you are in no position to call me bonkers. It will end badly for my friends if they do not extend the lease, the value of the flat will be zero in 40 years from approx £330k, so (straight line) that is over £8k per annum being lost.

    I am aware that leaseholds are being looked at, but doing nothing and hoping for the best is not IMO a good strategy for my friends. In Scotland it only helped leaseholders who had more than 100 years left on the lease.

    I am not spending £80k (or whatever it turns out to be, that was just their guesstimate, they need to get another quotation). I will be lending the money to my friends, with a first charge on the property (the same as a mortgage company would).
    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
    • glennstar
    • By glennstar 15th Jan 20, 9:04 AM
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    glennstar
    With respect you don't know me, so you are in no position to call me bonkers. It will end badly for my friends if they do not extend the lease, the value of the flat will be zero in 40 years from approx £330k, so (straight line) that is over £8k per annum being lost.
    Originally posted by chucknorris
    I notice during the course of the 4 pages of this post you have grown increasingly irascible, presumably because you aren't hearing what you want to hear. I think the point about a qualified solicitor is valid, as is investigating the leasehold rule changes, neither point of which I can see in any previous posts - although I concede I have not poured over the commentary. The fact that you have chosen to focus on my "bonkers" comment says a lot. I wonder why you have even created this post.

    As for the UK law changes, which, incidentally, has nothing to do with the crackpots running the Scottish government. The 2017 reform proposal stated, as one of its 4 main objectives;
    [To] work with the Law Commission to support existing leaseholders. This will include making buying a freehold or extending a lease “easier, faster, fairer and cheaper.”
    There was also a statement in October 23019 stating that this legislation would be in place before the end of the next Term. I think anyone in their right mind would wait. What difference (genuinely I don't know) will waiting up to 5 years make to the cost/viability of the lease?

    And on that point, just by the bye, it is a common misconception to think that I need to know you to be able to judge your mental state - not true.
    The views expressed here are my own. I am not a Solicitor nor am I affiliated with any of the parties I mention. If you disagree with any of my comments please say in whatever way feels most natural to you. No one self improves in a bubble!
    • chucknorris
    • By chucknorris 15th Jan 20, 10:05 AM
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    chucknorris
    I notice during the course of the 4 pages of this post you have grown increasingly irascible, presumably because you aren't hearing what you want to hear. I think the point about a qualified solicitor is valid, as is investigating the leasehold rule changes, neither point of which I can see in any previous posts - although I concede I have not poured over the commentary. The fact that you have chosen to focus on my "bonkers" comment says a lot. I wonder why you have even created this post.

    As for the UK law changes, which, incidentally, has nothing to do with the crackpots running the Scottish government. The 2017 reform proposal stated, as one of its 4 main objectives;

    There was also a statement in October 23019 stating that this legislation would be in place before the end of the next Term. I think anyone in their right mind would wait. What difference (genuinely I don't know) will waiting up to 5 years make to the cost/viability of the lease?

    And on that point, just by the bye, it is a common misconception to think that I need to know you to be able to judge your mental state - not true.
    Originally posted by glennstar
    It is NOT my decision whether to extend the lease or not, it is their decision! We have discussed it, and they want to proceed, if something crops up in time, great, we can reconsider, but they want to proceed with a lease extension this Summer. To wait 5 years would probably add more than £40k to the cost of extending the lease! My decision is limited to whether to lend them the money or not.

    I created this post because I wanted to ensure that I had identified all the significant risks to me, to see if anyone could bring something up which I had not thought of. But since I discovered that I will have the first charge on the property that mitigates most of my significant risk. The biggest risk was that if there was a mortgage and they defaulted on it, and used up all the equity, my second charge would not be protecting me, but I now know that that is not an issue.
    Last edited by chucknorris; 15-01-2020 at 10:10 AM.
    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
    • JimmyTheWig
    • By JimmyTheWig 15th Jan 20, 10:36 AM
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    JimmyTheWig
    First of all I have found out that there is no mortgage lender, they paid off the mortgage a few years ago (just found out today). I also brought that up earlier about the second charge, so why ask! But now that I will have the first charge, this looks quite straight forward.
    Originally posted by chucknorris
    It strikes me that the easiest thing to do would be for you to buy an £80k stake in their house.
    • chucknorris
    • By chucknorris 15th Jan 20, 10:48 AM
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    chucknorris
    It strikes me that the easiest thing to do would be for you to buy an £80k stake in their house.
    Originally posted by JimmyTheWig
    The purpose of extending the lease is for them to sell the property, they need to access the equity, for a number of reasons:

    1. They now live in Hastings and the flat is in London (more difficult to manage).
    2. They need to pay off a number of friends who have loaned them money (nothing too major, but it needs to be paid back to them).
    3. They want to pay for some home improvements to their own home.
    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
    • JimmyTheWig
    • By JimmyTheWig 15th Jan 20, 1:42 PM
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    JimmyTheWig
    The purpose of extending the lease is for them to sell the property
    Originally posted by chucknorris
    I don't mean that you should buy a stake in the property and that be the end of it. I'm saying that rather than lend them £80k and get a charge put on the house, could you buy into the house for £80k, extend the lease and sell it.
    • BurntOutLeaseholder
    • By BurntOutLeaseholder 15th Jan 20, 1:55 PM
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    BurntOutLeaseholder
    charge
    If you do loan the money then you need a legal agreement that they will move out and sell the property .... put a charge against it in law. Problem is doesn’t sound like they want to go anywhere and can sabotage any future sale.
    • chucknorris
    • By chucknorris 15th Jan 20, 2:04 PM
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    chucknorris
    I don't mean that you should buy a stake in the property and that be the end of it. I'm saying that rather than lend them £80k and get a charge put on the house, could you buy into the house for £80k, extend the lease and sell it.
    Originally posted by JimmyTheWig
    I would then have to share all the sale fees etc. I would rather stick with what I intend to do. I am very comfortable with having the first charge on the property, I am happy to proceed under those circumstances.
    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
    • chucknorris
    • By chucknorris 15th Jan 20, 2:10 PM
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    • 15,176 Thanks
    chucknorris
    If you do loan the money then you need a legal agreement that they will move out and sell the property .... put a charge against it in law. Problem is doesn’t sound like they want to go anywhere and can sabotage any future sale.
    Originally posted by BurntOutLeaseholder
    I was discussing that with my solicitor yesterday, I am waiting for her to come back to me with better information, when I was talking to her, I didn't know then that I would have the first charge, I have since advised her by email. I will have the first charge on the property, which is comforting. They do want to sell, and they did have it in an auction last year but it did not meet the reserve. Because of the low lease there was not much interest, selling on the open market with an extended lease should be much easier to sell. Remember it is an investment property (they do not live in it), so not wanting to go anywhere isn't relevant.
    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
    • SeanG79
    • By SeanG79 15th Jan 20, 3:30 PM
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    SeanG79
    Can they not agree the price of the lease extension with the freeholder, have the lease extension contracts drawn up, to be paid via proceeds of sale?
    • chucknorris
    • By chucknorris 15th Jan 20, 3:43 PM
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    chucknorris
    Can they not agree the price of the lease extension with the freeholder, have the lease extension contracts drawn up, to be paid via proceeds of sale?
    Originally posted by SeanG79
    It is possible. but can get complicated (on the timing of things), the simplest way to do it is extend the lease first, then sell.
    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
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