Lease extensions whilst buying a flat

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  • Lease extensions whilst buying a flat
  • Premier Icon allyharp
    Subscriber

    Keen to hear your experiences of extending the lease on a leasehold property, especially if it was done during or immediately after purchase.

    My girlfriend and I have been looking for a while and have now found somewhere suitable with 85 years left on the lease.  I know that’s not strictly a “short” lease, but it realistically means we will need to extend during our term to either continue living in it, or to sell it on, before costs to extend start to get really expensive at 80 years and below.

    We made an offer (and then a second, and then a final offer) subject to lease extension.  They’ve now come back and accepted the offer amount, but they will not extend the lease prior to sale.  They’ll initiate the section 42 request to extend, which means we can extend at our own cost straight away or 6 months down the line if we choose to delay.

    Online calculators suggest that could cost anything between £7 and 10k, plus solicitors fees to extend.  So that’s quite a difference from our offer financially, and in terms of hassle and risk we’d be taking on.

    – WWSTWD?

    – Have you ever been in a similar situation?

    – If you’ve extended your lease, how long did it take to go through?

    poolman
    Member

    I ve done it twice now at c 5k per extension.  I think you are time barred for 2 years from purchase, as the lease is now 999 years the lease extension cost is easily covered.  We went to the ombudsman as we couldnt agree the price.  Good luck its a good investment if the property is sound.

    poly
    Member

    with 85 years left on the lease.  I know that’s not strictly a “short” lease, but it realistically means we will need to extend during our term to either continue living in it,

    I like your optimistic life expectancy!

    We made an offer (and then a second, and then a final offer) subject to lease extension.  They’ve now come back and accepted the offer amount, but they will not extend the lease prior to sale.

    If you make a final offer and then negotiate it shows it wasn’t really a final offer and weakens your negotiating position (they know that your really really want it).  The question is, given it’s going to cost them a pile of cash, a load of solicitors fees and potentially hold up their sale – was your offer reasonable or undervalued?  Is this flat really unique or can you walk away?  All other buyers face the same dilemma.

    Premier Icon senor j
    Subscriber

    We had a flat with ~70 year lease. It cost £8K with fees to extend. gits.

    Wouldn’t have sold the flat without it.

    No advice to give, except a cautionary tale:

    It cost £8K with fees to extend. gits.

    When I went to sell my flat in London, in ’08 I think, it came to light that less than 65 years remained meaning no bank would lend on it.  Lease company quoted 30K to extend (ie almost half what I bought the flat for!).  Went through some kind of tribunal to bargain it down to about 15K iirc, mega stressful as I was emigrating and needed the flat sold by a certain date.  The bloke who surveyed the flat before the extension was granted told me it was reasonably common for elderly folk who’ve lived in the family home all their life to run the lease down entirely and end up paying rent to the leaseholder to live in their own house.

    Leasehold is a very weird system (or at least the concept of a 99 year lease is) I’ve only encountered in that London.  Doesn’t exist here despite almost everyone living in flats – people I know who work in banks are gobsmacked when I tell them about it.

    IIRC if the majority of owners in the building want to buy out the lease holder, it’s an automatic right and might be worth asking the management company.

    Premier Icon allyharp
    Subscriber

    I like your optimistic life expectancy!

    Haha, that’s not entirely out of the question with 80+ years of medical advances to rely on, but not quite what I meant!  I was meaning to protect our investment – ie not see it devalue rapidly once it goes below 80 – with large costs needed to rectify.

    Chances are we’ll be selling on again 5 years or so, but that would then leave the task of finding a buyer who isn’t put off.

    was your offer reasonable or undervalued

    About 2% below asking, so I wouldn’t say it was undervalued, and close enough for them to take a few days considering before coming back to us.

    poolman
    Member

    I remember now how we came to an agreement via the tribunal.

    Freeholder wants future ground rents and escalations discounted back to todays value.

    Leaseholders benefit from uplift in flat value, easy, just look at sold prices of comparables.

    We then went half on the total.

    A few owners did not want to participate, so their shares were offered to the rest who did via loans to mgt company.

    Our freeholder, who on googling is notorious for being difficult, was forced to sell via the tribunal.

    jon1973
    Member

    Leasehold is a very weird system (or at least the concept of a 99 year lease is) I’ve only encountered in that London. 

    Taylor Wimpey were selling 3,4 5 bedroom houses on their new estates on a leasehold bases, and then screwing people over on the land rent.  They were also selling the freeholds to third party investment companies, who were charging £30k odd to the home owners to buy them.

    Obviously if you want to buy a flat, it’s difficult to avoid, but I’d run a mile from a leasehold property.

    zeesaffa
    Member

    If I were you I would look to extend the lease asap – like between Exchange amd Completion.

    The current owners should have the quote from the freeholders for extending the lease as part of the Section 42. Exchange contracts then arrange for the solicitors to extend.

    That’s what I would do.

    There are no guarantees on the cost of extending further down the line. Chances are it will cost (potentially a lot) more.

    poly
    Member

    About 2% below asking, so I wouldn’t say it was undervalued, and close enough for them to take a few days considering before coming back to us.

    The asking price rice and value are not necessarily linked!  You’ve offered under asking AND demanded that they pay several k’s and time…

    The point I was trying to make was the property has a true value with an 85 yr lease, and a true value with a 99 yr lease.  Turn the question on its head.  If you notionally are expecting to pay £5k and £2k fees and have the risk and uncertainty you could increase your offer by 7k on condition of the extension being in place.  Cash neutral but risk transferred to vendor).

    Premier Icon madhouse
    Subscriber

    I had a leasehold flat which got to 72 years when I was selling. No one would look at it as mortgage companies wanted at least 80 so it cost me £11k to extend the lease to then get asking price.

    Personally I wouldn’t touch Leasehold with a barge pole after that. From what I remember it’s relatively cheap to reset the clock every few years, but once it gets past a certain point that’s when the ratios kick in.

    My opinion: you offered subject to the least being back to 99 years, they won’t do it as they know that’s an 8-10k cost. I’d revise my offer down by that and if they don’t accept it walk away, there will be others. In my experience the length of the lease does nothing for the asking price, so you won’t add the value to your property.

    MrSmith
    Member

    About to do mine, it’s going to be about £25k do I mind? Not really as it was reflected in the purchase price and flats gone up £100k in the 3 years I have lived here.

    the only issue I have is that if I want to add it to my mortgage Santander want it as a separate loan with a shorter term and higher rate even though it’s adding value to the property and I have low LTV (45%)

    I have to say my management company are very fair and I see the breakdown of costs plus when there was some fencing done they give us the 3 quotes to look at and we could object if we wanted to.

    I cant see the 14 other leaseholders getting together to buy the freehold, that would probably happen if the service charge was to go up ridiculously high. I would be wary of large blocks with lifts etc, I know of horror stories of pensioners in ex council blocks being charged 30k for 4 new lifts!

    bent udder
    Member

    I own a flat and volunteered as a director of the management company over ten years ago – it was my first property, and I was completely skint as a result, so being able to trade time for a bit off my service charge was very much worth it at the time. The 22 flats in the development were new build with 99 year leases.

    Your management company is not obliged to get involved with extending the leases, but the three of us directors (who all own flats on the site) went out and sorted a solicitor and got as many owners together as possible to spread the cost. This worked well, and we got a good deal that added 99 years to the remaining lease and meant we didn’t have to pay ground rent each year, especially welcome as it was due each Christmas day.

    Other flats in the development don’t have renewed leases, or are renewing singly. They are getting different renewal terms (ie, extending 15 or so years up to a 99 year lease, rather than going to 184) and not opting out of ground rent). Others still were within the two year purchase period and have had to wait it out. Others still just don’t seem to think it’s a problem – but talk to anyone working in the industry, and they’ll tell you otherwise.

    Estate agents and conveyancing solicitors check these sorts of things and will advise buyers on it, because it’s cost and hassle to fix and may make getting a mortgage difficult. If you haven’t already, it’s probably worth checking this as well yourself.

    As said above, with a short lease period left, many mortgage lenders will start asking awkward questions, and you may not get their best rate or a mortgage at all – all significant when thinking about selling up. If you can get the application underway with the vendor before they sell to you, then you can renew.

    It may also be well worth talking to a few neighbours on the same leasehold, and the management company if there is one, to see if others want to extend at the same time. If you can stretch to it, it’s worth clubbing together to buy the freehold out.

    And absolutely do not touch a house with this arrangement – it sounds like a complete nightmare and it’s stressful enough for a block of flats, let alone a housing estate!

    bent udder
    Member

    Just a quick note on MrSmith’s comment on charges for lifts. This is usually something to do with the service charge. You have a leasehold (and possibly also pay ground rent) to the original developer, or whoever they’ve sold it to. That’s one thing, and covers the ground the property stands on. Hurrah for land ownership. 🙁

    The second ting, the stuff and bits that support the flat you won, are covered by a service charge. We were really keen to take this over from the original developer, and for the first 13/ 14 years, it was run by three shareholders acting as directors and putting in some long hours to do things that professional property management companies charge a lot for.

    One of the biggest worries for any management company is the sinking fund. This is the savings accrued from the service charge put towards big capital projects – stuff like lifts, redecoration of the outside or interior communal spaces, or even bigger stuff like the roof. The costs for this sort of activity can be vast. For my relatively small block, we were looking at the thick end of £70,000 to redecorate the exterior, and the terms of the lease called for it to be done every three years. We deferred this for a long time, by the way. If the management company has not built up a decent sinking fund, or if it depletes it with lots of works (for example, if upkeep has been neglected or a major defect is found) then the shareholders can be hit with a massive one off charge – like £30k for lifts.

    We’re looking at this sort of thing at the moment. The interior stairwells are looking a bit grubby, and when we replaced the carpeting about seven years ago the contractor seems to have done a pretty poor job. We’re taking a bit from our sinking fund and also adding a relatively small extra charge as well so we don’t end up without a roof or driveway in a few years time.

    These are all things that, if you owned a home, you’d have to do as well. It’s just that it all has to be done collectively, and if it’s not managed right, there can be some pretty hefty bills.

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