Extending my lease

Merlin5 · 30 Apr 2015 at 19:49

Wondering if anyone here has some advice for me. I own my 1 bedroom flat and wish to sell it. The lease is now at 66 years. I went to an estate agent (who has valued the property at £280K to 300K, though another agent reckons £310 to £320K) and at his office he typed my details into a leasehold calculator including when the lease expires, and based on the property valuation, it came up with £20 to £22K to extend it by adding 90 years to my existing 66 years, making it 156 years with no ground rent to pay anymore. He said if the freeholders ask for more that I shouldn't have to pay any more than £22K.

Another cheaper option he suggested was asking to just extend it back to 99 years and even offer to increase my £50 a year ground rent to something like £300 or £400 a year. That, he said, could mean paying around £10K. He said because there's still ground rent, it could be of more financial interest to the freeholders.

I wrote to my freeholders a few days ago saying "Dear Sir or Madam,

I am interested in extending my lease for the above mentioned property to 99 years. Please let me know what premium you would be looking for in this instance.

Yours faithfully,"

They wrote back saying thanks for the enquiry, please provide how many bedrooms and current market value. So I sent a reply letter yesterday answering their questions.

I don't really know how it's going to go from here. Like, how long it'll take (I've heard it can take 3 months or even a year), but my main concern is how much they'll ask for. If the 'normal' route of adding 90 years is meant to be about £20K, then asking to just extend to 99 years and increase the ground rent should be quite a bit less, no? I'm guessing it could go to a tribunal if we can't reach an easy agreement.

Forgot to add, I've not told the freeholders that I'm selling, nor am I going to. Has anyone here had dealings with freeholders and extended their lease?

fastwunz · 1 May 2015 at 14:29

DO NOT TELL THEM YOU ARE SELLING!!!
They will give you a price that is higher than the estimate.

There are two routes - agree a price between you and get your solicitors to sort it or...... get a surveyor over and get a report done.

Ultimately it will come down to a bit of give and take.

You cant sell it as is unless you sell it to a cash buyer so going down the route of extending the lease is exactly the right thing to do. Whatever you spend on extending it, you should get back in value.

I would make sure your agent valued your property whilst in the knowledge that the lease was so low. double check - if they didn't just get them to readdress the value.

Extending the lease can take a very short amount of time

Merlin5 · 1 May 2015 at 14:59

Thanks fastwunz.

On your various points.

Indeed, I don't intend to tell them I'm selling for that very reason. In fact, they asked for a copy of the agents particulars, and in my reply a couple of days back to them, I said "There are no Agent’s particulars as this flat is not for sale nor is it being marketed."

Yes, I hope we can agree a price that isn't extortionate, ie, hopefully below £20K, ideally 10 to 15K.

I'll need to sort out a solicitor. A solicitor, plus I have to pay the freeholders costs for their survey and legal fees, will probably be well over £2000

Regarding cash buyers, you might be right, but I think it's kind of borderline whether someone can get a mortgage on my 66 years remaining? According to moneysavingexpert, it's under 60 years is where it's pretty much no go.

"If your lease is under 70 years, mortgage rates may at best increase. It will be virtually unmortgageable under 60, so you will struggle to remortgage. If you want to sell, you'll probably have to flog to a cash buyer or shift at auction."

Yes, the agents are aware of the low lease. They valued it between £280K and £320K on an extended lease and about £250K on the low lease. I wrote back to the freeholders and told them current market value with 66 years approx £250K and with 99 years, approx £270K (gave them slightly lower figure).

Yeah, I hope it can get agreed and extended in a short time. I just know that a friend of mine did the same thing on a lease around mid 60 years, and it took her about a year and cost her £50K! I bloody hope these freeholders don't expect that kind of money from me, otherwise I'd be left with less than I need to buy a decent house and will have to add a hefty chunk of money, and so it would be very difficult and expensive. If however it turns out to be a maximum of £20K I have to pay, that would be manageable. So I'm keeping my fingers crossed it's no more than that! If it is, then it would be tribunal time and could take months I suppose?

JAzz · 2 May 2015 at 11:31

Merlin5 said:
Forgot to add, I've not told the freeholders that I'm selling, nor am I going to. Has anyone here had dealings with freeholders and extended their lease?

Just extended my lease now funnily enough on a property I own. I can email you the solicitor and surveyor I used if you like? The solicitor was someone who specialises with lease extensions but she probably charged a bit more than a regular solicitor. I found out the hard way that it is sometimes best getting proper advice so worth spending the extra.

Your best bet is to talk to the freeholder and see if you can come to a sensible agreement, if not then you need to serve notice on them and go that route. You'll then have to pay for their legal fee + survey cost and your own. The surveyor or solicitor could advice you as to which option would work out best for you.

Merlin5 · 2 May 2015 at 18:04

Hi Jazz. I might need that solicitor and surveyor at some point. Where are you based? I'm in London. Did it take long for your lease to be done, was it quite low like mine, did and you have negotiations to bring the premium down? How much approx did the solicitor charge?

I received a reply from my freeholders today. They're taking the **** bigtime! :mad:

I rang my estate agent who recommended I need to talk to a professional. I asked him if he meant a solicitor and he said no and gave me the details of someone he knows who is very good, an expert consultant on leases. So I've left a voicemail for him to call me. It's these people
http://www.chestertons.com/our-services/professional-services/leasehold-reform/

So here is the letter:

Bear in mind that I'm only asking for a 99 year lease. Had I wanted to go for a longer lease of 90 years added onto my 66 years, the lease calculators estimate £20,000, so asking for £36K for just a 99 year lease AND x5 the ground rent is a ******* joke. No way am I paying that, but I need to try and get it around £20K.

£36K is more than the difference between what the property is supposedly worth now on the low lease and what it would probably be when extended.

Shoza · 2 May 2015 at 19:31

I'm a property lawyer (see my earlier posts) and I'd personally suggest you go down the statutory route and obtain a lease extension valuation now. It's not a big cost and you will know what to expect if you go down the route or sell with the benefit of the S42 notice served.

If you want to extend your lease before you sell then send the notice in with your RICS valuation and await their response.

The freeholder has to behave in a certain way with a formal lease extensions, must respond by specified timeframes and use standard documentation for the lease extension so no funny changes to costs in your lease.

Merlin5 · 2 May 2015 at 20:05

Hi Shoza, thanks for your advice. The statutory route means adding 90 years to my existing 66 years, but is this likely to make the premium cheaper or even more expensive? The leasehold calculators are calculating on the statutory 90 years added on and are showing 18K up to 22K, which is what I'd hope for going the statutory way. Is this likely?

JAzz · 3 May 2015 at 07:45

Merlin5 said:
Hi Jazz. I might need that solicitor and surveyor at some point. Where are you based? I'm in London. Did it take long for your lease to be done, was it quite low like mine, did and you have negotiations to bring the premium down? How much approx did the solicitor charge?

Yeah I am based in London too. My lease was very short so had a very high premium, I'll leave you a message via trust now.

Participant · 3 May 2015 at 08:03

Leasehold in pain in the arse shocker.

Shoza · 5 May 2015 at 23:14

Merlin5 said:
Hi Shoza, thanks for your advice. The statutory route means adding 90 years to my existing 66 years, but is this likely to make the premium cheaper or even more expensive? The leasehold calculators are calculating on the statutory 90 years added on and are showing 18K up to 22K, which is what I'd hope for going the statutory way. Is this likely?

If the managing agents want £36k + £1k costs minimum for an informal lease extension and the formal lease extension calculator suggests £18 - £22k then I would go formal - end up with a much longer lease and as mentioned before the landlord has to use standard documentation (must abide by the statutory legislation which is very specific about what they can include!). Even if they threaten additional costs of £2k that's still significantly less than their initial quote.

My experience of informal lease extensions are that unless you are dealing with a charity you will be screwed over everyway possible. At least with formal lease extensions they must respond within set timeframes etc!

delta0 · 6 May 2015 at 12:21

I would get the ground rent to zero. That will effect future lease extensions and hence the value.

I'm about to extend my lease. I have my solicitor from when I bought the house ready and I will get a surveyor to value the property for lease extension. Half of the value added to the property is the 'marriage value'. This value is offered to pay for the lease extension plus solicitor fees. Normally looking at around £750-800 solicitor fees for each side that you must cover. The lease extension will pay back to you more than it cost to extend when you come to sell. So if the marriage value is £20k you will be able to sell for £40k more.

Merlin5 · 6 May 2015 at 13:40

Thanks guys. Well I spoke to a solicitor today very kindly recommended to me by via trust. I'll be put in touch with a surveyor and will receive a letter from the solicitor tomorrow. My understanding of the section 42 notice is if I want a buyer to take over the process of extending the lease, but I think I'll lose out that way and as you said delta0, I'll make more back by doing the extension than just the cost of it.

Shoza, yes, I was hoping you'd say that. It's now apparent to me that asking to extend the non statutory/informal way was asking for trouble! Clearly, the estate agent who suggested to me that asking for a 99 year top up could mean a much cheaper cost to extend was talking out his butt. So here's hoping that I can negotiate something considerably lower.

But the surveyor valuation is what I need to do first get the ball rolling properly. I didn't realise that before posting this thread, so thanks everyone for your advice.

Merlin5 · 8 May 2015 at 21:14

Guys, couple of questions. I forgot to ask the solicitor, but I spoke to a mortgage advisor from the halifax today about options for a small mortgage to bridge the gap between what I should be left with after selling and what the cost of the house I'll buy will be. I mentioned the lease extension as I'm worried how I will be able to fund it up front before I've sold my flat. She said it can be paid on the sale of the flat. Is that right? Does that mean I go through the process of getting a lease price agreed and then the freeholders wait till my flat is sold and the buyer pays the freeholder and I get the remainder of the money for my flat, or, I then pay the freeholder?

Also, what about a deposit for the house I buy? Again, I can't see how I can pay 5 or 10% of about £270K before my flat is sold. Would I (or the estate agent) just tell the seller of the house I want to buy that a deposit will be paid and contracts exhanged once I've got a buyer and have received a deposit for my place? I read this below so it looks like I can, but wanted to check with you.

If you're worried about funding a deposit, remember that if you're selling a property as well as buying one, your solicitor can apply the money received for the deposit on the property you're selling to fund the deposit for the property you're buying.