Purchasing flat with short lease- 51yrs. unexpired

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    Purchasing flat with short lease- 51yrs. unexpired

    Hi

    I'm thinking about putting in an offer on a flat as a buy to let. The asking price is £107,500 which is well below the market value, however the lease is just 51 years. The current owners (a bank as it's a repossession) have informed the estate agents that it would cost me £17,500 to extend the lease to 99 years, plus £450 (+vat) legal costs. I'm happy with these figures.

    I'm a bit confused though as I thought you needed to be the owner of a property for 2 years before you could extend a lease.

    Also, if I can extend the lease at the time of purchase, can the costs be incorporated into my mortgage?

    thanks in anticipation

    hannah

    #2
    1. The Bank's figure might or might not be accurate. Only L can decide if it's accepatable on sale of lease extension. Ask Bank how it arrived at that figure- it's own guess (or valuation) or decided by L?
    2. You need your own surveyor/valuer to advise you independently, too.
    3. Yes, the normal 'qualification' period is two years- but L may be willin to extend lease sooner.
    4. Are you to finance both purchases by mortgage advance? Your mortgagee might well not accept the 51-yr. lease as a satisfactory security.
    JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
    1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
    2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
    3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
    4. *- Contact info: click on my name (blue-highlight link).

    Comment


      #3
      I am in a similar position if anyone can help please!

      Hello - I am in the latter stages of purchasing a flat in London for £165,000 with a 71 year lease. We should have exchanged contracts nearly 2 months ago but I have been waiting to hear how much a lease extension would be, as 71yrs is very low.

      The freeholder has asked for £15,000 to extend the lease to 125 years.

      I think this is high but it is only their first offer so may be deliberately high. My solicitor says my next step is to pay a surveyor to do a valuation on the property. This may cost, let's say, £200. But as Abbey the mortgage lenders did their own valuation, could they not simply re-value the property for me (with the lease extension) which would not cost anything?

      What does the surveyor do that the Abbey valuation person can't?

      But what happens once I have the new valuation?
      Does a surveyor then see through the whole process and negotiate with the freeholder?
      And how much could it all cost?!

      Any help greatly appreciated!

      Comment


        #4
        The answer (if your V has owned for at least two years) is that:
        a. V serves Notice of Claim on L, under s.42 of 1993 Act;
        b. in contract of sale, V is expressly made obliged to assign to you- on purchase completion- the Notice of Claim's benefit, by a separate Deed of Assignment;
        c. on completion, V does so;
        d. you then take-over V's rights to extend lease; and
        e. you (or your sol.) can thereafter serves on L:
        i. the usual Notice of Transfer (existing lease); plus
        ii. Notice of Assignment of the Notice of Claim's benefit.
        JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
        1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
        2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
        3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
        4. *- Contact info: click on my name (blue-highlight link).

        Comment


          #5
          Originally posted by hannah11 View Post
          Hi

          I'm thinking about putting in an offer on a flat as a buy to let. The asking price is £107,500 which is well below the market value, however the lease is just 51 years. The current owners (a bank as it's a repossession) have informed the estate agents that it would cost me £17,500 to extend the lease to 99 years, plus £450 (+vat) legal costs. I'm happy with these figures.

          I'm a bit confused though as I thought you needed to be the owner of a property for 2 years before you could extend a lease.

          Also, if I can extend the lease at the time of purchase, can the costs be incorporated into my mortgage?

          thanks in anticipation
          hannah
          Assuming the ground rent is next to nothing I would suggest that if the property was outside london around £20k would be the premium for a 90year ext ie new 141 year lease with a peppercorn and nearer £25,000 in London. So the figures seem reasonable even allowing for the fact you get a 99 year lease asopposed to a 141 year lease.

          However the problem is that the property is a repossession so it is highly unlikely that the current lessee is around to make the claim under Section 42. Thereofre you will have to negotiate outside of the Act . As you state you will have to wait 2 years before becoming eligible to make a statutory claim

          Comment


            #6
            Originally posted by Spud View Post
            Hello - I am in the latter stages of purchasing a flat in London for £165,000 with a 71 year lease. We should have exchanged contracts nearly 2 months ago but I have been waiting to hear how much a lease extension would be, as 71yrs is very low.

            The freeholder has asked for £15,000 to extend the lease to 125 years.

            I think this is high but it is only their first offer so may be deliberately high. My solicitor says my next step is to pay a surveyor to do a valuation on the property. This may cost, let's say, £200. But as Abbey the mortgage lenders did their own valuation, could they not simply re-value the property for me (with the lease extension) which would not cost anything?

            What does the surveyor do that the Abbey valuation person can't?

            But what happens once I have the new valuation?
            Does a surveyor then see through the whole process and negotiate with the freeholder?
            And how much could it all cost?!

            Any help greatly appreciated!
            With regard to the premium based on the info provided I would estimate the premium to be around £10,000 for a new 161 year lease at a peppercorn.

            A surveyor who values your property for mortgage purposes will not necessarily have the specilist knowledge for a lease extentsion. Although the formula and principals are in my opinion are not as complex as some would have you believe. You will need to instruct a seperate surveyor to help you. I am assuming in all this that teh current lessee will make teh Section 42 claim and assign it to you

            Comment


              #7
              Originally posted by sgclacy View Post
              A surveyor who values your property for mortgage purposes will not necessarily have the specilist knowledge for a lease extension.
              I agree. Distinguish between:
              a. valuer (mortgagee's only); and
              b. Chartered Surveyor (graduate, qualified, professional, under proper supervisory body's discipline, wth excellent indemnity insurance, and owing a duty to you only).
              JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
              1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
              2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
              3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
              4. *- Contact info: click on my name (blue-highlight link).

              Comment


                #8
                Thank you very much Jeffery and Sgclacy for your advice.
                I have phoned a chartered surveyor who says I should get a Desktop Valuation which will tell me what a fair price for the lease extension is. Then, as you say, I should get the current vendor to serve notice (I assume this is the Section 42 claim you talk about).
                The Desktop Valuation will cost £195+vat but in the long run it has to be worth it

                Comment


                  #9
                  Originally posted by Spud View Post
                  Thank you very much JeffREy and Sgclacy for your advice.
                  I have phoned a chartered surveyor who says I should get a Desktop Valuation which will tell me what a fair price for the lease extension is. Then, as you say, I should get the current vendor to serve notice (I assume this is the Section 42 claim you talk about).
                  The Desktop Valuation will cost £195+vat but in the long run it has to be worth it
                  Yes, the Notice of Claim is under s.42 of the 1993 Act.
                  JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
                  1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
                  2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
                  3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
                  4. *- Contact info: click on my name (blue-highlight link).

                  Comment

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