Buying a flat with a 74-year old lease - Do you think my plan is reasonable?

[Steph79]

I am currently looking for a flat to buy and found a very nice one, but it is a difficult case:

The flat is part of a Victorian house converted into three flats. The leasehold will end in 74 years and there is a lot of work to do in the house. The two other flat owners actually bought 100% of the freehold earlier.

The seller, who leaves in Australia, has inherited the flat and doesn't want to bother with any leasehold issues or Section 42 notice....

I am very interested in the flat and my plan is the following: I would like to make an offer for the flat and, during the conveyancing period, try to negotiate with the freeholders (directly or through a solicitor) to buy my share of freehold when I buy the flat. I don't want to wait two years to extend the lease because a lot of work needs to be done and that would increase dramatically the cost of any lease extension in two years time. Also, I believe the two freeholders took 100% of the freehold because they had no choice and would be keen to sell 33% of it (to be confirmed though). But if the plan fails, I would probably have to give up as it would be to risky to buy such a flat in these conditions, in which case I would have spent fees for the solicitor for nothing!

Do you think the plan is reasonable? Do you think the timing would be ok?
Any alternative?

Thank you for your time and support!

[JK0]

It is quite common for someone buying a low lease to require vendor to give notice for an extension. Vendors solicitor can do this I would have thought.

[Steph79]

In this particular case, I believe the vendor was not expecting to inherit this flat. He leaves in Australia and probably just want to "get rid of this flat" for a decent price. Some offers have already been made but with the condition that the vendor gives notice for an extension. The estate agent has now told us the vendor would accept offers with no requirements. It is quite risky (a crazy/stupid idea?) but I guess it could be a good opportunity in a difficult area for buyers(London).

[Richard Webster]

Go and talk to the other two flat owners and see what they say. They won't be bound my their comments but you can at least see if the idea even gets off the ground....

...and remember that just because you buy a share in the freehold does not mean that:

a) you don't need a lease extension; and
b) there is some law that says that you don't have to pay the going rate for it - the other two still have to be persuaded to sign for an extension even if you have a share in the freehold..

[Steph79]

...and remember that just because you buy a share in the freehold does not mean that:

a) you don't need a lease extension; and
b) there is some law that says that you don't have to pay the going rate for it - the other two still have to be persuaded to sign for an extension even if you have a share in the freehold..

Thanks Richard for your advice. I realise now that I am not comfortable enough with the concept of "Share of Freehold". I will spend more time on other threads to understand exactly what you mean here (if you have a suggestion, don't hesitate ). But I understand having a share of freehold (say 33%) does not mean the leasehold has disappeared. So I should really focus on: 1. Getting a lease extension (through negotiation only)/ 2.(Optional) Getting 33% of the share of freehold. Am I right?

[leaseholdanswers]

Thanks Richard for your advice. I realise now that I am not comfortable enough with the concept of "Share of Freehold". I will spend more time on other threads to understand exactly what you mean here (if you have a suggestion, don't hesitate ). But I understand having a share of freehold (say 33%) does not mean the leasehold has disappeared. So I should really focus on: 1. Getting a lease extension (through negotiation only)/ 2.(Optional) Getting 33% of the share of freehold. Am I right?

Scream! Share of freehold is a made up term, by estate agents as a shorthand. You may be buying two things

1; the freehold as co owner either with the other two or as a shareholder/ member of a company which owns the freehold.
2; the lease of the flat.

You are therefore joint owner of the freehold AND the owner of a lease.
The former sets out your joint responsibility rights and ownership to the other individual flat owners. The two are entirely separate, and one cannot exist without the other as they set out those relationships and allow you to have a legal title to the flat to sell ( or in your case buy).

As a leaseholder you would have to pay the going rate for the lease extension, and as a joint freeholder, get 1/3rd for the price of the extension.

[Steph79]

Thank you very much for your answer. This clarification is very helpful!

I would have one more (and probably last) question:

Is it possible to create a legally-binding document that could be signed by the two owners of the freehold BEFORE I sign the contract for the house and that would say something like: " We -owners of the freehold - agree that the lease for flat XXX will be extended at these conditions (...) AND that 33% of the freehold will be given to this person once (s)he has bought the flat"?

[quarterday]

Its possible but fairly unlikely that you'll line all your ducks in a row before taking aim with your shotgun!! At 74 years reckon on the extension to 164 years unexpired costing you, worse case around 16.5% of the long leasehold value of the flat, and maybe a bit less 12% if you get lucky. If you can secure the shortish lease at the right sort of price it will all work out. There's not a great deal of difference between the cost of a statutory extension to a 74 year lease and a 72 year lease. You cant work it out to the penny, yet!

[Gordon999]

The alternative plan is to ask the vendor ( after exchange of sale contract but before sale completion date ) to serve formal notice for application to extend lease by statutory 90 years and you will take over after sale completion and agree to pay the cost of lease extension ( this will get you a 163 years lease at peppercorn ground rent ).

This will save you waiting 2 years and this method has been discussed many times in this forum .