Freehold flat, 70 year lease = marriage value?

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  • Free Holder
    replied
    My turn to do some guessing. Don't let the fear of losing out on what appears to be a housing bull market on what prima facie might seem like a good deal without acting diligently on your due diligence. As a property investor and financial trader/investor I know from my own experiences and that of others that people are at there weakest when allowing the emotions of fear and/or greed to cloud their judgement. If I had property in London I would be more inclined to sell than to buy while the going is good, but that's a macroeconomic issue and not for discussion here.

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  • trunkie
    replied
    Originally posted by Free Holder View Post
    Why are you spending so much time wanting to buy a flat with a relatively low lease anyway. Buy one with a long lease and you will save all this bother.
    I'm guessing you've not been a first time buyer in zone 2 in London recently!

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  • leaseholdanswers
    replied
    In which case the price has to be adjusted to reflect the current term. Many sales prices fail to reflect that. The vendor will find themselves in a similar situation in a few weeks if they re offer.

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  • Free Holder
    replied
    Just to clarify my comment above, the vendor to pay her share of the leaseholders legal fees for extending the leases i.e. the one third of the £700 mentioned above. You should only be paying for YOUR conveyancing costs.

    I don't know what is the matter with this forum but when I try to edit my posts I am presented with a blank dialogue box! Anyone else experiencing the same?

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  • Free Holder
    replied
    trunkie,

    What I said in my first post still stands:

    I would say get the vendor to extend the lease to a length agreeable to you and your partner before you buy. That way it is up to her to arrange to have the lease extended with the agreement of the other freeholders and for her to pay the premium (if any) and the legal costs to do so.

    This way the marriage value and any problems associated with all the parties being in agreement is not your concern.
    What the vendor is saying is she is not prepared to wait for the leases being extended and if you want to buy you will have to buy as is. This is a red flag to me. I would insist that she extends the lease to 999 years if that's what you want and have her pay her share of the legal fees. There is no guarantee that once you buy the other parties will still be in agreement if they are now, you only have the vendors word for it. A multitude of things can happen between buying and then extending the leases, not limited too but including freeholder partner bereavement, death, divorce, mental incapacity and imprisonment etc. What happens if your other freeholder goes back into hospital, and you don't know what for, and your abroad freeholder returns abroad at the same time? At this point you don't know if there is any problem with the way the freehold is set up, lawyers are not immune to making mistakes.

    I would walk away if the vendor is not prepared to do what I suggest in the third sentence in the paragraph above. Why are you spending so much time wanting to buy a flat with a relatively low lease anyway. Buy one with a long lease and you will save all this bother.

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  • trunkie
    replied
    Thanks for the replies so far, I really appreciate the advice. I suggested to the vendor that all 3 flats renew at the same time. The EA has just forwarded me her response:

    I just have received emails from both flat A and Flat C confirming that they both would like to renew the lease at the same time.
    Unfortunately flat A has been in hospital and Flat C is abroad for the next 7 weeks, so the timing to renew before we exchange is not feasible, however they are both keen to renew and all at the same time.
    As trunkie states if all flats renewed simultaneously there would be no premium, only legal costs. I asked my solicitor for a ballpark figure and he quoted £700 inc VAT to renew all three leases, which means the cost of a 999 year would come out at around £233 per flat!
    So in principal this all sounds great. The thing that worries me is the 7 weeks absence of lessee C as she won't be able to sign the agreement until her return. Presumably this could all fall apart on her return, by which time the vendor will be long gone. Are we best to request the vendor takes responsibility for the 3 extensions with her solicitor and we pay her fees?

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  • leaseholdanswers
    replied
    Originally posted by trunkie View Post
    So provided that the 3 current freeholders (the vendor and the other 2 flats) agree that we can extend our individual lease for £1 then everything is good and no marriage value will come into play?
    Yes but on taking advice they will find that they are sitting on a pot of money and any offer made with drawn. The section 42 application alone will indicate a figure.

    They would be daft to do otherwise, unless when they bought the freehold they made agreements to grant lease extensions for free or £1. Sadly not all freeholders get that advice, many believing in that mythical tenure, share of freehold.

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  • Free Holder
    replied
    If all freeholders agree to grant each other the same length of lease extension then they are all granting each other something of equal value and no premium is payable to any party. Don't assume all will be willing to extend with you though even though it appears to be in their own best interests to do it with you. It may be that one or more can not afford to and/or one or more is very old, does not envisage moving other than in a wooden box and just wants to collect one third of the premium to spend on whatever in their old age. If you do get your lease extension on this basis then in the future you may be able to collect one third of the premium any of the others have to pay when they extend their leases. That's assuming the articles of the freehold company allow for this. If property prices are higher then than now then that premium will be calculated on a higher marriage value.

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  • trunkie
    replied
    So provided that the 3 current freeholders (the vendor and the other 2 flats) agree that we can extend our individual lease for £1 then everything is good and no marriage value will come into play?

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  • leaseholdanswers
    replied
    The freeholder owns a valuable asset in that lease extensions are wortht something to the freehold company and its members or shareholders, or the people that jointly own the freehold.

    therefore they should have or as is sadly the case will have to decide how they will split your cheque for the lease extension premium.

    I doubt the freeholder or your vendor are fully aware of this.....

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  • trunkie
    replied
    Thanks for your reply. Would you mind explaining how "The flat vendor is the one likely to benefit form the proceeds, rather than you, and this should be taken account of by them in their sale"
    Do you mean they will have marketed the flat with this in mind? Sorry for all the questions, I'm just finding this whole process incredibly complicated and confusing!

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  • leaseholdanswers
    replied
    trunkie,

    No you cannot prevent the "legally agree to not claim marriage value before we proceed" as the proceeds of the lease extension premium ( which will include marriage value) will be determined and divided up as the company/freeholder ha, hopefully, agreed earlier. The flat vendor is the one likely to benefit form the proceeds, rather than you, and this should be taken account of by them in their sale.

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  • trunkie
    replied
    Thanks. But even if the other freeholders do not wish to renew at this time, couldn't they claim a premium from us for the uplift or is this negated by the fact that they have yet to achieve the uplift on their properties?

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  • bbva
    replied
    Originally posted by trunkie View Post
    Thanks. I have proposed that we all extend at the same time. If the other freeholders decline, is there any disadvantage to us?
    No. It is in their best interest to extend now as it becomes more difficult to obtain a mortgage with less than 70 years on the lease. Ask your solicitor to draw up a Deed of Variation to extend the lease which can be in the sellers name. The other 2 leaseholders sign. You all agree to not charge anything for lease extensions if they do not want to extend at this time.

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  • Free Holder
    replied
    Just to add to my post above, I would recommend you read this article on buying freehold flats. Granted you are buying in as a freeholder but it will give you the reality associated with buying flats and plenty food for thought.

    http://leaseholdpropertymanager.blogspot.co.uk/

    The blog is maintained by the prolific poster on this forum: leaseholderanswers

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