Lease Extension vs Freehold Purchase

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    Lease Extension vs Freehold Purchase

    Hi There

    Apologies if similar has been asked before but I have been doing a lot of research and finding mixed responses to these questions! To cut a long story short we bought a leasehold maisonette last year that has 82 years left on the least, we did this with the plan to get the lease extension in place after we have been here for two years but before the 80 years marriage value kicks in.

    Its getting to the point now where we are starting to think about what to do and trying to get ahead of the game. I have a few questions.

    1) Should we follow the statutory process to extend the lease or go for an informal extension (very mixed messages found on this point!). I was thinking about requesting an informal extension now with the threat that we would start the statutory process as soon as our 2 years is up. Do I have anything to loose by doing this?

    2) Is extending the lease the only option or should we be looking at buying the freehold rather? I would be keen to do this as we want to convert the loft at a future date and I think it would make that easier and we would be happy to take on the other aspects of managing the freehold. The other flat is owned by an older couple and they would likely not have funds to buy their part of the freehold as a collective enfranchisement.

    Does this leave us any options apart from approaching the freeholder to informally by the freehold? Would there be anything to loose form doing this before we broach the issue of lease extension? Do we have any way to force this if we cannot get the downstairs neighbors agree to buy their part?

    We will of course get professional advice before proceeding but thanks for your input!

    #2
    1) There is nothing to stop you approaching the FH for an informal lease extension, but it is unlikely to be a good deal and exposes you to risky new terms, like future GR increase multipliers. The best advice is to apply for a statutory lease extension as soon as the 2 year qualifying period is up, especially as you are so close to 80 years remaining.

    2) You cannot enforce the sale of the FH without the cooperation of the other LH, but again there is nothing to stop you approaching the FH informally. The other LH may or may not want or be able to afford to buy the FH, have you asked them? You may be able to get them to participate with a sweetener, like they can buy their share at a future date at a preferential price, or they may already have extended their lease and are happy with the situation as it is.

    Comment


      #3
      Thanks for this makes sense.

      Another question, I checked the downstairs property on the land registry and they only have 52 years remaining on their lease. Do I understand correctly that this would make the freehold more expensive to purchase? Would it be usual to split the costs of the freehold purchase based on length of lease left, property value etc? How is this usually managed?

      For example I used a basic calculator and it suggests to buy our half based on lease remaining and ground rent to be around £20'000 which seems ok. However I input the values for the downstairs flat and its giving £80'000

      A combined price of £100k seems extortionate and I do not think the downstairs will pay £80k....of course they have the issue of the short lease to deal with but to be (brutally) honest they will not be in the property for another 52 years and are likely not thinking about the value of their estate after they have passed.

      Seems like this pretty much rules out any hope of the collective enfranchisement? Also I assume the freeholder would want a similar amount for an informal purchase so we are out of luck there too?

      Thanks!

      Comment


        #4
        mdamusicgroup,

        Yes, you are pretty much spot on.

        I'd proceed with extending your own lease as soon as you can.

        Comment


          #5
          Because your timings are at the critical point my recommendations would be to get a solicitor to prepare and serve a s42 notice of claim so as to establish your right and to set the valuation date; then negotiate informally. Starting the claim formally is actually the commencing of a contract, one in which the landlord is obliged to participate, otherwise you get your lease extension at the value you propose in the notice of claim.

          Within two weeks of the claim being served you have to be ready to lodge a deposit of ten percent of the amount suggested as a deposit for the landlord against costs.


          I act mainly for landlords, do quite a lot of lease extensions, and rather than faff around with these deposit sums, receipting, accounting to client, deducting from the completion statement, auditing etc etc it is my practice to ask leaseholders' solicitors to collect the ten per cent deposit from their client and hold it to the respondent's order in the applicant's solicitors' clients' account but this is probably too pragmatic to be the custom amongst many other practitioners.

          It is comparatively rare for a leaseholder to abandon a claim once served, maybe one in a forty aborts in this way.

          It is my experience that where timings are not key, ie in the vast majority of cases, about two thirds of lease extensions do commence with an informal approach and no notice is ever served in such cases. You are more likely to have clarity as to what the costs would be in such a scenario as a landlord can be asked and usually will specify or cap costs in the matter. If you are not getting co-operation, ie a response within two or three weeks of an informal approach, get a notice served.

          One thing that will always help is to correspond by email in making an informal approach. Formal claims always have to be in paper form and served on the landlord and ought to be served on the management company, most especially if there is a management lease, otherwise the lessee cannot insist that the management lessee is a party to the variation, which is regarded by conveyancing solicitors as being desirable, even if, in my view, achieves nothing.

          Comment


            #6
            MDA,

            1. After your flat has obtained statutory 90 years extension at peppercorn ground rent (= no ground rent to pay ), then your share of the cost for collectively buying the freehold in the future will be a minimum amount.

            2. You should download the free guide to cost of statutory leasehold extension from www.lease-advice.org . This guide gives an example calculation for cost of statutory lease extension at 50 years. .

            3. When both flats have extended and not paying any ground rent for over 140 years , the freeholder has no income and the freehold title may be yours for a nominal sum.

            Comment


              #7
              You could buy the feeehold and then grant a head lease over the short lease flat and sell that on to an investor so reducing the cost of you purchasing the freehold.

              There are investors who would put up the funding for that type of deal. Head leases over short lease flats over good quality units are sought after

              Comment

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