Planning ahead – 72 Years Remaining on Lease

Hi Paul

Have a chat with Roger Hardwick - see http://www.property118.com/member/?id=449
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This is a fortunate situation whereby you are on friendly terms with the freeholder but be aware that the freeholder will see ownership of the freehold as an asset and there is no free lunch in business.
Technically, if you never sell your property and happy to get a rental income for the rest of your days then there is no need to extend the lease - unless estate planning is important. This is assuming the lease survives you.
Extending the lease in due course could be a safe bet but at what cost. It could be worth waiting to see if the freeholders situation changes. It would also be worth independently enquiring how much a lease of this nature would cost to increase and also how much the lower flat would sell for with or without the freehold being included in the sale should the freeholder decide to sell in the future. A good estate agent could be a good start for general information. This will give you an idea what to offer for lease extension or a purchase of the freehold. If the freeholder does not sell the freehold to you but gives it to a new buyer of the flat should the flat ever be sold then that could be a risk to you as you do not know who will buy the flat and freehold.

As you have owned the flat for more than two years you can serve a section 42 notice. This means that you will get an extension of 90 years at a peppercorn ground rent.

A price has to be agreed with the Freeholder. If an acceptable price is not agreed you need to involve a surveyor. I am afraid a estate agents will not be much help here. Besides paying for the surveyor you will also have to pay your legal fee & the Freeholders Legal fee.

There is website that can calculate the value. You have to insert the post code,unexpired lease period, ground rent payable.

Please keep in mind the longer you take to extend the more it will cost you due to lower number of unexpired years of the lease & the increase in value of the property between now & the time you take the action of extending the lease.

I would like to give you some advice. Firstly, extend your lease now as you are well below the 80 year level which is where the cost starts mounting up each year you lose time on your lease - something called marriage value kicks in. Secondly, even if you are great friends with your freeholder, please make sure that you do it through the formal route by serving formal notice via a leasehold enfranchisement solicitor. If you do not, you have no protection whatsoever by law, this can drag on for months and months, the freeholder has all the power and then has the right to set an updated and normally far in excess of what you presently have ground rent. If you do it formally you will receive 90 years on top of what you presently have and the ground rent will revert to Peppercorn (i.e. nil). You need to have the lease extension valued by a surveyor and a solicitor to serve the formal notice to the freeholder with a sensible price offered who then has 2 months to formally reply with his price after he has it valued by his surveyor and you will no doubt be able to agree a happy mid price. All your and their costs (surveyors and solicitors will be paid by you), However, if you do not do it formally, as I mentioned before, this can drag on for months and you have no protection on price paid, timing or future ground rent. The problem is that although you are great friends, money can change things and this relationship can deteriorate quickly if he feels that he wants more money than you know it is worth. This is all from personal experience where I was in exactly the same situation as you and then the family of the elderly lady upstairs got greedy and I had no protection as I stupidly did not serve the formal notice. I also left it 5 years and it cost me tens of thousands of pounds more than if I had done it when the lease was at 74 rather than 69 years. Good luck!

I'm in a very similar position with one of my properties - 73 years left on the lease.

I'd like to thank Lucy and Shakeel for their insights and very useful information.

I also think Christopher's advice is good, and this is what I will do - but only in the short term - i.e. I will delay extending for a year or two as I require my funds for other purposes at the moment and I'm confident that the value of the flat (in a good location in South London) will increase sufficiently to enable me to take a small further advance in a year or two if necessary.

I've recently remortgaged - I asked my broker about the issue of the relatively short term on my lease. He told me that lenders really only start to worry when the term gets down to around 50 years or so, and in fact the lender's surveyor valued the flat at the full amount, and the lender was happy with that. However, I certainly wouldn't want to put off my extension for too long and end up in a similar position to the poor landlord who posted on here last week: http://www.property118.com/14-flats-50-years-remaining-lease/72450/

Mandy I think your mortgage broker is being a tad optimistic about lenders being happy to lend on 50yr old leases. Only a very few go that low. Many now baulk at 70 unexpired. A few have a rule which says that say 30 or 35yrs or something of that ilk must be remaining at the end of the mortgage term. So although you can still get a mortgage, the term will get shorter which may not fit in with your long term plans. Plus when you sell, the enforced short mortgage term may not suit a would-be buyer. As far as the valuer of your flat is concerned, you may find that the relatively short lease had already been factored into the price?

Reply to the comment left by "John Simpson" at "24/02/2015 - 13:51":

Hi John

Thanks for letting me know!

However, where my valuation is concerned, the lender's valuation is in line with what I ascertained myself from Zoopla and Rightmove for a one bed flat within that postcode.

Here are a couple of links to info which include an extension calculator :
http://www.moneysavingexpert.com/mortgages/extend-your-lease
http://www.myleasehold.co.uk/lease-extension-calculator

I fully endorse the excellent advice from Lucy Richardson – go down the statutory route for a lease extension as soon as possible. You appear to be entitled but get proper advice about this.

I am not sure what planet Mandy Thompson's mortgage broker is living on, because while you might persuade a lender to do a remortgage I think there are now few if any lenders who will do a new mortgage on a lease with only 50 years to run.

I have just had a look at the Council of Mortgage Lenders handbook which sets out individual lender's requirements. Many high-street lenders now want a minimum of 70 years and some want even longer. True there are some who will accept shorter leases, but there has been a steady upward trend in lenders' requirements so in ten year's time you might find lenders insisting on 80 years or more!

At present the average buyer is not going to be happy with anything less than 70 years, because their choice of lenders will be restricted. Even then most will expect a discount unless the lease has already been extended.

If you can't easily sell a property because buyers can't get a mortgage then its stands to reason that it's open-market value will fall. While you might get a cash buyer they will be expecting to pick up a bargain (unless perhaps your property is somewhere in the West End.)

Don't forget that as the term of the lease runs down the value of the freehold increases, so the longer you leave getting a lease extension the more it's going to cost you.

While on-line lease extension calculators can give some idea of the amount you would have to pay you would need to instruct an surveyor with relevant expertise to give a more accurate valuation. Hopefully if the freeholder is a reasonable person he will accept your surveyor's valuation.

Also get quotes from solicitors for dealing with the service of statutory notices and associated legal work in completing the lease extension – it is worth getting proper legal advice as there are many traps for the unwary when serving ststutory notices (and if a solicitor gets it wrong you could sue them!)

Reply to the comment left by "Tony Lilleystone" at "24/02/2015 - 16:32":

You said, "I am not sure what planet Mandy Thompson’s mortgage broker is living on, because while you might persuade a lender to do a remortgage I think there are now few if any lenders who will do a new mortgage on a lease with only 50 years to run. "

I'd just like to put the record straight - I did not say my mortgage broker told me lenders would accept 50 years or so - he in fact said they would NOT lend if that was the case. His actual comment was that 53 years left or somewhere in that region would be the absolute cut off point for all lenders - he was simply reassuring me that I would be ok with 73 years, which in fact I was.