Lease- 77 yrs. unexpired- cost of extension term?

[Confused!]

Hi all, I'm in a similar position to many of the others who have posted threads here - i'm in the process of buying a flat with 77 years left on the lease and unsure what the lease extension will cost me. However, in my case, the flat is share of freehold - I'll be buying 20% of the company that owns the property. Does this make any difference?

I have a letter from one of the other company directors saying that he does not anticipate any objection from the other directors to a lease extension at some point in the future. This should mean I only have to worry about the legal costs of extending but my solicitor has warned me that the other four directors could gang up on me and charge a premium, even if they're currently suggesting they won't do that.

My solicitor has recommended that I get a valuation. But I'm reluctant to do this as:
(1) I already forked out $500 for a homebuyers report that actually valued the property. It seems incredible that I have to get a second valuation just a few weeks later.
(2) I'm hoping this is all just a theoretical risk given that it's share of freehold and I've no reason to think the other directors are unreasonable individuals?
(3) From what I've read, lease extensions are a bit of a lottery anyway so a valuation may not be too accurate.
(4) I won't actually be entitled to a lease extension until two years after I've moved in so I'll probably have to get a third valuation then.
(5) All this will delay the sale even further.

Any advice would be greatly appreciated.

[Poppy]

What’s the question?

Why are you purchasing a flat if you are unhappy with the unexpired term?

Let’s look at this from another angle. If the existing owner is a qualifying tenant, get them to negotiate a premium to extend the lease, and you pay for it as part of your purchase.

[Confused!]

What’s the question?

Why are you purchasing a flat if you are unhappy with the unexpired term?

Let’s look at this from another angle. If the existing owner is a qualifying tenant, get them to negotiate a premium to extend the lease, and you pay for it as part of your purchase.

Thanks Poppy, I guess my main question is 'Does the fact that the flat is a 20% share of freehold make any difference when seeking to extend the lease?'

I'm not necessarily unhappy with the unexpired term. So far, the only person I've met who seems to be unhappy with it is my solicitor. However, I find him to be extremely unhelpful and patronising whenever I ask him to explain his advice. I wish I could afford a second professional opinion at this stage.

I did ask the existing owners to extend the lease but they're unwilling to do this (they said it could take months and they would have to get the agreement of the other flat owners/directors who don't see what the rush is about). However, they did lower the asking price by £500 to cover my future legal fees and they say there will be no premium.

[Poppy]

Seek understanding from the Leasehold Advisory Service website www.lease-advice.org

If you own 20% of something, you cannot unilaterally make a decision that affects the other 80% I would have thought.

[Confused!]

Seek understanding from the Leasehold Advisory Service website www.lease-advice.org

If you own 20% of something, you cannot unilaterally make a decision that affects the other 80% I would have thought.

I've spoken to the Leasehold Advisory Service and also read the section on Leasehold Extension on their website. My understanding is that there’s no difference between leasehold and share of freehold in terms of the legal process for extending a lease. So I'm sure you're right about the 20%/80% thing.

However, leaving aside the legal stuff, I’ve never heard of extension problems involving share of freehold properties yet I have heard of extension problems involving leasehold properties - there seem to be quite a few on this website. This seems a bit strange to me as I was under the impression share of freehold is quite common these days.

[Tax Accountant]

I assume that each one of you own the leasehold of your respective flats and there is a lease in place for this. The leases for all flats may be the same or may have some variations. The length of each lease could be the same or different. If all the leases have same equal terms, I would have thought that there will not be any problems in the future as all of you willl be in a similar position.

I also assume that the freehold has been bought through a company by the leaseholders all clubbing together and that each leaseholder owns 20% shares in the company.

Generally speaking, when the freehold is owned by all of you through the company, it is quite common for the company to extend all the leases to 999 years. The freehold company should consider doing this. You should also check to see if there was any agreement by the shareholders regarding lease extensions at the time the freehold was purchased by the company. You should check the company's accounts, and Memorandum and Articles of Association. This is basically company's rulebook which sets out the framework for the operation of the company.

It appears to me that each leaseholder is still bound by your individual leases and are in the hands of your freehold company as far as lease extension is concerned. The freehold company has the rights and responsibilities just the same as if the freehold is owned by an outside person or company. All decisions by the freehold company will be made by all the shareholders on the basis of majority voting. Therefore, theoretically, 3 shareholders (60%) will be able to dictate any decisions taken by the company.

It seems to me that as the freehold is owned by the leaseholders themselves, there is less likely to be any problems in lease extension in the future. This would be even more so if Ground Rent is not being collected by the freehold company.

On the other hand, in the absence of any agreement to the contrary, there would be nothing to stop the freehold company to require you to pay the appropriate value (including marriage value as your lease has less than 80 years unexpired) for lease extension by 90 years.

The key is to ascertain whether all leases are of equal length.

Ramnik

[Richard Webster]

As a Conveyancing Solicitor I am saddened that your solicitor is not being helpful.

I think that you need to find out the attitude of the other flatowners. Logically they should agree to an extension - but as the previous post mentions - if they have different lengths of lease the issue may not be so pressing for them and they may not be bothered about it. You can check the details of the leases by going to the Land Registry website, searching for the address and ordering copies of the leasehold titles of the various flats: http://www.landregisteronline.gov.uk/lro/landing.htm

There is a point in caution - see the post http://www.landlordzone.co.uk/forums/showthread.php?t=2044 where in a larger block with a "shared freehold" there seems to be some inconsistency in attitude about allowing a lease variation. Most of the time owners of a "shared freehold" will see the sense in agreeing an extension - but this can't be completely guaranteed, so it is worth trying to talk to the other lessees to see what their likely attitude will be.

Richard Webster

[SteveP]

As a Chartered Surveyor I would say


the other four directors could gang up on me and charge a premium

Indeed they could.


My solicitor has recommended that I get a valuation. But I'm reluctant to do this as:
(1) I already forked out $500 for a homebuyers report that actually valued the property. It seems incredible that I have to get a second valuation just a few weeks later.

Read it carefully, it had two valuations. The first was an open market valuation, the second was an insurance reinstatement valuation. Unfortunately neither are what your solicitor is saying you need. What you need is a lease extension valuation to tell you what premium you might have to pay.


(2) I'm hoping this is all just a theoretical risk given that it's share of freehold and I've no reason to think the other directors are unreasonable individuals?

All risks are theoretical until things go wrong.


(3) From what I've read, lease extensions are a bit of a lottery anyway so a valuation may not be too accurate.

If you have budgeted on £500 and it costs you £5000 you will, retrospectively, wonder why you didn't get that inaccurate valuation that said it would cost you £4000-£6000.


(5) All this will delay the sale even further.

Buyers should, in my view, have "caveat emptor" tatooed on the inside of their eyelids. Just read any section of this site for the horror stories told by people who didn't listen to the professional advice they got or didn't get the professional advice they should have.