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Extending a Lease

including wills and probate
MrHarleyQuin
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Extending a Lease

#414409

Postby MrHarleyQuin » May 23rd, 2021, 2:43 pm

My 95 year old Father in Law has recently handed over all his affairs for me to manage under a Power of Attorney. On reviewing these it is apparent that there are just 62 years remaining on the lease of the flat that he owns. He bought the flat about 10 years ago so the remaining lease at that time would have been 72 years.

I am no expert on lease arrangements but it appears that the lease may have been allowed to slip to a position where it may become difficult to sell the property at the market rate. After some research online it seems that mortgage lenders will not lend against a property with less than 80 years remaining on the lease. The flat is part of a semi sheltered retirement property and therefore purchasers are generally cash buyers.

A couple of matters come to mind regarding this matter and I would be most grateful for any feedback from those with greater knowledge than I have on lease hold arrangements.

1. Extending the lease now is going to be very expensive, but nevertheless should this be done and if so for how long?
2. I understand from my Father in Law that the advising solicitor at the time of purchase asked if he wanted to extend the lease. He said no and that was the end of the discussion. No advice was given on the potential consequences of letting the lease run on without extending. Being a layman my Father in Law was no expert on lease arrangemnts and I question whether or not the solicitor was at fault in not advising further on this issue. If there is fault, who can I refer the matter to?

Thank you for taking the time to read this and I would welcome any advice that the forum can provide

scrumpyjack
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Re: Extending a Lease

#414413

Postby scrumpyjack » May 23rd, 2021, 3:05 pm

MrHarleyQuin wrote:My 95 year old Father in Law has recently handed over all his affairs for me to manage under a Power of Attorney. On reviewing these it is apparent that there are just 62 years remaining on the lease of the flat that he owns. He bought the flat about 10 years ago so the remaining lease at that time would have been 72 years.

I am no expert on lease arrangements but it appears that the lease may have been allowed to slip to a position where it may become difficult to sell the property at the market rate. After some research online it seems that mortgage lenders will not lend against a property with less than 80 years remaining on the lease. The flat is part of a semi sheltered retirement property and therefore purchasers are generally cash buyers.

A couple of matters come to mind regarding this matter and I would be most grateful for any feedback from those with greater knowledge than I have on lease hold arrangements.

1. Extending the lease now is going to be very expensive, but nevertheless should this be done and if so for how long?
2. I understand from my Father in Law that the advising solicitor at the time of purchase asked if he wanted to extend the lease. He said no and that was the end of the discussion. No advice was given on the potential consequences of letting the lease run on without extending. Being a layman my Father in Law was no expert on lease arrangemnts and I question whether or not the solicitor was at fault in not advising further on this issue. If there is fault, who can I refer the matter to?

Thank you for taking the time to read this and I would welcome any advice that the forum can provide


Many of these retirement community properties come with lease and contract terms that can make them very unattractive to subsequent purchasers and their value can be severely impaired. My mother had one many years ago (not McCarthy and Stone or any of the other developers where stories are rife of resale difficulty and loss of value compared to the initial cost) so we had to look at those issues when she died and resale was difficult.
I think you should check the position on that. I have no special knowledge of buying out the freehold and whether it is significantly more difficult or expensive to do at 60 years left compared to 70, but I don’t think it is. It used to be that 50 years was a key date but that may no longer ne the case. Anyway the trend in legislation has always been in favour of the leaseholder.

mc2fool
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Re: Extending a Lease

#414420

Postby mc2fool » May 23rd, 2021, 3:19 pm

MrHarleyQuin wrote:1. Extending the lease now is going to be very expensive, but nevertheless should this be done and if so for how long?

Well the first thing to find out is who the landlord is, i.e. who owns the freehold. It's not unusual nowadays for leaseholders to have undertaken Collective Enfranchisement, under which the leaseholders have bought the freehold and hold it collectively, most often in a private limited company of which they are all members. If that's the case for your father in law then the lease extension should be free, other than solicitors' fees.

If not, then normally for flats leases are extended by 90 years but it is also the case that they are often extended to the year that other flats have been extended to, so that the duration of the leases on all flats in the block are the same. This effectively means that the first flat to extend sets the year to which all other leases are extended to.

If you haven't found it already, the Leasehold Advisory Service is the go-to website for all leasehold matters, and they have a plethora of information on lease extensions: https://www.lease-advice.org/topics/?topic=lease-extension, including a calculator.

mc2fool
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Re: Extending a Lease

#414429

Postby mc2fool » May 23rd, 2021, 3:26 pm

scrumpyjack wrote:I have no special knowledge of buying out the freehold and whether it is significantly more difficult or expensive to do at 60 years left compared to 70, but I don’t think it is. It used to be that 50 years was a key date but that may no longer ne the case. Anyway the trend in legislation has always been in favour of the leaseholder.

I don't believe it's possible to buy the freehold to a single flat, the freehold is for the whole building, however leaseholders can band together to buy that. It's called Collective Enfranchisement.

MrHarleyQuin
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Re: Extending a Lease

#414453

Postby MrHarleyQuin » May 23rd, 2021, 5:40 pm

mc2fool - many thanks for the link. I will follow that up.

Mike4
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Re: Extending a Lease

#414481

Postby Mike4 » May 23rd, 2021, 9:29 pm

mc2fool wrote:
scrumpyjack wrote:I have no special knowledge of buying out the freehold and whether it is significantly more difficult or expensive to do at 60 years left compared to 70, but I don’t think it is. It used to be that 50 years was a key date but that may no longer ne the case. Anyway the trend in legislation has always been in favour of the leaseholder.

I don't believe it's possible to buy the freehold to a single flat, the freehold is for the whole building, however leaseholders can band together to buy that. It's called Collective Enfranchisement.


I agree, because "freehold" is a type of ownership of land. When you buy a freehold parcel of land, everything that happens to be built on it becomes yours too, subject to any sub-leases granted, AIUI. I've probably over-simplified this but the bones of it are right.

A lease is the right to occupy a space above a piece of land (e.g. a flat) for a defined period of time, on expiry of which you give it back.

AIUI the law on leases was changed a few decades ago so when your residential lease expires you are entitled to a renewal. So getting back to the OP, one option they have is to do nothing and let the lease run down, at the end of which they get a new lease. I think they will have to pay for their new lease but they DO have security of tenure come the end of the lease if they wish to renew. All again AIUI.

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Re: Extending a Lease

#414491

Postby Clitheroekid » May 23rd, 2021, 10:26 pm

Mike4 wrote:AIUI the law on leases was changed a few decades ago so when your residential lease expires you are entitled to a renewal. So getting back to the OP, one option they have is to do nothing and let the lease run down, at the end of which they get a new lease. I think they will have to pay for their new lease but they DO have security of tenure come the end of the lease if they wish to renew. All again AIUI.

If you allow the lease to expire you are in certain circumstances still entitled to a new lease. However, you would have to pay the full market value for it, so it's not a right that's really worth anything.

If you can't afford a new lease then the landlord has to offer you an assured periodic tenancy, but again this is at a market rent, which may also be unaffordable.

1. Extending the lease now is going to be very expensive, but nevertheless should this be done and if so for how long?

It depends what you mean by `very expensive'. In very crude terms it might be around 10% of the value of the flat, but assuming it's extended by 90 years at a zero ground rent it should add more than the cost of the extension to the value of the flat, so it's generally worth doing.

2. I understand from my Father in Law that the advising solicitor at the time of purchase asked if he wanted to extend the lease. He said no and that was the end of the discussion. No advice was given on the potential consequences of letting the lease run on without extending. Being a layman my Father in Law was no expert on lease arrangements and I question whether or not the solicitor was at fault in not advising further on this issue. If there is fault, who can I refer the matter to?

Without knowing exactly what advice was given it's impossible to say, but the fact that a lease extension was mentioned indicates that the solicitor had considered the remaining term, and it's probably the case that he would have given some standard advice in his `report on title' letter, even if your FIL didn't read it or fully understand it.

Even if no such advice was given, the price paid by your FIL would have reflected the remaining term, so it would probably be impossible for him to establish any actual loss.

brightncheerful
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Re: Extending a Lease

#415107

Postby brightncheerful » May 25th, 2021, 6:15 pm

I think CK would be the best answerer but I'll have a go, even though residential property pure is not my field.

When a long leasehold interest in a residential property expires, the lessee would normally have security but on a tenancy at the market rent at the time. However, the op's concern is not about what would/might happen in decades to come but the marketability of the lease now.

Generally, mortgage lenders shy away from what are generally known as short leases. It is not that the remaining term is such an issue, so much as lender criteria. For example, a long time ago, the Abbey National Building Society (nowadays Satander) had a policy of not lending on converted flats. As its definition of 'converted' included a flat with a shared entrance, persuading ANBS that a flat with a shared entrance could be purpose-built (as in fact was the case of some flats in NW London) was impossible.

Lender criteria fluctuates according to the state of the market and lender policy at the time. The op says 80 years minimum but I can remember when it was 50-60 years.

A leasehold property is a depreciating asset because ultimately the property would revert to the freeholder. A short lease particularly is a depreciating asset because the number of buyers in the market is not enough to counteract the rate of depreciation.

Whether to not buyers of sheltered retirement property would mostly be cash buyers, cash buyers generally consider the mortgageability of the property - equity release for example - and do not want to tie up capital in a potentially unsaleable asset.

When the op's father-in-law bought the lease the 72 years remaining was quite possibly not an issue at the time (per lender criteria at the time; alternatively the price father paid for the flat was lower because of the shortness. Extending the lease then would have been a good idea because the position the op now finds is that 10 years have elapsed into the unmortgageable realm. (I say unmortgageable in the context of standard variable rates, not that there is no lender at all in the market.)

62 years remaining does slip into the difficulty to sell range.

Extending the lease now is going to be very expensive, but nevertheless should this be done and if so for how long?
. i would suggest 125 years ideally, but 99 years would be ok. The expense is a matter of valuation: the op should find out how much the freeholder wants and then consult a residential property surveyor well-verse in enfranchisement law and practice.

I understand from my Father in Law that the advising solicitor at the time of purchase asked if he wanted to extend the lease. He said no and that was the end of the discussion. No advice was given on the potential consequences of letting the lease run on without extending.
. With respect, that sounds unlikely: i would think the advising solicitor did mention the advantages and disadvantages but father-in-law wasn't bothered: father-in-law might not have expected to be alive when the problem would arise or envisaged that someone else could sort it. the op i suggest should contact the advising solicitor and ascertain what was said before considering whether any scope for negligence.

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Re: Extending a Lease

#415159

Postby AF62 » May 25th, 2021, 9:17 pm

My understanding is that when leases have less than 80 years left then extending them can be expensive as at that point a different calculation comes into play.

Now of course the property is going to be worth less than it would be if it had (say) a 125 year lease, but presumably your father in law paid less than that value when he bought it 10 years ago with only 72 years left on the lease.

So as someone who went through this a couple of years ago with my parents, who’s flat had something similar left on the lease when they wanted to sell, then I would suggest you have three choices.

1. Pay to extend the lease; expensive and time consuming - and time might be of the essence as it was with my parents.

2. Start the paperwork to extend the lease and sell it with that in place, and the buyer can then choose to extend the lease if they want; if the existing owner doesn’t start the paperwork then the buyer has to wait a period of time before they can do.

3. And this is where this comment comes in -

MrHarleyQuin wrote:The flat is part of a semi sheltered retirement property and therefore purchasers are generally cash buyers.


There is a market to sell short lease properties to elderly people who are cash buyers. For example, take an elderly couple in their 70s with no children who need to move into a flat. Do they buy the flat with 125 years on the lease for (say) £250k or the flat with 50 years left on the lease for £150k (I am just plucking numbers out of the air).

If they buy the second property then unless they aim to be in the record books they will expire before the lease, and they have the difference in the price to spend whilst alive. And the fact that when they do expire the flat with 30 years left is going to be dreadful to sell will only be an issue for the cat’s home they left it to.

And option 3 was the route my parents took. They considered the cost to extend, including legal fees and the time it would take, against the discount needed to sell with a short lease. It wasn’t easy, as 20 year old estate agents don’t seem to grasp it, and neither do lots of elderly people who have no children or anyone else to leave their assets to. But perseverance paid off for us and it was bought by an elderly widow with no children.

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Re: Extending a Lease

#415327

Postby Clitheroekid » May 26th, 2021, 3:48 pm

AF62 wrote:There is a market to sell short lease properties to elderly people who are cash buyers.

A property that illustrates the point - a 3 bed flat in Marble Arch for £135k, but what looks like the bargain of a lifetime is actually a 4 year tenancy at around £3,000 pcm paid in advance!

https://www.mchughandco.com/Auctions/De ... 5&aid=1146

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Re: Extending a Lease

#415333

Postby AF62 » May 26th, 2021, 4:00 pm

Clitheroekid wrote:
AF62 wrote:There is a market to sell short lease properties to elderly people who are cash buyers.

A property that illustrates the point - a 3 bed flat in Marble Arch for £135k, but what looks like the bargain of a lifetime is actually a 4 year tenancy at around £3,000 pcm paid in advance!

https://www.mchughandco.com/Auctions/De ... 5&aid=1146


And as it is a sale By Order of the Executor then quite possibly the previous occupant was also playing that game.

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Re: Extending a Lease

#415508

Postby brightncheerful » May 27th, 2021, 10:15 am

Clitheroekid wrote:
AF62 wrote:There is a market to sell short lease properties to elderly people who are cash buyers.

A property that illustrates the point - a 3 bed flat in Marble Arch for £135k, but what looks like the bargain of a lifetime is actually a 4 year tenancy at around £3,000 pcm paid in advance!

https://www.mchughandco.com/Auctions/De ... 5&aid=1146



Likely the service charge is horrific too.


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