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Joshua
Joshua, Lawyer
Category: Property Law
Satisfied Customers: 25438
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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Good afternoon, I am looking advice. I own a flat, which

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Good afternoon, I am looking for an advice. I own a flat, which has 74 years left on its lease. I was approached by a leasehold company, which offered to manage the lease extension process with my freeholder alongside a few other flats in my area (all with the same freeholder) - the company stated that extending the leases in "bulk" would increase our negotiating leverage with the freeholder and lower the solicitors fees (which could be possibly spread among all leaseholders involved in the extension process). So far the company has valued the flat, but haven't yet offered an initial lease extension proposal, notifying me that it would take a few more weeks to complete. Given that the length of my lease is below 80 years and considering the value of the flat, I would expect the cost to be around £10,000 (likely over).
At the same time as I was approached by this company, I decided to inquire with the freeholder directly about the lease extension. The freeholder's managing agency valued the flat and offered a FREE lease extension to 99 years, only obliging me to cover their solicitors cost for drawing new contracts + increased the ground rent from the current £75/year to £300/year. I was given a month to accept this offer (which expires in early May - well before the leasehold company will likely come up with the initial offer/cost for the lease extension).
I understand, that I have a right to have the lease extended by additional 99 years, which would bring the length of the lease to 173 years (possibly with no or very low ground rent).
I am undecided whether I should wait for the leasehold company's offer and pay £10k+, but for a long lease; or accept the freeholder's conditions and extend the lease from 74 years to 99 years (by 25 years) with no extension cost.
Will the current value of my property differ if it has 99-year-long lease or let's say 125-year-long or even possible 173-year-long lease?
Would it be advisable to accept the freeholder's current conditions for free extension and then in a few years' time try to extend the lease further? Let's say that if I approach the freeholder when there is 95 years left on the lease, I won't have to pay the "marriage value", which I would have to pay now (with 74 years left).
Have you ever encountered similar offer from a freeholder - a free lease extension?
At this point I am not planning to sell my flat; the plan is to keep it as a "pension income" (for another at least 20 years) - this can of course change depending on the market conditions, but my point is that with a 99-year-long lease I would have to go through the extension process at a later date anyway. I am not sure what lease length the leasehold company would offer - 99 years? 125 years? 173 years? They have not yet clarified.
Thank you very much for your advice in advance.
Best,
Blanka
Submitted: 2 years ago.
Category: Property Law
Expert:  Joshua replied 2 years ago.
Hello and thank you for your question. I will be very pleased to assist you. I'm a practising lawyer in England with over 10 years experience. Do you have any idea why the freehold has made such a generous offer please? In any event you say it is without any condition other than covering legal costs?
Customer: replied 2 years ago.

Dear *****, thank you for your response.

No, I have no idea why they offered this - that's why I'm so confused (I did not expect this).

This is what the letter says:

"I am pleased to advise that our clients are willing to offer you an extension on the following terms:

1. No lease extension premium payable

2. New lease of 99 years from now

3. Your annual ground rent to be £300, reviewed every ten years with reference price index (NB - at the moment I pay £75/year)

4. No landlord's valuation costs

You would still be required to pay the landlord's legal costs for drafting of the new documents. You will also be responsible for LMP administration costs of £292 (incl VAT)."

This is it - "LMP" is the freeholder's agent (I pay ground rent to them).

Thank you very much.

Expert:  Joshua replied 2 years ago.
Thanks. Finally, what you would estimate your flat to be worth on the open market at present with the lease as it is? Ballpark estimate is fine
Customer: replied 2 years ago.

I would say around £180,000-£190,000

Expert:  Joshua replied 2 years ago.
Thank you. looking at the terms of the landlords offer in more detail, the offer is not a free increase. Rather he is offering an extension to the lease without an upfront premium from you but is proposing to substantially increase the ground rent which in turn will increase the value of his reversionary interest. A very crude analogy might be to compare the offer to purchasing a product upfront or paying for it on credit terms for a number of years. Therefore what we need to look at in order to determine the value of the landlords offer is to look at how the figures stack up in the two scenarios. Taking the top end of your valuation for your flat a lease extension under the statutory right to extend by 90 years with rent at zero would be in the order of £7,500 though this figure could be higher depending upon the valuation figure for your flat so don't rely on it for an actual valuation figure. However it is still useful for this exercise on the basis that we compare both proposals using the same figure. Conversely if you accept the landlords offer you get a free extension but your ground rent goes up. If you chose to then extend your lease by the 90 years you are entitled to (though your would not need to for some 20 years or so, the premium payable on the same valuation as the above would be approximately £6,500 (this is because the ground rent is higher so the landlord can charge more but means that you don't pay the "marriage value" because your lease is over 80 years). So the landlords offer is not as generous as it may first seem. It is perhaps ever so slightly better than paying a premium for a lease extension under the statutory right by 90 years is likely to be, but not by enough to make it obviously superior. Also you will be paying £300 a year which will relatively quickly erode the price advantage each year. it is therefore likely to come down to a matter of personal choice - do you prefer to pay a large upfront premium in return for a lease you will not have to extend again or do you prefer to avoid paying the large up front premium in return for a lease you will not have to extend for perhaps 15-19 years (at which point you would have to potentially pay a premium not much lower that you would presently potentially) but have to pay a higher ground rent in the interim. Also consider that the high ground rent may put off some purchasers or give them cause to negotiate on the price of the flat though it shouldn't make much difference - you may wish to discuss with an estate agent to be sure. I hope the above is of assistance? If you have no further questions for now I should be very grateful if you would kindly take a moment to click to rate my service to you today or just reply back to let me know if the above is helpful. Your feedback is important to me. If there is anything else I can help with please reply back to me I'd be very grateful
Customer: replied 2 years ago.

Dear *****,

Thank you very much, this is very useful.

Just to clarify - it is my statutory right to have the lease extended BY 90 additional years? So if I went with the agency, the cost would be around £7.5k (as you said depending on the valuation) but it would be extended to 74 + 90 = 164 years?

Is it possible that they would only offer to extend the lease to 99 years or 125 years? In their initial communication the agency mentioned that I have the right to "force the freeholder to sell me a lease extension of an additional 90 years", but they do not mention if they aim for this length. I am wondering if the cost for extending the lease via the third-party agency would be the same for extending the lease to 99 years or 125 years or 164 years... (or more expensive with more years added - if this makes sense).

Do you know if the value of the property would differ with the lease length of 99 years compared to 164 years? Or is this something for an estate agent to inquiry about?

And lastly, if I decide to accept the freeholder's terms now and then request the lease extension in four years time (when the lease will go down to 95 years), would the estimated cost be around £6,500? Or would that be cheaper? (Cheaper than if I waited another 20 years or so)? It's not clear from your answer if that cost would refer to the subsequent extension in 20 years time or anytime before the lease drops below 80 years.

Thank you very much.

Expert:  Joshua replied 2 years ago.
Statutory right is 90 years extension onto your existing term with ground rent dropping to zero. You can negotiate other terms by agreement but that is the statutory right if you can't agree which you can force if necessary. You cannot force any other terms than the above statutory right. Any other terms have to be agreed voluntarily.Extending the lease for a lesser number of years would be expected to be cheaper but remember you would be negotiating on terms other than the statutry right so there are no rules. It doesnt actually make that much difference once you get past 150 years and upwards - a difference yes but not that much.A longer lease will be more valuable normally on the open market but again, there is unlikely to be a great deal of difference between a 99 year lease and a 165 year lease. There will likely be a difference but it is not usually that great. However this is a question for an estate agent rather than me to be certain. If you were to accept the freeholders offer and then extend again at 95 by the statutory 90 years with rent at zero, the cost as things stand would be approximately £6850. So a little more but not much. Of course you would be paying a second set of legal fees too don't forget on the second extension which could make this double extension approach a little more expensive than opting for the statutory extension now but I would still say there isn't all that much in it so it still likely comes primarily down to preference as to whether you prefer to incur a large premium now or defer the premium by up to 19 years into the future, probably reducing it slightly but at the cost of rent increasing to £300 per year. It seems to me that there is so little in it either way that is really the main basis on which to make your decision. It is nice to have the option to choose though. I hope the above is helpful? Can I help you with anything else or has the above answered your questions satisfactorily? If you could drop me a quick message to let me know I'd be very grateful.
Customer: replied 2 years ago.

Thank you very much for your answer - this is very helpful.

I have the funds to extend the lease now; may I ask, if you were in my position, what would you do? What would be your preference?

And lastly, the freeholder stated that I would be responsible for covering the landlord's legal costs - is there any estimation how much to expect? Is there any set or standard fee that they can charge me or does it really depend on individual circumstances?

Thank you very much.

Expert:  Joshua replied 2 years ago.
As regards ***** ***** question, that is difficult. Both propositions have their merits. If I planned to sell on soon, I might favour the landlords proposal because I would judge that it would cost me a lot less than extending paying a premium. If I planned to stay for medium to long term and had the money, I might be tempted to look at the statutory route because it would mean I would never have to extend again (e.g. you would have to extend again before 19 years and in practice earlier as you would not want to leave it to the last minute) and over the long term the statutory route may be a little cheaper overall and would not make potential purchasers concerned over the higher ground rent though this latter point is not likely to be very significant either way. Typical landlord legal costs might be expected to be £750-1000 + VAT on average but this would also be the case under the statutory route as you have to pay landlords costs using that process too. Does the above answer all your questions or is there anything I can clarify or help you with any further?
Customer: replied 2 years ago.

Thank you very much, this answers all of my questions. Once again, I really appreciate your help and wish you a very nice rest of the weekend.

Expert:  Joshua replied 2 years ago.
I'm glad I could help. Thank you and I you.
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