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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.
Thank you. You do not have to agree to either condition. The transfer of freehold with the flat is a common condition and generally a sensible one. It is generally more beneficial to sell a freehold with a flat rather than retain it especially if the ground rent is very low because typically selling with freehold adds a small premium to the price of the flat at sale. It also means that the same condition would apply to the upstairs flat which could be sensible. But it is your choice.
The other condition about the lease extension would be very foolish to agree to econimically. You would be entitled to a significant premium or share of it) if they only have 67 years left as you would also be entitled to share in the percentage increase in value of the flat from the extension. You would likely be denying yourself thousands of pounds, potentially tens of thousands of pounds depending upon the value of the flats and location if you agreed to waive your right to a share of the premium. Again it is your choice but you would be being very charitable in deed to agree to such a condition.
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Tenants in common is definitely how you would wish to hold the title. To do otherwise (and hold as joint tenants) if either of you were to die that share would automatically pass to th surviving owner which clearly would not be intended here.
Freehold and leasehold titles are separate. So if there are two flats in the guilding you own 50% of the freehold from what you say and 100% of your leasehold title.
Renewals become much more expensive after a lease drops below 80 years. This is because the landlord is entitled to claim something called a marriage value on top of the normal premium. This is a share of the uplift in value to the flat with its new extended lease. You can make your own judgement about the fairness of course but that is what the law provides. Personally I do not consider it to be unfair in principle but I certainly know people that would disagree with me though of course my and others opinions are not relevant to the fact that the law is the law in this respect. In this case of course it will be to your benefit of course.
Many thanks for any feedback.