Lease Extension for Leasehold Properties

Discussion in 'UK Property' started by Habib123, May 16, 2018.

  1. Habib123

    Habib123 New Member

    Hello,

    lease extensions confuse me. I was under the impression once the lease drops under 80 years it becomes unmortgageable and the value of the property drops sharply. Yet I see properties on sale which don't reflect the lease length. case in point - my mother had a btl which we tried to sell in 2012 when there was 73 years on the lease. We were offered £90k. We declined. we then extended the lease and then four years later sold the property for 150k. Am I missing something here- ?

    Is there a standard formula you can use to work out how much it will cost to extend a lease on any leasehold property and how much added value in £££££ it will bring to the property ?

    thanks,
     
  2. Longterminvestor

    Longterminvestor Active Member

  3. YP123

    YP123 New Member

    A short lease is just another problem that, as a savy investor, you can solve to add value to a property a trun a profit. So, for example, if you buy a property with a short lease for £90k that would usually be worth £110k and it costs £10k to renew the lease then you can turn a £10k profit (ignoring all other costs). The point is that despite the value of the lease extension being £10k the property is reduced by £20k to reflect the effort of extending the lease and associated risk that any buyer must take on when buying the property. If you only reduce the property price by the £10k that it would cost to extend the lease then it won't generate any interest because buyers can find equivalent value properties without the hassle.

    I have very little knowledge on lease extensions and that lack of knowledge had, until recently, really scared me off from considering a short lease property however a friend who has recently purchased such a property has assured me its not so scary. Please do your own research but I'm told that owners of the freehold are obligated to extend the lease (under certain circumastances) and also have to do so under fair market prices so can't just hold leashold propert owners to ransom as I had been fearfull of (I don't think that there's a forumula for lease extension prices as such - like house prices they are affected by many variables so (i think) require independent valuation.

    The problem remains though, that with any potential purchase of a short leashold property is hard to obtain a mortgage for. This is where either being a cash buyer or using bridging loans comes in use. Potentially purchase the property using this these methods then either sell or remortgage to release the equity. Then recycle.

    I'm new to all this so I'm sure someone will correct me if I'm wrong, but there's my contribution!
     
  4. SteveK

    SteveK New Member

    When you buy a leasehold flat you cannot force the freeholder to extend the lease within 2 years, this would be following the formal statutory extension process.

    However, you can always negotiate informally with freeholder to extend before 2 years have passed but you will not have the benefit of the statutory legislation mentioned above which offers some protection against overinflated costs of renewal as well as putting in place a set timeframe for the process.

    Lastly and most useful, you can actually get the seller to start the extension process prior to the sale and then assign the extension rights to you as part of the sale. This happens quite often but note that any amounts agreed between previous owner and freeholder for the extension are not set in stone and freeholder can increase the amount if they wish. However, you could take the matter to the tribunal if you consider it excessive thanks to having benefit of the statutory extention process.
     
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