Ins and outs of buying a leasehold flat (UK)
February 14, 2017 12:48 PM   Subscribe

We are thinking of buying a leasehold flat in the UK (London). I find leaseholds odd. Any advice?

The lease is currently 87 years, and it will likely (according to the agent) cost about 10k to extend it to 100! That sounds like an awful lot, and it doesn't seem to include much of anything. The ground rent is very low though. It is an old house converted into three flats.

Most of the other flats we looked at were share of freehold. We can't afford a freehold house, unfortunately.

I'm not sure what I'm getting into with the leasehold and worried I'll regret it. Of course I know I have a right to renew it, but I'm worried that money will just start feeling like . . . rent.

Any thoughts/advice on buying a leasehold flat out there?
posted by EtTuHealy to Work & Money (5 answers total) 1 user marked this as a favorite
My first flat in London was leasehold with about 80 years remaining. I got it renewed. It was a pain in the ass, but the process was pretty quick.

If you can afford it, get the lease extended right after you buy. The longer you wait, the more expensive it will be. The price of a lease extension is based on the "marriage value", which is the difference between the current value and the value with an extended lease. The shorter the existing lease, the higher that difference is.

You will need a solicitor and a surveyor. If you're happy with the ones who helped you buy the place, use them. When your surveyor does the pre-purchase survey, tell him/her you want to extend the lease when you buy; it's possible some of the work can be duplicated, saving you money.

Basically, you'll have your survey done, and the leaseholder will have theirs; the valuation determines what you will pay for the extension, so their guys will argue for a higher value, and your guys will argue for a lower value. They'll then make various offers ranging from the laughable to the reasonable. If you can't agree, you'll go to the Leasehold Valuation Tribunal (LVT).

It's worth talking to your neighbours in the building about whether they have had their leases extended (or maybe the estate agent will know?). I was the first in my building to get mine done. Because I was setting a precedent for the building, the leaseholder's people went out of their way to be terrible to me (just through letters to my solicitor, but still). They accused me of fraud, they did their best to bully me into accepting their ludicrously high offers. I was absolutely prepared to go to the LVT, thinking that if I was going to have to pay a few thousand over the odds, I'd rather pay it in legal fees than in a settlement to these godawful people. On the last day before the deadline, they came back with a reasonable offer. So basically, if the leaseholders are terrible to you, stick to your guns.

If you decide to buy the flat, you can use the short lease as a bargaining chip when you put in your offer. (Talk to your surveyor about that as well.)

Best of luck!
posted by Pallas Athena at 1:27 PM on February 14, 2017 [2 favorites]

I'm not sure what I'm getting into with the leasehold and worried I'll regret it. Of course I know I have a right to renew it, but I'm worried that money will just start feeling like . . . rent.

I don't quite understand your 'rent' comment, but I don't think you would actively regret extending the lease apart from the financial aspect which is of course not to be sniffed at.

It may be difficult to get a mortgage if your lease is too short, and it may be very difficult to sell it on at a good price. Those are the main reasons one might want to renew a short lease. This article has some good information on the '80 year rule' which might be relevant in your case.

I bought my flat with a 66 year lease but I was able to haggle it down considerably from the asking price - but then I spent about £6K extending the lease immediately after completing the purchase. I am happy I did this, and feel in a relatively strong position for when I go on to sell my flat. It was not a complicated process.
posted by Ziggy500 at 2:07 PM on February 14, 2017

If the seller is making any promises about lease extensions, ask for proof. The person who I bought my flat from told me that she had got agreement for a lease extension, which I could do as soon as I owned it. That agreement never materialised, so I had to wait two years before I was able to extend the lease, and I'd have put in a lower offer originally, as the lease was only 66 years.

Don't discount the possibility of buying the freehold. It turned out that the owner of the flat upstairs also needed to extend their lease, so we bought the freehold together instead. It was the same price as extending it. It might be a bit more complicated to arrange when there's three flats involved.

Talk to a solicitor. And take heart that many, many people in London own leasehold. You're not alone.
posted by Helga-woo at 2:56 PM on February 14, 2017

Ground rents can be huge and may mean your property is unsalable in the future.

See this article:
posted by moiraine at 1:40 AM on February 15, 2017

Seconding Helga-woo - with only 3 flats, there may be a good chance you can club together and buy out the freehold, which may be a better option than paying to extend the lease. Do consult a solicitor though.
posted by crocomancer at 4:00 AM on February 15, 2017

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