Do I borrow and renew lease now?

Do I borrow and renew lease now?

8:40 AM, 13th November 2020, About 2 years ago 17

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I own a flat in the South of England which produces about £400 monthly positive cashflow. It also has around £30,000 of equity currently.

However, the lease is down to 57 years and I have 7 years left on a very low mortgage rate. Quote to renew the lease is £23500 + legals.

The question is do I borrow and renew lease now, assuming a 5 year secured loan at 3%, costing around £500 a month or do I wait until nearer the end of the mortgage term and enjoy another 5 years of positive cashflow and renew or sell losing the equity then?

My properties are my only source of income and £500 a month negative cashflow may be affordable but will restrict lifestyle for a while. Any thoughts would be most welcome, particularly if you have any idea how much more the cost of renewing the lease 5 years later might be.

Many thanks

Richard



Comments

The Secret Landlord

8:16 AM, 16th November 2020, About 2 years ago

I am unclear from your post if you intend keeping this flat?

The issue is: there is never a good time to find a stack of money to renew a lease. But the issue you have is that the cost for the renewal will increase every single year. I bit the bullet a couple of years back and renewed a lease - my heart stopped when i saw the amount. Only a couple of years had passed since I had last asked (I was down at 67 years) and the increase was crazy.

Unless you have a naive Freeholder they are the most astute people in the property game. Mine played every trick in the book with us and we almost ended up at Tribunal.

If you've had an offer and a local lease expert surveyor agrees it's a fair price then I'd just go with it. The price for these things only goes up...

Dennis Forrest View Profile

13:20 PM, 16th November 2020, About 2 years ago

Reply to the comment left by The Secret Landlord at 16/11/2020 - 08:16
The leaseholder can also play tricks all of which are strictly legal.
Do not start off by approaching your freeholder asking him/her what kind of deal you could possibly get. You then have already started off from a position of weakness.
Start instead by getting your solicitor to serve a notice for a statutory lease extension of 90 years at a peppercorn ground rent. Pitch your offer at the lowest level which your valuer feels is the most optimistic for you. The offer must be credible so do not offer a silly amount like £500 for the lease premium or the notice can be thrown out as invalid.
You then present the freeholder with a quandry. He does not know how serious you are and what cash you have available. He has to come back to you within 2 months with his counter offer. Surprise, surprise at the same time or shortly afterwards will also be his first offer of an alternative lease extension at a much lower lease premium. Do not accept this offer, but ramp up the pressure. Apply to the First Tier Property Tribunal to fix the premium for the statutory lease extension who will also agree reasonable fees for the freeholder's valuer and solicitor. You can apply for a paper valuation or a hearing at the the FTPT. You can be really nasty and apply for a hearing! The freeholder will then have to pay his own valuer and solicitor for attending the hearing at his own cost.
Now the last thing any freeholder wants is to lose all the value of their investment. A long lease at a peppercorn rent is virtually worthless. Sit tight and you will get more and better offers from the freeholder. The freeholder will become more amenable the closer it gets to the date of the tribunal hearing or valuation.

Highland Lass McG View Profile

13:37 PM, 16th November 2020, About 2 years ago

Reply to the comment left by at 16/11/2020 - 13:20
Hi
We are in the situation with about 84 years left in the lease for a flat with a local authority. On the local authority's website there is a contact to have a lease extended and an amount quoted. Would we need to carry out the negotiating procedure as you explained or just go with the scheme the local authority has for leaseholders extension?

Also with the recent Government consultation on leasehold homes would it be better to wait a year or so for their findings, but before the 80 year time arrives?

Dennis Forrest View Profile

14:37 PM, 16th November 2020, About 2 years ago

Reply to the comment left by Highland Lass McG at 16/11/2020 - 13:37
It all depends. There is more than 80 years on your lease so there will be no marriage value. The cost of the lease extension will be the combined cost of the valuer and solicitor used by the council, plus of course the cost of your own solicitor and valuer. These 4 items added together should not be more than £5,000 including vat (unless we are talking about central London). Then you need add on the premium for any ground rent reduction. If you are wanting zero ground rent then it is probable that this won't be offered by the council but if they just want say a fairly nominal amount like £100 per annum then this would be OK providing you get a reasonable length to the non statutory extension the council are offering. I would go for at least 40 years otherwise if they only want to give you 20 years then in 20 years time you have to extend again. If you sell in 20 years time there would still be 104 years left on the lease which will be fine for any new buyer. You need a good solicitor who specialises in leases. Any extended lease needs to be examined to make sure no extra or changed clauses are inserted to your detriment. If you to to http://www.alep.org.uk you will find links to solicitors and valuers that specialize in leasehold work. (Association of Leasehold Enfranchisement Practioners). You can perhaps dispense with a valuer, (I did on my last lease extension), but you defintely need your own solicitor

Dennis Forrest View Profile

14:57 PM, 16th November 2020, About 2 years ago

Reply to the comment left by Highland Lass McG at 16/11/2020 - 13:37
Just read your last comment.
Don't wait for the government to sort out the leasehold mess.
With Covid and Brexit it is not going to happen in this parliament.
I am not sure the following government will do any better as there are so many vested interests in continuing with the existing set up.

Highland Lass McG View Profile

16:04 PM, 16th November 2020, About 2 years ago

Reply to the comment left by at 16/11/2020 - 14:57
Thanks very much for your advice. Will work on that. Regards

Darren Peters

16:51 PM, 16th November 2020, About 2 years ago

Reply to the comment left by Highland Lass McG at 16/11/2020 - 13:37
Have a look at the leasehold valuation calculator link above. How does the council's offer compare to the valuation off the calculator? The council might be offering a good deal.

My understanding is that local authorities can't take low offers because they have a duty to the tax payer but they sometimes have a blanket deal where it's cost effective since they use a few representative valuations of their stock to get a value for lots of properties. Ie economies of scale on their side passed on to the Leaseholder.

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