First time leasehold extension advice

First time leasehold extension advice

10:13 AM, 7th July 2017, About 4 years ago 17

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My wife and I own both flats (leasehold) in a Victorian conversion. We also own the freehold. There are no other flats.

I am looking to extend the leaseholds on the flats as they are about 75 years remaining.

What should we consider when deciding on the length of the extensions? We have not done this before, so and advice observations would be welcome

Regards
Brian



Comments

by Boru

11:21 AM, 10th July 2017, About 4 years ago

Thanks again for the replies, I have a better feel for the issues now
regards
Brian

by Colin McNulty

6:25 AM, 17th July 2017, About 4 years ago

Brian, can you explain how this situation came about? I'm going to guess you bought the flats leasehold first and attained mortgages on them, then later you bought the freehold?

I assume that because I was under the impression that you are not meant to have a leasehold and freehold owned by the same legal entity (i.e. you personally in this case). The reason for that is that it's a nonsense in law to have a contract with yourself, which is basically what the leasehold now is.

I would consult a solicitor on this before speaking to the mortgage company, as they may not take a positive view of this situation.

Notwithstanding that issue, contrary to the advice above I would definitely NOT grant yourself a 999 year lease with peppercorn rent. If you do you will destroy any value the freehold has. Currently I can sell freeholds at approx 30x the ground rent. For example I sold the freehold on a block of 4 flats each with £250 pa ground rent on 125 year leases (so £1,000 pa in total) for £29,500.

If you have any intention of selling these flats in future, I would keep the leases to a normal 125 years with a market rate ground rent.

by Boru

9:20 AM, 17th July 2017, About 4 years ago

Reply to the comment left by "Colin McNulty" at "17/07/2017 - 06:25":

Hi Colin,
Thanks for your input. We bought the first flat leasehold and subsequently bought the second flat and freehold for the whole property. The bank provided mortgages on both at time of purchases. I asked our solicitor at the time of purchasing the freehold about extending the leases at a future point and she indicated that as we own the freehold we are in a good position to do this as long as we make the mortgage company aware. I imagine we will have to set up different legal entities situation in some manner to do this. Are the current leased null now due to 'not contracting with yourself'. It appears more complex than I had understood
Regards
Brian

by Boru

9:20 AM, 17th July 2017, About 4 years ago

Hi Colin,
Thanks for your input. We bought the first flat leasehold and subsequently bought the second flat and freehold for the whole property. The bank provided mortgages on both at time of purchases. I asked our solicitor at the time of purchasing the freehold about extending the leases at a future point and she indicated that as we own the freehold we are in a good position to do this as long as we make the mortgage company aware. I imagine we will have to set up different legal entities situation in some manner to do this. Are the current leased null now due to 'not contracting with yourself'. It appears more complex than I had understood
Regards
Brian

by @ Section42

9:59 AM, 17th July 2017, About 4 years ago

Just to confirm - as you have identified you cannot grant a lease to yourself - you will need to appoint another party as well (even if that is in a nominee capacity - i.e. that they don't have any ownership rights) - it will probably be easiest to transfer the freehold into two names / add another name if there is no mortgage on that as a transfer of a flat subject to mortgage needs the lender's say so and a deed of substituted security. As the other contributor has mentioned if you do want to retain the FH in the future (and sell the flats separately) you could make the leases shorter - enough to be mortgageable but short enough to add value to the 'reversion' (the FH) in say 30-40 years' time when they get back down to 80 years.

by Puzzler

10:09 AM, 30th July 2017, About 4 years ago

I wonder why your solicitor did not arrange this at the time of the second purchase? This is why it is important to engage specialists not just routine conveyancers for non-standard transactions

by Boru

11:14 AM, 30th July 2017, About 4 years ago

Reply to the comment left by "Puzzler " at "30/07/2017 - 10:09":

Hi,
I mentioned it at the time and in fairness she said we could do it whenever as it is straightforward. I have let is slide a bit. Have got it underway now with freehold being temporarily transferred to my wife to facilitate it. Again reassured by them that the extension will be straightforward
Thanks
Brian


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