Purchasing a buildings freehold questions?

by Readers Question

13:39 PM, 1st August 2016
About 2 years ago

Purchasing a buildings freehold questions?

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Purchasing a buildings freehold questions?

I am looking at getting a mortgage on a freehold flat, however I would become the buildings manager and own the land. The upstairs flat would apparently pay me ground rent and pay towards the home insurance.experience

The upstairs flat is leasehold and has 78 years left. Would you be able to explain what that would mean for me? Would I be in anyway liable for extending their lease etc?

Thanks for any info!

Damien



Comments

Adrian Hyett

10:29 AM, 2nd August 2016
About 2 years ago

As you are the freeholder, the leaseholder(s) pays you the ground rent,and depending what is in the terms of the lease regarding maintenance they would have to contribute towards the cost e.g repainting the external wall every 3 years or roof repairs. If the leaseholder wishes to extend the lease say back up to 99 years, they will have to pay you £x000's for the priviledge. You can also take charge for arranging the works, buildings insurance etc.

BP Surrey

11:12 AM, 2nd August 2016
About 2 years ago

The tenant has a legal right to request that the freeholder extends the existing lease by 90 years. Sometimes a leaseholder may request the lease is extended back up to 99 years with a view to paying you a smaller premium. You do not have to agree with that request as you are only obliged to extend the lease by 90 years. A lease that is extended by a higher number of years will attract a higher premium although you may prefer to grant a lease by a shorter number of years if that was requested by the leaseholder with a view to having another bite at the cherry in say 20 years time or whatever. The choice is for you to make. The leaseholder is responsible for paying the fees of your surveyor to negotiate the premium payable and for your solicitors fees in drawing up the lease extension documentation and registering it at the Land Registry. You can find more information on The Leaseholders Advisory website and there is a calculator available which will give you a rough idea and on how many thousands of pounds you can charge for extending the lease.

Nick Pope

9:35 AM, 6th August 2016
About 2 years ago

You mention that the lease has 78 years remaining. I assume that as well as the freehold you own the leasehold of the ground floor flat so you are, in effect, 2 separate legal entities so as a freeholder you can grant yourself a new lease at no cost (other than legal fees) and I strongly advise that you do this during the purchase process as most (but not all) mortgage lenders wants to see a lease of 85 years plus and a mortgage valuer will look at discounting the value if it is lower than this. In your scenario this is likely to be negligible but if you hold the property for 10+ years the de-valuation will start to bite and you will need to grant yourself a lease extension anyway.

If the lease gets down to 50/60 years then it might affect value by 15% - 20%, at 40 years say 30% and so on.

So far as the first floor flat is concerned I advise you keep quiet - the shorter the lease gets. the more the extension will cost him/her. If they decide to sell then they may be forced to get a lease extension so a buyer can get a mortgage.

So far as maintenance is concerned you need to check if costs are shared equally between the 2 flats or if each has different responsibilities. I have seen leases in the past (almost always in blocks of 2 or 4) which state that the upper flat(s) are responsible for everything above the upper face of the floor joists (including main walls and roof) and the ground floor for the rest. This is fine if you own the ground floor flat but a problem if the owner of the upper flat won't maintain.


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