To ask whether leaseholds are REALLY UNFAIR?

[Whatamesshaslunch]

We own a flat that now has quite a short lease (less than 70 years). In order to extend it, the freeholders are asking for £75,000!!! This on a London flat that is worth £600,000. We would have to sell the flat in order to pay, but no one will buy it because they'll see the lease and run a mile. Grrr.

So my question is, in this day and age, why do we have this system? We are the only country to have leaseholds like this.

Well the flat would have probably been cheaper to buy due to the shorter lease

We own two flats outside of London (in Essex). Both leasehold and we have tenants in both.

We detest the leasehold system. It is archaic and feudal. It slowly erodes the property value as the lease runs down.

We have just extended the leases on both of ours for the very reasons you describe. The most we paid was £7.5k. I appreciate that it will cost more in London, but my advice would be to negotiate as hard as you can. Don't always accept the first price quoted. Treat it almost as though you are buying a property again. Make your own offer. Put pressure on the freeholder there and see what happens. See if you can bash them down.

75k sounds like an awful lot and like the freeholders are chancing their arm. We've just bought a flat where the vendor had extended the lease from 80 years to 170 years for about 5k.

I hope you are able to negotiate this much lower. Plus bear in mind i think you often have to pay borh their and your own legal fees to complete the extension. Are you sure they're not quoting for you to buy the freehold off them rather than extending the lease?
Good luck...the leasehold situation in this country is an utter joke.

@madcapwoman61 certainly not 75k cheaper

@topseyt thank you - we'll see what we can achieve.

I don't know about unfair exactly but it's a stupid system I think. Needlessly complex.

We're in London too BTW...

It needs much more regulation
Unfortunately less regulation is seen as good and people keep voting in governments that want a small group to get richer via less regulation.
I can see the argument for leasehold in flats because it is a shared building but there should be a framework in which they operate.
Houses being sold as leasehold just stinks and is a way for developers to fleece desperate buyers

London means it's a licence to print money. If you sell and move instead it will cost you more than 75k so just suck it up and crack on I say.

Just because the LL has asked for £75k, it doesn't mean that that is the amount that he expects to get. Have you been on the Lease website? It has a calculator that gives you an idea of what you might expect to pay.

On the broader issue, no, the leasehold system isn't great. In the early noughties, the government brought in a new system called commonhold (and also got rid of some of the most egregious leasehold abuses in the same act) but commonhold hasn't really caught on, mainly, I suspect because it was up to developers of big blocks to introduce it and almost none of them did.

Is that for a statutory extension or would it be cheaper to push it through statutory instead / or use it as a negotiating chip?

Actually that's probably the right ballpark. We bought a London flat ten years for 350k and the lease extension was 40k, plus a lot on legal fees.

We knew that we had bought a flat with a short lease and that we would have to do the lease extension. Long lease flats sold for nearly 400k.

It's a bugger but I needs to be calculated before buying the flat. There were various changes to the calculation values for London flats about ten years ago which means the rates in London are a lot higher.

The other issue is that mortgage companies quite often won't lend on less than 70year less, but you might be able to increase your mortgage

Are you planning on selling it anytime soon?

You say you own the flat - do you actually own it or do you have a mortgage?

The leaseholders are asking for £75,000 because that is a reasonable price for you to pay for an asset that will probably add £100,000 or more to the value of the property. Can you take out an additional mortgage to cover the extra or are you already mortgaged to your full capacity?

If you can't get the funds from mortgage then I would advise forgetting about buying the freehold for now and focus on paying down the amount owing on the mortgage for a few years. When you have built up some good equity then borrowing more to buy the leasehold will probably be possible.

As to why - well especially for flats it often makes sense for ownership of the overall building to be separate from ownership of the individual units. There are loads of things about general upkeep of the building which should be shared among all flats but the immediate symptoms of neglect would disproportionately affect specific flats. It can also make sense for housing estates where there are consequential costs and issues with maintaining the overall quality of the area.

Is this £75,000 for a sole freehold of just your flat, or for your share of a group purchase of the overall freehold of the whole building?

What would happen to the leasehold if OP just lived there until the lease expire? Not saying they should, but would it make the property valueless to current lease holder, or does it go back to beginning, so to speak?

I used to negotiate these transactions.
Check online, there are calculators and you just need to know the freehold value and the lease length. You should be able to negotiate. If it seems worth it then instruct a specialist surveyor to do this rather than a solicitor (in my experience they generally got a bad deal for their clients if not a specialist, its quite a niche area).
Unfortunately they do get more expensive once the lease goes under 80 years, but you will have got the flat cheaper due to the shorter lease.

If the lease expired, the OP would still have the right to a 90 year extension. However, full market value of the flat would be payable. Generally if would be worth it for the freeholder to buy the OP out before that point.

AdoraBell if nothing changes then the property becomes the leasehold owner's full property at the end of 70 years.

Effectively the current £600,000 value is the amount of 70 years rent on the flat - works out as just under £715 per month which is probably a bargain.

Is it a conversion or a purpose-build? And if there are other flats, might there be any interest in a collective buy-out of the freehold? So each flat would own a leasehold for their own flat, and a share of the freehold.

Lots of really useful advice here, thank you everyone. I need to sit down and read through it all properly.

I'm going to have a look at the calculator now and see how it adds up. Some other people in the building are talking about getting together to try to buy the freehold outright but I suspect that would take longer than we would want to stay in London.

I believe that if we do sell, we can transfer the right to extend to the buyer, but I'm not entirely sure whether it would be a deal breaker for most people.

We bought the flat ten years ago and applied to extend straight away, but were turned down as we hadn't lived there long enough to have the automatic right to extend.

@adorabell I think (but someone correct me if wrong) that if we stay until the lease gets below a certain number of years, the freeholder is entitled to take the property.

@superfinch that's very interesting! An amazing difference between the two sums of money!

Something our solicitor said in the last email which I'm struggling to translate into non-solicitor speak - can anyone shed any light?

^The case is complicated by an Upper Tribunal decision ( the court of second appeal ) relating to the gap in value between the existing unexpired term where the Tribunal found this gap ( relativity ) to be wider than the status quo.The lessees have been given leave to go to the Court of Appeal on narrow legal grounds but the consensus is this decision will be ratified.

The case relates toPrime Central London but the consensus is the relativities in the suburbs while not equal but shadow PCL^

We're not in prime central london

Yes a huge difference and we bought very recently too. Our flat is worth about half of what yours is and our lease was extended just before it dipped below 80 years but i can't see how that equates to a 70k difference. I'm a bit at the thought of your situation. I hope you manage to sort it out. X

That does sound like a lot. We're just about to complete on extending our lease, from 83 years to 170ish and it's about a third of what you're paying on a £1m property in central London. We had to go to tribunal(mediation?) via MyLeasehold in order to get our freeholders down from a cheeky figure but it was nothing like you suggest. There was lots of talk about the magic 80 year mark though when we looked to extend.

Do you have neighbours in the same position? About half of the flats in our building have extended as a group action and I suspect this may have pushed the price down a bit for us. If you can get others on board you might end up saving some money - at least on fees.

You need to use that online calculator - it factors in length remaining on lease, property value and (I think) ground rent paid.

We own the reversionary freehold on a couple of maisonettes - it was chucked into the price when we bought the top flat about 15 years ago. Sine then we sold the top flat but extended its lease to 125 years before we did so the buyer had no issues. The lower flat now has a lease of 60-odd years so could be a nice little earner for us. The lower flat owner should never have purchased without a lease extension - she was badly advised at the time I fear and it was during a time when mortgages where stupidly given out (125% of salary and scant earnings checks) so I think the mortgage company didn't pick it up either.

Length of lease is a fundamental element of the value of a leasehold flat and purchasers should always price accordingly.