What happens if lease cannot be renewed?

[Pistillate]

Hi, sorry for being totally thick, but I can't get my head round leases.

What happens if the leaseholder refuses to renew the lease?

The leaseholder is the tenant. If the agreed lease term has come to an end, and they don't want to renew it, then the lease has ended and no longer exists.

You can't force a tenant to renew a lease (unless they've specifically agreed to in a binding contract) if that's what you're wondering.

Sorry, perhaps I am not using the right terminology.

It is about buying a flat. The upstairs owners own the freehold. The lease on the downstairs flat is short. How risky is this?

It's not that risky but it does require patience. You have two choices: you can go the legislative route which means waiting two years before you have the right to extend the freehold (there are certain exceptions to this but if the owner is a private individual, then they probably don't apply in this case), or you can start negotiations with the freeholder right away. He/she/they have the right to say no for up to two years until your right kicks in OR they could ask for something over the odds so that you can resolve the situation faster.

The problem for you is that while the lease is under 80 years, the property will be unmortgageable in most cases. If the seller of the flat agrees and he has owned the flat for more than two years, he can apply to have the lease extended under the legislative route and then pass that right to you as part of the sale contract which means the extension would be immediate and cheaper.

HTH

To answer your question, if the lease cannot be renewed, then the leaseholder has the right to stay in the property but has to pay market rent. How short is the lease? Is this a real danger?

Oh this is really interesting - does anyone mind if I listen too? Just about to make an offer on a flat with 56 years left to run.

I feel like I'm in a minefield

There are some statutory rights for a leaseholder of a residential flat to extend/renew, but this is subject to paying for the extension and other conditions.

You really need detailed advice from your lawyer on this.

lala that's interesting, can you point me to the authority for that?

Has to pay market rent! Wtf! What is the point of buying a flat then? How can a flat be worth tens of thousands if you end up paying market rent?

I just don't get it! How much does it cost to renew a lease?

The flat has got about 60something years left which the bank says is ok for the mortgage.

It is a friend who is interested in buying, not me, and I am just trying to getmy head around it.

I was told by the agent, a ballpark figure would be around 5-20 grand.

It depends on the freeholder/vendor at the time. I am really unsure whether to proceed.

NB I have no solicitor - yet - we are only in the process of deciding if it's worth getting a survey etc.

I imagine the solicitor is the person with this sort of knowledge.

On top of a property being sold for 140 grand.

You only pay market rent once the lease has run its term. The best way of understanding a lease is not to think of it as buying a flat but buying the right to live in that flat for a certain amount of time. The less time on the clock, the cheaper the flat BUT the more expensive it will be to extend the lease - as Vatta points out (and I only implied), it costs money to extend a lease. If the lease has more than 80 years to run then this is fairly nominal amount (freeholder's legal expenses etc) but if it is less than 80 years it is considered a short lease and something called "marriage value" comes into play. This, to simplify it grossly, is the amount between what the flat is worth with a short lease (and no right to extend it) and what it would be worth if it had a 80+ year lease.

So, if the flat was worth £200,000 with a 99 year lease but was only worth £100,000 with 50 years, the marriage value might be worth somewhere around £50,000. This is a very, very rough guide to illustrate the point - you would need a surveyor to work out the actual price.

Vatta- this is something I discussed a few months ago with a lease expert when I was looking at buying a flat with a very short lease (less than five years). This document I think spells it all out - there are various notices that have to be served etc - but I don't think it often comes to it. Most people are going to negotiate something before the zero hour, I would think.

Rooners - you can get a rough idea of how much it will cost to extend a lease on the Lease Advice website (it only calculates down to 60 years but your term is close to give you an idea). My solicitor says that it tends to undervalue a bit and, as pointed out above, you would have to add freeholder's fees on top of that.

The main thing to bear in mind is that you will NOT be able to get a mortgage on a property with only 56 years left on the lease and, unless the current owner assigns the right to extend, you may have to wait two years to extend and pay more then as the lease will be even shorter (and rising prices also mean that the cost of extending it will go up too).

Thanks lala not my area so interesting to find out a bit more.

Leasehold is strange it's like you're renting for a really long time and for
Cheaper than the rent would actually be but you don't actually own the thing properly.

Can you make houses into leasehold?

Many thanks Lala...I think there is something about marriage payment or something? Under 60 years.

We want to find out whether the owner WILL agree to extend - but how can you find that out?

Oh sorry, I didn;t see your previous post explaining about marriage value.

That is a concern then - it could potentially cost a further £50,000 to extend the lease then. Crikey.

Fwiw I think ours is worth around 200 with the long lease but only 140ish without it

Rooners - I did say that that example was for illustration only, just to show how the principal works. Go to the lease website and they can give you a much closer estimate for a 60 year leade and then I guess you can add a bit to get an idea for 56 years.

You can find out if the seller will assign the right to extend to you by asking and, if he has the right to extend, stipulsting that this is part of the sale contract. Your solicitor can draw up all the psprrwork, the vendor just needs to sign so it doesn't cost him anything.

'You can find out if the seller will assign the right to extend to you by asking and, if he has the right to extend, stipulsting that this is part of the sale contract.'

With this nugget of information you have just saved our bacon! Thankyou - I really am clueless - as we're cash buyers I wondered whether the vendor might be persuaded better, because it's been on the market so long and I am guessing no one has bought it because they can't get a mortgage for it.

There is nothing wrong with asking then as a condition of sale - brilliant.

Don't worry - I shan't take your advice as legally binding or come back at you if it doesn't work out but am dead grateful for it as a guideline sort of thing. Thanks

it's not just 'nothing wrong with asking', for most buyers it's the FIRST thing they do, unless they have no wish to extend (elderly or hiding dodgy money in a flat to then rent it out). Lala explained the rest, I'd only add that the vendor who transfers the right to you DOES incur some extra fees for a special doument done by their solicitor and they may ask you to pay that - all will be in the contract.

Yes, drawing up that contract does cost money but the buyer's solicitor can do it on the vendor's behalf (and, in fact, my solicitor prefers to do it so he knows that it is drafted correctly and the freeholder can't claim it is invalid). The vendor's solicitor may wish to check it over but that's only going to cost a very few quid.

As beagles said, just ask - actually, just demand.

Well, I've emailed the agents demanding asking whether the seller would consider renewing/extending the lease, and saying that we cannot proceed without uncertainty on this front so I would appreciate their finding out.

hmm, will wait and see what they say! They ought to be desperate to sell, it's been on for ages and already been reduced.

sorry WITH uncertainty...I was grammatically correct in my email, honestly!

OP, I think you are confusing the seller with a freeholder. The seller has absolutely no reason to refuse to transfer their right to extend to you, if there is no extra legal fees for them - which is either small or you can agree to pay. There is nothing for them to consider as they wouldn't mind what you do when they sell the flat to you.
I'm sure you mean the freeholder may refuse, not the seller (leaseholder) of the flat. You can't really put that into a contract, I don't think, but if you have the right (which you will) they can't reasonably refuse - you can go to court about this and it's not what they would want. BUT they can name a price once you buy - which again can be challenged in court by you but it's long and tedious. Usually the price is negotiated out of court and it can be higher than the srtict marriage value, but that's normal - as far as it's nt much higher.
Usually the freeholder wouldn't stall the process and will agree to a reasonable price as they will get the money. But what I'm saying is, it's your right and they can't refuse, all they can do it ask a bit more than you'd like to pay as a result of negotiating, but again they can be reasonable and agree quickly to a good/correct price. You could ask the vendor to negotiate with freeholder on your behalf before you buy, and have it in writing which will help at least to know for sure what to expect to pay - but there is always room for some negotioation. Sorry, long!

Yes, beagles, that is what I meant. This has been very helpful, thank you all.

And good luck to rooners!