As a freeholder, why would you agree to extend the lease on a flat rather than let it run out?

[likelysuspect]

Just having a theoretical discussion and cant make head nor tail of the freehold logic for flats

I saw a flat on Rightmove which only had 16 years left on the lease, its of course much much cheaper than it would be if it had a proper lease.

Why would a freeholder agree to extend that lease, for lets say 50k (assuming a lease would be about that much, not sure if thats the sort of ball park figure for them), when in 16 years, you have the whole flat that you then own, which presumably you can kick the former owner out of and then own the flat, make a new lease and sell for a much higher price?

Am I missing something?

from what I remember, a freeholder is compelled to offer a lease extension, under the Leasehold Reform Act 1967, and subsequent amendments. Other than for some narrow exemptions, for a residential property I don’t think you can refuse.

EDIT: I just checked, and that’s right. The cost of the extension is calculated by some formula, so the price of the extension is not at the freeholder’s discretion.

Some areas the lease CANT be more than 20 years (like some on the Grosvenor Estate). But yes it’s formally applied for the freeholder must increase the lease by remaining plus 990 (it was 90). The market value of this extended lease varies.
Banks generally will not loan on flats with leases shorter than 80 years.

You can force it after two years I think.

I think that changed in 2024, no? Now you can get a compulsory lease extension immediately after purchase. Also the duration changed from 90 years (for a flat) to 990, as @mondaytosunday wrote.

To answer the OP more generally, there’s a “correct” value for a lease extension: if there are only a few years left to run then the extension will cost a significant proportion of the freehold value, and if the lease is already long then an extension will be much less. But:

Why would a freeholder agree to extend that lease, for lets say 50k (assuming a lease would be about that much, not sure if thats the sort of ball park figure for them),

There’s no such thing as a “ballpark figure.” 50k might be way higher than the correct value of an extension on a cheap property with a long duration lease outstanding or way too cheap for an extension of a nearly expired lease on a more expensive property. The legislation recognizes that lease extensions have a calculable value that has to be paid but prevents a freeholder waiting it out for the property to revert.

Ah well that answers that question then!

We couldnt for the life of us work out why you might prefer to get a piddling little amount for the lease extension (relatively speaking) when you coudld acquire the whole flat, issue a new lease on it and sell it once the previous owner is kicked out

This is the flat Im talking about and very interestingly compared to what some of you say above, the EA speak say about being able to extend for 90 years, perhaps they dont know it should be 990 or perhaps certain properties dont extend that much?

And interestingly, you can get a similar property for not much more than that price which does have a proper lease length, so it doesnt seem to be much cheaper to buy this one and then have the cost to extend it, why would someone do that?

https://www.rightmove.co.uk/properties/172469756#/?channel=RES_BUY

The leaseholder has a right to extend the lease, but rhe price is worked out by a formula. With only 16 years left the price is going to extremely high, as it will be partly based on the increase in value to the flat by having an extended lease.

However even with a short lease it could be an attractive purchase for someone. For example if a
landlord buys it for £100k but thinks they could get £200k of rental income from it before the lease expires. There’s still profit there even if it’s worthless at the end.

Well 18 months ago 2 flats sold in the same block for 360k, one of which says it has a 19 year lease so for some reason these leaseholders let these leases go down and down and down. Very strange?

If a 16 year lease is 360k then a very long lease is worth 600k - 650k, and the extension will cost the difference.

Coincidentally I've been researching short lease properties today having seen a very cheap property (£60k) locally with just 37 years lease. A similar property in the same location has just sold for £140k - with the modernising the other needs and a new extended lease. I found that under the current legislation the cost of the new lease (if existing is less than 80yrs) includes a "marriage value" which means you pay the freeholder 50% of the difference between the current value & what it would be worth with a longer lease. So in this case aprox £80k (after renovation I assume) and £140k so £60k - so £30k to the freeholder plus various other fees.
I did learn that the Leasehold & Freehold Reform Act 2024 is currently going through which should abolish this "marriage value" possibly some time later this year or 2027.
Not surprisingly it's being challenged by various Freeholder bodies in the courts.

My understanding is that the purchaser cannot pay for the lease to be renewed within two years of purchase. Most properties with short leases say renewal of lease on sale - that is the buyer paying.

And I suppose there is an argument, say on that property up thread, 60k to buy it, only got 37 years left on the lease, well Im not going to live more than 37 years more!!

Anything less than 80 years left on the lease is tricky to get a mortgage on, so will appeal to cash buyers only

We considered buying a short lease flat - I think it had 8 years left. We calculated that the price was less than 8 years rent on an equivalent flat so if you viewed as prepaying rent rather than ownership it made financial sense. We couldn’t get enough info on service charges though to be sure so decided it was too risky.

We thought about using the 60k studio to help get our son on the property ladder with him doing the work required. But it seems risky given that the Leasehold & Reform Bill isn't set in stone yet so the cost of the lease extension is currently an unknown. Would be better using the cash against a more expensive property and being a guarantor on his mortgage.

@Fiddlesticks1the Leasehold and Freehold Reform Act 2024 removed the 2 year rule.