Lease length is vital as it is what you own( as explained above) and it is essential that the lease be @90 years plus and to take it into account in your offer for leases shorter than this as the price may not reflect it. Buying into the freehold company or group does not guarantee a free extension nor obviate this problem.
The theory is that the freeholder gets the flat back at the end of the lease, or the owner becomes a tenant paying a market rent. That is of considerable value to the freeholder ( see above) even if the FH is you, upstairs and the odd chap in the basement. As the lease gets shorter that pay day is closer and worth more, but extending the lease defers that pay day so a flat owner has to pay the freeholder to compensate them.
When buying the freehold which takes into account the value of lease extensions, it is important to note that leases should be extended at or about the same time, or put in place terms for future arrangements, as this is something solicitors all to common forget to mention and buyers don’t realise this thinking that have a “share of freehold” see above.
When buying into an established set up, its important the check as a future owner with a short lease what is required by the freeholders for extending the lease.
Unless the participation agreement or other records indicate to the contrary, or individuals are prepared to litigate, it is possible, and does happen, that the freeholders ( even if you are one of that group) demand a premium. Do note that original participants have in effect paid for a lease extension and have a strong case but if time has passed the value has increased and may often be asked for the difference- the uplift. New participants are on softer ground- beware.
The rationale for the whole or an uplift premium is that even if the 3 of you bought the freehold together( as above) or its two oldies and you the newbie some intend to leave “feet first” and care nothing for a longer lease and want to spend your money on a cruise or two as “we will all pay something and share the proceed when the time comes”. For them, the time never comes!
The principles above also apply to freehold owning companies.
Hi there
ReplyDeleteFinding your blog interesting and relevant to our situation. Particularly this page. May I have your opinion in more detail please?
- There are two leaseholders, who also own the freehold between them
- One wants to extend the lease and the other wants a "premium" rather than to extend their's at the same time
How can a valid S.45 be send from "the landlord"? The one who wants a premium surely cannot act entirely as the freeholder, can they?
If they can, are they entitled to the whole amount of the premium, or just half, given the other freehold "element" is also the leaseholder having an extension?