Potential purchasers are very reluctant to purchase flats with leases less than, or close to 80 years. Mortgages are hard to get on leases less than 70 years and therefore the closer it gets to that figure, the more imminent is the necessity to pay the Freeholder the going rate for the required lease extension. That future cost and uncertainty will put purchasers off.
The cost of lease extensions is quite variable but more often than not it will come to a figure that most vendors do not have to spare. Ian Gibbs suggest that the best way to deal with this is to use the proceeds from the sale to extent the lease.
This can easily be dealt with by the solicitors as the exchanging of contracts on the new lease is co-ordinated with the exchanging of contracts on the flat. This enables you to offer the property with the benefit of the new lease.
The owner needs to start the process off by writing to the Freeholder or the Freeholders agent to get the ball rolling. There will be some up front costs and your solicitor will also charge more for the additional work they do.
Building societies and banks will not lend on properties with leases under 65 years and even when they are near 80 years, they will want the cost of a lease extension taken into account in the valuation.
If you are selling a property with a lease less than 65 years it will be necessary to extend the lease and pass this on to the new owner.
This can be done by contacting your freeholder (usually via the company that ground rent is paid to). The Freeholder will often ask for some up-front fees to cover surveyor and initial solicitor and other costs. This can be some hundreds of pounds. You can make the initial approach yourself but you will need to appoint a solicitor to take it to the next stage.
The freeholder will them come back after a few weeks with a figure that they calculate is appropriate to extend the lease. They may offer different options i.e. 99 years/125 years or sometimes they will add an additional 90 years to the existing length of lease. Typically an extension to 99 years is less expensive than say a 125 year lease, but they may not at first offer you the option. Most prospective buyers will be happy with a 99 year lease but sometimes it costs only a little more for the 125 year lease and this is even better.
The cost of the extension is calculated with various factors such as value of the flat with a new lease, how much the ground rent is and how many years to go before they would gain possession for nothing i.e. if the property has a 60 year lease, and it is never extended, the property will eventually belong to the freeholder.
Although the up-front costs are painful, the actual cost of the lease extension can be paid to the freeholder using your buyers money. So if the lease costs £30,000 to extend; this amount can be subtracted from the sale proceeds and the exchanging of the contracts on the lease extension will take place on the same day as on the flat. This will all be done by your appointed solicitor. Therefore as in the example above if you agree to sell the property for say £300,000 you will receive £270,000.