90 Leasehold Extension On London Flat

[IR35 Avoider]

In England a "house" will already be freehold, and a flat-owner will usually own only a share of the freehold, if anything.

There are legal procedures whereby if a majority of flat owners agree they can get together and form a company and force the freeholder to sell the freehold to them. This is probably what would cost each of them 10K in your example. I think to have the right do this one of the criteria is that the leases have to be of more than a certain length - not sure if it is 15 years as mentioned above or 21 as I've read elsewhere.

Having done that, the flat owners can get the freehold company they own to extend their leases for free, whenever they want.

[IR35 Avoider]

I very much doubt if anyone would give you a mortgage on such a fast depreciating asset, except at an extortionate rate.

This is a good point - I think lots of mortgage lenders used not to like leases of less than 60 years. I don't know if your right to extend the lease (if there is one in this case) will make them look more kindly on the situation.

The problem of short leases mostly occurs in older (generally posher and more expensive) flats.

[AtW]

I was under the impression from friend of mine who bought house that was leasehold but he turned it into freehold that any owner can express desire to buy out freehold and the price is pretty much capped and can't exceed said value. I suppose 10k is valid (if true) for 200k house, in any case this leasehold/freehold is a load of bull - the house is either yours or it is not, if it's leasehold then you might as well rent.

[IR35 Avoider]

I've never heard of a house being leasehold in England - it must be extremely rare.

in any case this leasehold/freehold is a load of bull - the house is either yours or it is not, if it's leasehold then you might as well rent.

A sentiment often expressed by those unfamiliar with English legal structures, but so over-simplistic that it's wrong. (My father said the same thing. He thought of himself as a freeholder when actually, as my mother repeatedly tried to remind him, his house at the time was equivalent of UK commonhold. One UK lawyer's web-site I checked this morning said there was little practical difference between commonhold and leasehold with a share of the freehold.)

Owning a long lease is much more similar to being a freeholder than a renter, especially now that there's a right to buy a share of the freehold. On a sliding scale, where renting scores 0 and freehold scores 100, a long lease must score somewhere in the nineties.

At the end of the day any property's value is just the value of a set of legal rights. Freeholders tend to think they have absolute ownership of a piece of land and the bricks and mortar on it, but it is not entirely right to think that way. Their property can be taken away by the government, if it decides to build a motorway through it. What they can do with the property (and hence it's value) is constrained by planning law. Like leashold, even freehold ownership is just a set of legal rights, with a price-tag attached.

[Nipple Clamp]

In England a "house" will already be freehold, and a flat-owner will usually own only a share of the freehold, if anything.

There are legal procedures whereby if a majority of flat owners agree they can get together and form a company and force the freeholder to sell the freehold to them. This is probably what would cost each of them 10K in your example. I think to have the right do this one of the criteria is that the leases have to be of more than a certain length - not sure if it is 15 years as mentioned above or 21 as I've read elsewhere.

Having done that, the flat owners can get the freehold company they own to extend their leases for free, whenever they want.

Not all houses are freehold - For example I think those posh terraced houses owned by the Duke of Westminster in Belgravia are let on short (21 yearish) leases and the Duke retains the freehold. Likewise, houses on country estates and once occupied by forelock tugging estate workers are still often retained in the freehold of the estate.

Also, it can cost a heck of a lot more than a nominal price (such as the 10K figure you quoted) because a so-called "marriage value" must be added, to compensate the freeholder for what they would otherwise receive when the lease expires and beneficial ownership of the property reverts to the freehold. This is roughly the full value of the property scaled by a factor between 0 and 1 which varies linearly for remaining lease terms between 50 and 0 years. The same thing applies to extending leases.

[messiah]

Ok I get all your points and I have done some research and the property seems to be reasonably priced at 650K + 190K (extension of lease by 90 years) for the general area.

One thing though I was talking to the Estate Agent and I do not know if he was bullsh*tting me (probably was) .. but he told me that Share of Free Hold
flats in london virtually cost peanuts to extend the lease say 400 quid or 99 years more....

Does this sound correct to you ?

btw:

The extension on the lease is valued according to many factors including a compensation cost to the landlord based on the remaining ground rent he will forgoe on the remainder of the existing lease (this I think is calculated using a yield figure based on local empirical evidence), marrriage value ie you pay 50% of the INCREASE in market value to the property that the extension will create and then reversion cost which is like a compensatory cost to the land lord for not being able to claim the property which you have been paying the mortgage on ..(hmmmmmmm).... Also I think you have to pay the landlords legal fees during any valuation associated with the leasehold extension (hmmmmmmm x 2)...

fair on the homeownder ...? I don't think so...

[mcquiggd]

Personally I would never buy leasehold.

Flats in Scotland are, I understand, actually freehold...

[TinTin]

Fair ?

It's an extension of the feudal property laws. AFAIK the only leasehold houses are in Belgravia/Mayfair which is Duke of Westminster's territory and as he is a cousin of the Queen, he's managed to hold on to these privileges. Anywhere else is freehold. Flats are different and as a freeholder you have rights as well as obligations, ie to maintain the property to a reasonable standard. Since you've done your homework, I would say a short lease flat is a good investment if you are a cash or almost cash-buyer since the cost of the leasehold extension in most cases can not be raised by a mortgage.

[TinTin]

Scotland

When you have tenements in Scotland, the owners are obliged to share the costs of maintainance and even taking turns to do some of the chores, ie clean the stairways (as they are too stingy to employ a cleaning company). Fairer yes, but still does not absolve the flat owner of his/hers responsibilities.

[mcquiggd]

Actually there is a residents comittee here, and they arrange the contracts for cleaning and maintenance (lifts etc) paid for from an annual management charge. Its been the same in each flat ive lived in in Scotland. Everything seems to run smoothly.