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Buying Freehold or extending lease

I am trying to figure out if there is a difference between buying the freehold or extending a lease? My mother's flat is currently owned by her mortgage free but only has a lease left of about 40 years on it. It is likely we will need to sell it over the next 4 - 6 years ... Obviously the sale price would be very different if her lease was extended back to the original 90 years so we are weighing up the option to do this versus selling at a lower price with the short lease life. I don't know how much the lease extension would be or the cost of buying the freehold (if there is a difference between the two?) and it costs quite a bit to get this operation figured out but my guess is it would be quite a bit. The question is .. generally speaking is it better for us to reduce the cost of the sale price and get the new owners to deal with getting the extension or buying the freehold .. or get that settled first and sell at the higher price.

Asked on Jan 19 2017, Home Finance in London | Report content

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  • The quickest option is to sell it as is and let the buyer deal with it, as extending the lease can be quite time consuming, along with the added legal costs, paying the premium then marketing the property. The cost of the Freehold will be more, and not really necessary and very expensive if other flats within the block are of a similar length. So we would suggest firstly selling as is to a cash buyer or secondly extending the lease then selling on the open market.Hope that helps. Owen

    Answered on Jan 19 2017, Report content
  • If your mother has owned the flat for more than two years she has a right to a lease extension. This would not be the case for a buyer, so that is one reason to extend the lease rather than sell with a short lease. A lease of less than 80 years will be frowned on by some lenders and thus limit the market for the flat so, again, a good reason to extend the lease before selling. As the lease is now down to 40 years, extension will be quite expensive: in simplified terms the present value of the ground rent income for the next forty years plus the present value of what the flat is worth in 40 years time when (if the lease was not extended) it would revert to the freeholder. As to the obtaining the freehold, you would need to organise all the flat owners to collectively buy the freehold of the block, you cannot just make a single flat freehold. This is a lot of work, and speaking from experience, a thankless task.

    Answered on Jan 19 2017, Report content
  • When selling a flat with a short lease it's usually more cost effective to assign the right to extend the lease to the new buyer, rather than paying to extend the lease before selling.

    Answered on Aug 2 2017, Report content

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