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Thanks for that, I'll make sure it's the right one.
This is the letter from the freeholder's solicitors to the current owner in response to their request to renew the lease a year ago. Are these the kind of terms that I need to worry about and avoid, or are they ok?
1 Attachment
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dbr
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Ground rent doubling every 25 years?
150 - first 25 years
300 - 25 to 50 years
600 - 50 to 75 yrs
1200 - 75 to 100 yrs
2400 - 100 to 125 yrs
...Nice little earner for the grandkids and great-grandkids!
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I'm not a lawyer obviously but:
- lease extension figure seems high - I was quoted £24k for informal extension and £16k for formal
- service charge clause may be a can of worms - our service charge was put up to £220 a month in order to create a reserve fund; this would allow your guys to do the same
- ground rent clause is standard - mine follows this format
- suspect legal costs wlil be closer to £4k if pals are anything to go by
- lease extension figure seems high - I was quoted £24k for informal extension and £16k for formal
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"modernised" here likely means screw over the lessee.
For example the reserve fund for repairs. A good idea in principle. But who does the estimating about how big the payments need to be. And who gets the benefit of any interest the reserve fund earns in periods between repairs. And who decides on what contractors the freeholder uses (is his buddies who overcharge)?
The doubling of ground rent every 25 yrs equates to about a 3% annual increase in ground rent. Not outrageous but a bit on the steep side given current long term risk free interest rates.
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If you go down the statutory route the term of the lease is extended by an extra 90 years and the rent is extinguished (technically reduced to a peppercorn rent) throughout the term of the new extended lease. The freeholder's proposed terms are less favourable than these, so I'd expect to see a significant discount on the premium to reflect that. If the premium which would be payable if you went down the statutory route would be around £36,400 anyway, then you'd be better off going down the statutory route.
Also, on their terms you'd end up paying all the freeholder's legal costs and £2,184 in fees (5% of £36,400 plus VAT). Worth bearing in mind when comparing it to the costs of going down the statutory route, where you're only liable for the freeholder's section 60 costs, which are the costs of investigating title, valuing the flat and the granting of the new lease.
Arducius
ReekBlefs
Zerostar
Brommers
@danstuff is right - get the current seller to kick the process off if you can.
The only distinction on this advice is to try to make sure they're extending via the statutory S42 process rather than the informal agreement with freeholder process. The former process will mean you get the exact same lease as the current buyer. The latter process may mean you end up with new onerous terms at the whim of the freeholder - terms which the seller may not care about since they won't need to deal with them, you will.
My pal bought a flat on this basis and the seller extended via the informal agreement process and inadvertently picked up a new clause linking ground rent to RPI. Honestly if that's the worst he got I'd consider him quite lucky, but it is an uncertainty you don't want to have to deal with.