2nd July 2019
We are in the process of closing a deal in Queensway. The property is a probate, therefore it has the usual symptoms of a probate deal, including a short lease. A complete refurbishment is required. There were items in the home which I haven’t seen since I was a school boy, and some which look like they had some value to them. Although I did notice items disappearing with subsequent visits.
This property fell out of bed with two previous buyers. The second buyer guzumped the first buyer, but then failed to complete. All of this is music to my ears. The executers are humans, they have now been let down not once but twice. Therefore, they would now be more concerned about the execution rather than the price – within reason of course.
As part of the buying process we are gathering as much evidence as we can to justify a price drop, whilst the money is sitting in our lawyer’s account ready to be transferred over. It’s only when the gun is cocked and the trigger is ready to be pulled do people stop the drama and talk real. In property this means having all the legals done and money in the account ready to be transferred.
We will insist the seller serves a Section 42 notice to the freeholder. This is the notice which allows the leaseholder to extend the lease, this right is then passed on to the incoming buyer; as opposed to waiting for two years to gain this right.
Now would be a good time to extend the lease. Prices are dampened for obvious reasons. The formula used to calculate the cost of the lease extension is based on the enhancement of value once the lease has been extended, a chunk of this is used in the formula. This will be the overriding expense. When the market is low, as it is now, the cost will be substantially less than in a buoyant market.
Because of this, we have also contacted our landlord clients, and encouraged them to do a lease extension now rather than later. We have a few who have leases just over the 80 year mark.
Once the lease drops below 80 years the price seems to come down a lot. This seems to be the benchmark. Perhaps this is because the number fits nicely into most lenders’ mortgage criteria.
Both of these reasons compounded provide a strong case to extend in the current environment. We would encourage readers to do the same, to use this environment to top up their leases.
In regards to the mortgageability there are now lenders who will lend on a BTL property where the lease is as short as 40 years. This opens up another sector of the market. This is something which most agents are unaware of. Often when they sell short lease properties they mark them for cash buyers only. However, as long as the lease is over 40 years, it mortgageable.
This means instead of doing one short lease deal, you could perhaps do three.