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Dealing with lease extensions

bridging finance Aug 20, 2017

THE QUESTION

I have seen a property that has 60 years remaining on the lease with great potential to develop and sell, but the price is at market value and the length of the lease makes it a risky proposition.  If we could get a lease extension prior to purchase that would work, but agent claims it will cost £107,000.00 on a property valued at 600,000.00.  I need expert advice on the best way to tackle this.

THE ANSWER

First of all, get realistic about the value of the property pre and post lease extension.  Get clarity around the costs of buying, refurbing, extending the lease and selling; factor in the profit you need to make.  This will give you the realistic price you need to buy at or below.

Negotiate the purchase price you pay based on the fact that this is cash buyer only territory.  This means that those who have the ability to buy it will want a healthy discount to reflect the scarcity of people with the ability to complete the purchase.

  • Get the owner tied into you as a buyer e.g. conditional exchange of contracts.
  • Get a lease extension specialist solicitor to negotiate the lease extension cost on behalf of the vendor/you with the freeholder’s solicitor.
  • Get the owner (via your solicitor) to issue a Section 42 notice to the freeholder to kick off the lease extension negotiation process.

You can complete the purchase using cash (if you have it) or bridging (if you don't) based on how quickly the vendor needs the money:

  1. as soon as the lease extension negotiations have commenced
  2. as soon as the lease extension negotiations have achieved an agree cost for the extension
  3. as soon as the lease extension is ready to execute.

The earlier the seller needs access to the money to complete, the lower purchase price they need to accept to reflect the buyers increased costs.

Bridgers will be happy to finance at any of the above stages, but there will be fewer choice the earlier you need to complete. They will also fund the cost of the lease extension, as long as the uplift in value is significant enough.

Once the purchase is completed, the lease extended, the property refurbed and full market value achieved; sell or refinance.

 

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