* Please consult our previous post about deposits for more information.

 

Clients are usually confused as to when they actually need to pay the “deposit” money and where to. Some think that because their mortgage is calculated on the basis of the LTV (loan-to-value), which mainly means that it is based on the sum of the deposit you have available to contribute towards the purchase, they have to pay these money to their lender. This is incorrect.

 

A few days before the exchange of contracts, your lawyer will ask you to pay in to their client account 10% of your contribution towards the purchase price. Regardless of how much money you are contributing towards your purchase, it is vital to understand that your contract will state 10% deposit (contractual deposit) and this is what your lawyer must have on the client account before the exchange actually happens.

 

If you are contributing more than 10% towards your purchase, you will pay the rest of the money to your lawyer after exchange and before completion. Your lawyer will let you know when these money must reach their client account. After the contracts are exchanged you will receive a provisional statement of account, which will detail the balance that is due to be paid by you. This amount will include not only the rest of your “deposit”, if you are paying more than 10% of the purchase price, but also your lawyer’s fees, insurance or service charge apportionments (if any), Stamp Duty Land Tax calculation etc. The statement of account is only provisional because very often various fees need to be confirmed by your seller, as the seller’s liability to pay their portion of them depends on the date of the exchange of contracts.

 

You will have to transfer this balance before completion but it is vital to speak with your lawyer when this must happen. Please remember that you should not send any money to your lawyer’s client account until you are told to do so.

 

After completion you will receive an updated statement of account, which will confirm whether you owe anything (and you will have to pay the balance due) or you have paid too much and the balance will be returned to you.

 

If you would like to discuss any stage of the conveyancing process please contact Anna Przytula-Pieniazek: anna@meaby.co.uk or call 0207 703 5034.

 

The Government announced big changes to the procedure for enfranchisement (buying their freehold). Please see our blog for full details: https://www.meaby.co.uk/leasehold-reform-big-changes-announced/

How much will it cost leaseholders to buy their freehold or extend their lease under under new Government proposals?

The Government has said: “An online calculator will be introduced to make it simpler for leaseholders to find out how much it will cost them to buy their freehold or extend their lease”. Surveyors are sceptical as to whether that calculator could be sufficiently sophisticated enough to undertake the calculation that surveyors currently calculate under the current legislation, the Leasehold Reform, Urban and Housing Development Act 1993. As part of the current method of calculation, the market value of the flat is calculated and we cannot see how a calculator could opine on that. But who knows? The Government’s announcement is a basic bullet point list of its intention and very little information is given. Perhaps market value will have no bearing on the calculation.

Many of our clients have asked whether this will be retrospective. We simply do not know. Therefore, if you have an ongoing enfranchisement or lease extension claim you are safest to assume that the terms will be as per the current law.

Buying the freehold sometimes means that the tenants have the right to develop in to other areas where those areas are not demised under one of the leases. That is called development value. The Government’s press release says that to avoid having to pay ‘development value’ to the landlord, leaseholders can promise (by way of something called a restrictive covenant) not to develop the building further. If tenants want to buy the freehold to extend outside of their current leasehold demise then this aspect will make no difference to them. We also note that the Government’s announcement does not cover how any release from such a restrictive covenant would be regulated.

Leaseholders who have already begun the process of purchasing their freehold may have already incurred significant costs such as surveyors and legal fees. The expenditure already incurred will be a consideration as to whether to discontinue the claim and progress under a new regime. The press release refers to making this process cheaper but we have no detail on this. Tenants who abandon the process now will have to pay their own and the Landlord’s costs now under the old regime. We do not know what the future costs may be.

Should I continue my enfranchisement process?

Finally, will it be cheaper for tenants if they wait? Possibly, yes. The calculation of the premium for a freehold interest subject to leases with a term of 80 years or less left to run is more expensive. We shan’t explain why here as it is detailed and complicated. If one of the leases in your block has lease terms less than 80 years then it may be cheaper for the tenants to wait for the new rules. However, we cannot say how much cheaper it would be, when the new rules will come in and what those new rules will look like.

If you’re already in the middle of the enfranchisement process the question will be ultimately up to your tenants to withdraw their existing claim.

Any current process will probably be finalised before any new law receives royal asset. There may be pressing reasons for them enfranchising now, for example solving a problem that makes it difficult for them to sell or refinance their flats.

Whether your negotiating position has been weakened by this announcement will be a question for the circumstances including but not limited to: a) whether the tenants will want to incur costs again in the future and have to pay costs now, b) whether there is a pressing need to acquire the freehold now, c) whether marriage value applies at all and d) whether development value applies or is likely to apply.

If you would like to discuss enfranchisement, please contact the Leasehold Property Team: brose@meaby.co.uk or ncleightonhills@meaby.co.uk or call 0207 703 5034.

Should leaseholders extend their lease now or wait?

The Government announced big changes to the procedure for lease extensions yesterday. Please see our blog for full details: https://www.meaby.co.uk/leasehold-reform-big-changes-announced/

The announcement poses the question should leaseholders extend their lease now or wait? A number of factors needed to be considered and it will depend on the circumstances in each case.

The Government’s announcement is a basic bullet point list of its intention. There is no guarantee what or when (if at all). Please bear this in mind when making your decision.

Firstly, it is not clear whether 990-year premiums will be at a higher premium than those of 90-year extensions under the current rules. Surveyors have reported to us that there is not a great deal of difference in valuation terms between 90 years plus the residue and 990 years but you’d need to check this point with a surveyor. We’d also observe that we doubt that the market value of a flat would be impacted much by 90 years plus the residue and 990 years but this would be a point to check with an estate agent who is better placed to give their opinion on marketability. As far as lenders are concerned, we doubt they care provided that the lease term is as per their requirements and 90 years plus the residue is likely to satisfy them. If you acquire a lease extension under 90 years plus the residue, you’re unlikely to have to extend in your lifetime anyway.

Secondly, the cap on the ground rent (“a peppercorn”) is already the position now so there has been no change in this regard.

Thirdly, many of our clients have asked whether this will be retrospective. We simply do not know. Therefore, if you continue an ongoing lease extension claim you are safest to assume that the terms will be as per the current law.

Fourthly, leaseholders who have already begun the process of extending their lease may have already incurred significant costs such as surveyors and legal fees. Here, it may be worth considering proceeding due to the expenditure already incurred. The press release refers to making this process cheaper but we have no detail on this. Tenants who abandon the process now will have to pay their own and the Landlord’s costs now under the old regime. We do not know what the future costs may be.

Our fifth point concerns whether will it be cheaper if you wait? Possibly, yes if your lease term has less than 80 years left to run or had 80 years left to run at the point that you served a notice. The calculation of the premium for a lease extension with a term of 80 years or less left to run is more expensive. We shan’t explain why here as it is detailed and complicated. If your lease has or had less than 80 years then it may be cheaper to wait for the new rules. However, we cannot say how much cheaper it would be, when the new rules will come in and what those new rules will look like.

What should I do if I’m in the middle of a lease extension?

If you’re already in the middle of the lease extension process or considering whether to start that process you may query what is best for you to do. That process will probably be finalised before any new law receives royal asset. There may be pressing reasons for extending your lease now, for example solving a problem that makes it difficult for you to sell or refinance your property. You may wish to consider whether you are in a position to withdraw your claim and start again.

If you would like to discuss extending your lease, please contact the Leasehold Property Team: brose@meaby.co.uk or ncleightonhills@meaby.co.uk or call 0207 703 5034.

What affect will the leasehold reform changes have?

The Government has now announced proposed changes to lease extensions which will be welcomed by all leaseholders.

The main changes will be:

The Term of the Lease Extension
Under current regulations, a lease of a house can be extended by up to 50 years and a lease of a flat can be extended for up to 90 years in addition to the existing term. Under the proposed reform, all leaseholders would be able to obtain a lease extension for 990 years.

Ground Rent
Leaseholders looking to extend the lease of a flat can extend their lease with the ground rent set at a peppercorn. But this is not an option for leaseholders of houses who must still pay a ground rent. The new regime proposes to set all ground rent at zero upon extending the lease.

The Commonhold Council
The government will look to form a Commonhold Council to “prepare homeowners and the market for the widespread take-up of commonhold”.
According to the government’s announcement, commonhold will allow homes to be owned on a freehold basis, and blocks of flats will be jointly owned and managed giving greater control to homeowners.

Marriage Value
Marriage value applies once a lease has less than 80 years left to run and can make a lease extension considerably more expensive. The government plans to remove marriage value from lease extension valuations meaning that leaseholders will no longer be in a rush to extend their lease for fear of the premium becoming more expensive.

Whilst these changes will be welcomed by leaseholders, it is not clear when the changes will be effected at law. The announcement states that legislation to set future ground rents at zero will be brought forward in the upcoming session of parliament and further legislation will be introduced in the future to bring about the rest of the proposed changes.

Our view is that this announcement offers no new news than that which has been in the pipe line for some time.

We will watch with interest about what conclusions the Commonhold Council will reach but for the minute observe that Commonhold, in terms of management, bears a strong similarity with a freehold company controlled by the tenants post enfranchisement. Our view is that when the government says, “blocks are jointly owned and managed, meaning when someone buys a flat or a house, it is truly theirs and any decisions about its future are theirs too”, they’ve perhaps not witnessed first-hand the awful disputes that leaseholders can have with each other over the decisions made by a jointly owned freehold company.

What does the leasehold reform announcement mean?

This announcement poses more questions than it resolves and our questions surround the following: –

• The announcement says “ Millions of leaseholders will be given the right to extend their lease by a maximum term of 990 years at zero ground rent” but we’d query a) whether the 990 year lease rather than the 90 years plus the residue makes any difference to the market value of the property and b) whether the tenants would pay more for that 990 year lease than they would have for a 90 year extension under the old regime (setting marriage value aside, of course).
• What does the Government mean when it says: “A cap will also be introduced on ground rent payable when a leaseholder chooses to either extend their lease or become the freeholder” A cap on ground rent is already a feature of lease extensions under the Leasehold Reform Urban and Housing Development Act 1993. Is this to mean that upon enfranchisement/commonhold, whatever is decided that the ground rents will all reset to zero?
• The statement that “Leaseholders will also be able to voluntarily agree to a restriction on future development of their property to avoid paying ‘development value’ is interesting but what would happen in the future if the new freeholder changed their mind and sought a release of that restrictive covenant? Would the premium payable for that release be regulated? Given that the outgoing freeholder wouldn’t own any land so there would be no land with the benefit of the covenant, it would have to be contractual and a restriction placed on the register of the freehold title to ensure that each new freeholder entered into a similar covenant. So, the outgoing freeholder would have continued involvement and may, without a proprietary interest in the land, be hard to get hold of in the future.
• More information is needed about this separate “valuation methodology for low-value properties known as ‘section 9(1)”.
• Can leaseholders rely on this becoming law? Surely the fact remains that many are under pressure now to extend under the old regime to satisfy buyers and lenders? Presumably lenders won’t accept a lease with a low term on the basis that the Government intends to bring in new law at an unidentified point in the future and the borrower might act upon that law.

We watch with interest.

If you would like to discuss enfranchisement or lease extensions, please contact the Leasehold Property Team: brose@meaby.co.uk or ncleightonhills@meaby.co.uk or call 0207 703 5034.