Are You Thinking About Extending Your Lease?
Buying your first property is always an exciting prospect, but most of the time homeowners will buy without considering whether their property is freehold or leasehold.
Leasehold properties come with their own trials, especially when it comes to the length of your lease and the potential for skyrocketing costs.
What Is A Lease?
Leasehold is the most common kind of flat ownership in England and Wales
. By owning a leasehold property, you, in effect, are renting it for a long period from a Landlord who owns the freehold of the building. If you are considering a sale of the property in the near future, you should check the length of the term to make sure that the amount of the remaining term will not affect the market value of the property when you sell it.
Why Is The Length Of The Lease Important?
A lease is granted for a fixed term of years e.g. 999 years for a house, or 125 years for a flat. At the end of the lease term, the leasehold property reverts to ownership of the Landlord.
For example, if you bought a flat with a new term of 125 years in 1950, there would only be 60 years unexpired (and in the year 2075 the flat will revert to the Landlord's ownership without any payment to the leaseholder).
This would then have a lower market value than a property with 120 years remaining.
Why Should I Consider Extending?It may be difficult to sell the property if you have a relatively short unexpired lease term. Most mortgage lenders will only lend on a leasehold flat if there are at least 55 years unexpired with at least 30 years unexpired at the end of a mortgage term (and in many cases, these day, borrowers are taking out 40 year mortgage terms).
As a general benchmark, once there are 70-80 years unexpired you should consider whether you need to extend the lease.
Extending the lease can increase the amount you can sell the property for in the future and can help a sale proceed quicker once you have found a buyer. Lease extension can take several months to sort out, so this may deter buyers.
Sometimes you can extend a lease with a Landlord by agreement and subsequently negotiate an amended lease. If no agreement can be reached, and you have owned the property for 2 years, there is a statutory process for extending the lease by 90 years for a fair market price.
The price of extending your lease will depend on your flat's value, the length of the lease and the ground rent among other things, but you can discuss this with your valuer.
Whether you want to extend the lease via the agreed or statutory process, it is a good idea to discuss the respective processes
and legal costs with your solicitor before you take steps to start the process.
Finding the right solicitor at a price you can afford can save you a lot of money when extending your lease. If the freeholder is dragging their feet it can hike up your costs, instructing a solicitor that is experienced and prepared to chase the paperwork is essential.
Owning a leasehold can sometimes feel a bit onerous, but there are ways to ensure more control over the situation.
Do You Want More Control?
If you live in a flat and you are a leaseholder, you may be able to buy the freehold from the Landlord
. This could be attractive if you want more control over management of the block of flats and want to cut out the need to pay irritating ground rent costs. If there are leaseholders in your building that feel the same way and want to make the freeholder an offer, you can all come together and buy the freehold and manage the building's maintenance at the same time.
You will need advice from an experienced conveyancing solicitor
to find out whether you and your fellow leaseholders qualify for this.