More than half of leaseholders are in the dark about the extra thousands of pounds they may have to shell out to extend their lease if it falls below 80 years.
A OnePoll survey commissioned by professional negligence law firm Bolt Burdon Kemp asked 2,000 property owners whether they were aware of the 80-year rule and its implications.
Some 55% of respondents were not aware of this critical timeframe, despite a fifth of them owning leases with less than 80 years remaining – worryingly, 36% did not know the length of their lease at all.
Partner at Bolt Burdon Kemp Stephen Hill said the issue was a “ticking time bomb” for many leaseholders. “Not knowing the length of your lease or the impact if it falls below 80 years is very serious – it could mean you struggle to sell the property or renew your mortgage,” he added.
There are four million leasehold flats in England and Wales, and it is the most common form of lease ownership, so many landlords will be affected by this issue.
Once a lease falls below 80 years the way the cost of a extending it is calculated changes. When a lease is extended the freehold becomes less valuable. Below the 80-year point the leaseholder is required to pay compensation to the freeholder for this lost value, increasing the cost of extending the lease.
For example, according to Bolt Burdon Kemp’s leasehold extension calculator, if there are 90 years left on a lease, it might cost just £3,600 to extend it − but let it fall to 75 years and it will cost leaseholders over £12,000. Once the lease approaches 60 years, lenders are much less likely to lend on a property and it can cost £26,000 to lengthen the lease. This cost will continue to rise as the time on the leasehold drops.
Stephen Hill said: “The general lack of knowledge around the 80-year rule is shocking – this is one of the first things buyers should be enquiring about when they are looking to buy a property which has a leasehold title rather than freehold.”
The survey revealed that solicitor negligence is often to blame, as 39% of leaseholders were not advised of the significance of the 80-year rule when they bought their property. Meanwhile, 42% were not advised to take legal advice in good time before the length of the lease dropped below 80 years.
The majority of people also were not, or cannot remember being, advised that a lease will continue to fall in value and that it is difficult to gain a mortgage once the lease has less than 60 years on it.
Flat-owners are legally entitled to get 90 years added to their lease at a fair market price, if they have owned the property for two years − the owner does not have to have lived in the property, so landlords are covered by this legislation.
Stephen Hill said: “Knowing your rights around extending a lease and the importance of doing this in good time before it drops below 80 years is absolutely essential and should be part of the basic, fundamental advice given to those buying a leasehold property.”