Many property owners are unaware that the home they’ve bought comes with a ticking clock. If your property is leasehold rather than freehold then eventually the value of your property will start to disappear. The sooner you act; the less it will cost.
The dangers of letting your lease run down
4.1 million homes in England are leasehold properties (1). Most flats and maisonettes are leasehold properties, as are many houses. Many leasehold owners do not realise that they do not own their homes outright, just for a certain number of years. When the lease of a property runs out, the ownership of the property automatically reverts back to the landlord regardless of how much you paid for it initially.
Leasehold properties become less and less valuable as the length of their lease runs down, and it can be extremely difficult to buy or sell a property with a short lease. Mortgage lenders are normally reluctant to lend against a property with a short lease, as the value will constantly and rapidly decrease. Assuming you wish to take a mortgage with a 30 year term, then in most cases you will have difficulty getting a mortgage when there are around 60-70 years left on the lease.
What to do if you have a short lease
Leases can normally be extended, but that comes with a price tag. The landlord of a long lease has the right to charge a lump sum called a “premium” for extending a lease. The premium is influenced by the value of your home and just how short your lease has become. If you let your lease run down then you will have to pay considerably more than if you extended it sooner. You will also need to pay your landlord’s legal and surveyors fees as well as your own.
The 80 year trap
There is also another sting in the tail for leasehold property owners: after a lease runs down below 80 years the premium a landlord can charge rises much more sharply year on year. In the 1980’s it was popular to create leases, and many were 99 years long. Many owners of those homes are now coming to sell and finding that they have been caught out by the 80 year trap.
Extending your lease
The first step in negotiating a lease extension is to get proper advice and representation, then approach your landlord to see if they will agree to let you extend voluntarily. A surveyor who specialises in this area can tell you a fair price for the premium. A specialist solicitor can deal with the new lease itself for you and make sure that your landlord does not add in any unexpected restrictions or fees.
If your landlord is reluctant to let you extend your lease, or charges too much, then provided you have lived at the property for two years, your solicitor should be able to serve a legal notice on your landlord and put the extension on a strict timetable, and a tribunal can decide the terms if they aren’t agreed. If you’re trying to sell a property with a short lease then your solicitor can serve that notice and then allow your buyers to step into your shoes and continue with the extension without having to wait two years.
Thackray Williams Solicitors
Thackray Williams is a leading law firm in South London/Kent with expertise in all aspects of property, family and commercial work.