At Quick and Simple we see short lease properties all the time. We get asked a lot of questions about selling a flat with a short lease, and often also get asked about houses that have short leases. These situations can be quite complicated and tricky, and so we’ve written this article to try and make things a bit more simple.
If you own a leasehold flat or a leasehold house and your lease is running out, we can help you with a Quick and Simple solution, click here to contact us.
Buying a leasehold property is effectively renting
Most people don’t realise that when they buy a leasehold property, they are effectively renting that property. They don’t own it outright – the freeholder actually owns it.
The lease is an agreement to rent it to the lease owner, for a long period (quite often 100 or 125 years, sometimes even longer like 990 years or even 2000 years or more). In exchange for that, the rent payable is normally a low sum – known as the ground rent.
However, every year that goes by, that lease length ticks down by one year, and although they seem long, time soon goes past.
When the lease gets shorter, problems can start to emerge. If the lease is under 85 years, it is considered to be “short” by many mortgage lenders, who are always thinking about the long term. A mortgage is typically over 25-35 years and so the lender is thinking about what happens at the end of that term.
The leaseholder has to pay for all the legal costs
The lease can be extended at any time – either by mutual consent of the leaseholder and the freeholder, or by going through the lease extension process which involves solicitors on either side. This is costly and a typical lease extension costs around £10,000, although some lease extensions on particularly high value properties can run into hundreds of thousands of pounds or even more.
Unfortunately the leaseholder has to pay for all the legal costs for the “privilege” of the extension as well, not only their own but also those of the freeholder!
As you can tell, these situations are not for the faint-hearted, and it can often be the case that flats have lost money since their purchase for a whole number of reasons, but the lease is a major one of them.
To answer your immediate questions about selling a flat with a short lease, we have prepared the following short list of tips:
1 . How many years are left on the lease?
Check how many years are left on the lease. You should have some documents that will tell you when the lease was started, and ideally will have an original copy of the lease. If you don’t have either of these, we can help to establish the lease length.
2. How much will extending cost you?
Check how much an extension will cost you. There are lots of calculators online – one that we look at regularly is here: https://www.lease-advice.org/calculator/
3. You need a solicitor
– Find a good solicitor – and don’t forget, you will be paying your bill as well as that of the freeholder. So you need to ensure to budget a few thousand pounds for all the legal costs.
4. It takes a long time
Prepare for a long and drawn out negotiation – often it takes 6 months to extend a lease and it can take a couple of years if the freeholder is non-responsive, or very slow. There is an entire prescribed legal process to go through with defined times for each stage.
5. Understand how your ground rent works
Try to ensure that your ground rent is not “escalating” – this is a real problem, mortgage lenders are now refusing to lend on properties with escalating ground rent, this is when the ground rent doubles (or increases well above inflation) every set period (often every 10 years).
There are quite literally hundreds of connotations to bear in mind when you are trying to sell a property with a short lease. It can be complicated and expensive!
If you are frustrated or would like some more information about selling your short lease property, click here to contact us and we will do our best for you, just as we do for all our Quick and Simple customers!
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