For many leaseholders, the spectre of a lease extension will not raise its head until they consider selling their flat. The number of years left on a lease is crucial when it comes to selling your property, as any potential buyer will struggle to secure a mortgage on a diminishing lease.
So, what do you do if your lease is ticking down and you need to sell your apartment? The good news is that there is a potential solution, as the lease extension specialists at Brady Solicitors explain.
The lack of available property finance is a challenge that owners of apartments and other leasehold properties built around 2000/2001 are feeling first-hand, when trying to sell a property with a lease that’s approaching 80 years.
Any new buyer would have to wait two years to start the formal lease extension process and so their mortgage company is unlikely to be willing to lend against a property that is purchased with a short lease.
Additionally, mortgage lenders have tightened up their criteria, with much more scrutiny of the valuation of the leasehold property and its potential saleability.
At Brady Solicitors, we are seeing mortgage lenders increasing their minimum lease term requirements to 85 or 90 years. Three or four years ago, the standard requirement was 70 years; prior to that it was 50 or 55 years, based on the mortgage term plus 25 years. And that was if the lender considered it all!
This lack of available finance for a property with a short lease means that the seller must find a cash buyer – with the inevitable knock-on effect of a fall in value.
So what can you do if you are selling your apartment and your lease has fewer than 90 years left to run?
The ideal scenario of course is to extend your lease well in advance of putting a property on the market.
However, when you want to sell your property quickly and there is not enough time to complete the lease extension beforehand, there is a potential solution.
This solution is to tie the formal lease extension into the sale process.
With this option, you, as the seller, would serve the lease extension notice on the freeholder once contracts are exchanged. The sale contract will then deal with assigning the right to extend after the transaction is completed. The cost of the lease extension would be negotiated between the buyer and the seller.
By assigning the lease extension right as part of the sale process, the buyer does not have to wait for two years before exercising their right to extend the lease, which could be critical from a finance perspective.
It is imperative however to ensure that the mortgage lender understands the assignment and is willing to lend. You’ll need to talk to experienced lease extension professionals – such as the lovely folk at Brady Solicitors – for help with this.
Some leaseholders may be tempted to go down the informal lease extension route for speed, but this will tend to be at the cost of the premium and, potentially, future ground rent commitments. Additionally, it will be harder to secure a mortgage as the freeholder is not obliged to co-operate, and so the lease extension is not guaranteed.