A short lease will affect the value of your property and make it harder to sell in the future. Brady Solicitors’ lease specialist Lesley Brentnall sets out some advice for owners of leasehold properties.
Many people do not think about the length of their lease until they come to sell, or perhaps remortgage, but a short lease affects both the saleability and value of a property.
As the lease gets closer to the end of its term the property loses value and, depending on the length of the remaining term, can also cause issues with mortgage lenders. Lenders vary in their requirements but the majority insist upon an absolute minimum of 70 years remaining on the lease at the point of purchase or refinance.
The 99 year lease
In the 1980s and ‘90s it became a fairly common practice to sell leasehold flats with a 99-year term and now, thirty or more years on, they are becoming a problem for many property owners. It is estimated that well over a million properties are at risk because of these short term leases and, although it is possible to remortgage such a property, the number of lenders prepared to lend is reduced and you may well end up paying a higher rate of interest.
Extend your lease
In order to address the issue, ideally before you come to sell or remortgage, you should consider making an application to your Landlord for a lease extension. As long you have owned the property for a minimum of two years the Landlord has limited ability to refuse to grant you a lease which, if you follow the statutory route, will result in a further 90 years being added to the existing term. In addition, any ground rent you may pay automatically falls to zero.
When is the best time to extend my lease
The cost of extending your lease rises considerably once the lease term drops below 80 years and, with less than 60 years to go, the value and saleability of a property falls very quickly.
It therefore makes good sense to apply to extend your lease sooner rather than later. A timely lease extension protects the value of your property and makes it more attractive to potential buyers.
Thinking of buying a property with a short lease?
Many people are not properly advised on the importance of the lease term when buying a leasehold property but you should think carefully before buying a property with less than 83 years to go. As mentioned above, lease extension costs rise considerably with 80 years left and you also need to allow sufficient time to complete the two year residence test before you can apply for the extension.
In an ideal world you should ask the seller to make an application to the freeholder to extend the lease and they can then assign this benefit to you. However, this is not always possible and so if you are offered a shorter term then do ensure that this is properly reflected in the price you are being asked to pay and that your lender is happy with the term available.
Specialist leasehold and conveyancing advice
For help and advice with extending your lease, lease variations or buying or selling a leasehold property, talk to Brady Solicitors. You can call us on 0115 985 3450 or send us an email – we’ll be pleased to help.