Flat Owners – Is Your Lease Term Long Enough?
If you own a leasehold flat where the lease has fewer than 80 years to run, you should give serious consideration as to whether to extend the lease. Leasehold extension is the process of extending a lease on a property by paying the landlord or freeholder a sum of money which is sometimes referred to as ‘compensation’.
This might seem strange, given that you are probably not going to be around when the lease expires, but if you do not act, you could find that the value of your property may be reduced considerably.
The remaining length of a lease is often overlooked in the early stages of marketing a leasehold property estate agents often don’t see a lease extension as much of an issue, but buyers do. The reason for this is that most potential buyers will take out a mortgage to buy a property and most lenders require a lengthy amount of time remaining on any leasehold property before they will consider providing a mortgage on it.
The required length of lease varies from lender to lender and it will be the policy of an individual lender which will determine the length of a lease required. Problems have arisen over the last few years because mortgage lenders keep increasing their requirements for the length of an unexpired term. For instance Halifax Plc ( one of the largest lenders) require there to be at least 70 years left on the term of the lease, while many lenders require the mortgage term plus 35 years.
Owners will find that even in fairly modern properties the unexpired term of their lease is too short for lenders’ requirements, or that buyers are worried that they will be affected when they come to sell and frequently ask for sellers to arrange for an extension of the lease term.
The Leasehold Reform Housing and Urban Development Act 1993 (as amended) allows almost all owners of leasehold property once they have owned their property for two years to extend their lease on the same terms as their existing one. This 1993 Act gives leaseholders the right to ask for the landlord/freeholder to add 90 years to what is left on their existing lease. The landlord/freeholder will not necessarily be willing to give 90 years extension and they may require a regular increase in the yearly ground rent payable. Of course these terms may not concern you as you maybe intending to sell the property, but you should take legal advice before agreeing to this as it may affect the sale of your property.
The amount you pay will depend on the landlord/freeholder and may involve negotiating with the landlord/freeholder and then proceed with having a new lease drawn up.
You may have to employ the services of a specialist surveyor to carry out a lease extension valuation. They will be able to provide you with the best and worst scenarios, and advise you on the amount of money you should offer the landlord/freeholder and help you to negotiate an agreement.
The surveyor will look at a number of things during the valuation process, such as the length of the lease, the location of the property, ground rent, demand for the property and the term of the lease before advising you of what should be offered to the landlord/freeholder.
If you are thinking of selling a leasehold flat, you should get advice from a solicitor or a conveyancer before marketing the property.
However, If you are the owner of a leasehold house, you will be entitled to purchase the freehold of your property. The information detailed above applies only to leasehold flats.
By instructing Sintons you can be confident that we will handle your matter diligently, providing you with all the information you need to understand the process from start to finish.
If you require any further information please feel free to contact us.