Leasehold Property Explained
Many people do not realise what owning a leasehold property means for you legally. This is a complicated (and some may argue) out of date area of Land Law.
If you purchase a Leasehold property you only own the property for a fixed period of time.
You’ll have a legal agreement with the landlord (sometimes known as the ‘freeholder’) called a ‘lease’. This tells you how many years you’ll own the property.
Ownership of the property returns to the landlord when the lease comes to an end.
Most flats are leasehold. Houses can be leasehold too and usually are if they’re bought through a shared ownership scheme.
We thought it would be useful to answer the top 10 FAQ's that are asked relating to leasehold properties:
Why do I need to extend my lease?
As the years left of your lease decrease so does its value. It may be difficult for you to sell your lease as many lenders may not provide a mortgage where there is less than 60 years left (although this figure may vary from lender to lender).
It is also better to extend your lease sooner rather than later. If your lease has less than 80 years remaining you will have to pay a “marriage value” which may considerably increase the premium.
What are the routes to obtaining a lease extension?
The most common route is the statutory route where you serve a notice on your landlord and a formal process is followed. Alternatively, or if you do not qualify for the statutory route, you may be able to agree to an informal arrangement with your landlord to extend your lease. A further route is to cooperate with other flat owners in your building and exercise your rights of collective enfranchisement; this allows you to purchase the freehold of the building.
How do I know if I qualify for a statutory lease extension?
The main requirements are that you must have owned the lease for at least two years before serving the notice to request the extension and the flat must be held on a long lease, eg with a term of more than 21 years.
How long will a lease extension take?
This is difficult to predict, it often depends on the cooperation of third parties such as your landlord or their solicitors. It can take between 2 - 4 months.
How much will it cost?
You have to pay your landlord a premium for extending the lease; this is calculated using a formula based on several factors including ground rent and the remaining term of your lease. You are also responsible for your own costs and your landlord’s reasonable costs, these include legal costs and surveyors fees. You will also have to pay for any disbursements in connection with your extension including Land Registry fees, and (depending on the price of the premium) Stamp Duty Land Tax.
Will I need a valuation?
Yes, your surveyor will provide a valuation report which outlines the premium you should expect to pay for the lease extension; we will use this calculation in our initial notice to the Landlord. Your surveyor will also negotiate the premium with your landlord’s surveyor for you if necessary.
How long will my lease be extended for?
The statutory extension adds 90 years to the current unexpired term of your lease. For example if your lease has 65 years left your new lease would have a term of 155 years.
Will I still have to pay ground rent?
No, the ground rent will be reduced to a “peppercorn”; this means no further ground rent will be payable.
Will the terms of my lease change?
Usually the terms remain the same. However, the landlord may want to update and modernise the lease if it contained outdated or old fashioned terms.
What happens if I cannot agree with my landlord?
The most common disagreement is in regard to the premium you should pay; usually this is resolved in negotiations via your solicitors or surveyor. However, occasionally the parties will not be able to agree. In these cases the matter will be referred to the First Tier Tribunal who will determine the premium for you.
Leases vary dramatically dependant on the location, type and use of land, date when the lease originated and the freeholder's terms. If you need advice regarding either your existing ownership of a leasehold property or the purchase of a leasehold property please contact our property department on 01708 745183.