In England and Wales, leasehold ownership grants you rights to a property for a fixed term, but not the land it stands on. When a lease runs out the buildings on the land become the property of the freehold (land) owner. Most flats in England and Wales are leasehold.

A standard lease is usually 125 years long. Leasehold properties with a long lease are often only marginally cheaper to buy than freehold properties but as a lease gets shorter, the property reduces in value because of the cost to extend a lease.

When property is bought and sold, the agreement is transferred (NOT renewed) so the new owners are only buying the ownership of the buildings for whatever length of time is remaining on the lease.

Properties with less time can still be bought and sold, but most mortgage providers will only lend money against leasehold properties if the lease has more than 80 years left to run meaning they are typically bought by cash buyers.

Even if leasehold property owners do not have any intention of selling their property, the Leasehold Advisory Service recommends extending leases before they fall below 80 years because after that the cost of extending it incurs an added premium called ‘marriage value’ (which is approximately half the difference in value between the property’s value with the short lease and the property’s value after the extension. It is a significant cost even when a lease has 79 years left but gets significantly more expensive as the property decreases in value every year the lease is not extended).

 

The Cost of a Short Lease To Property Value

A short lease can drastically impact your property’s value and marketability. Buyers will need to consider the cost of extending the lease when they decide how much they will pay for your property and limiting your buyer pool to cash buyers means fewer buyers.

Fewer buyers – esp when they are cash buyers who often expect more for less – is bad news for sellers as competition to buy is a seller’s best friend and scarcity gives buyers the upper hand.

 

Extending A Lease on Leasehold Properties

To extend a lease or buy the freehold rights if the original lease was for longer than 21 years, the current leaseholder must have owned the property for at least two years. It can be a very expensive process and is directly tied to the value of the property but generally, the shorter the lease, the higher the renewal price.

Once the lease falls below 80 years, the landlord is entitled to receive 50% of the increase in property value when an extension is granted; this “Marriage Value” is what makes it so costly to extend a shorter lease.

National Residential Can Help You Sell Properties With a Short Lease For The Best Price By Extending a Lease Before a Sale Completes

The cost of extending a lease gets significantly bigger as the amount of lease left gets shorter  – esp once the Marriage Value is added when a lease falls below 80 years – and the leaseholder  must have owned a property for more than two years before they can apply. So if, for instance, a lease had 81 years left when it was sold, the new owner could only apply to extend a lease when the amount of lease left has fallen to 79 years.

Any person considering buying the property would obviously need to factor that huge cost into their offer. It makes more sense for the seller to extend the lease before the sale as the amount they would pay to extend the lease with 81 years remaining would be significantly less than the amount they stand to lose when a buyer has to consider extending a lease at 79 years.

Although the difference before/after 80 years is the most dramatic, the same principle applies at any time after 80 years because the shorter the lease left, the more expensive it is to renew a lease but extending a lease – esp after ‘Marriage Value’ is added – can be very expensive and more than a buyer can afford to pay before the sale.

This is where National Residential comes in:

• If the lease extension costs more than £20,000: once we have found a buyer and collected their non refundable deposit legally binding them to the sale, we help our fixed price sellers apply for the extension using our independent panel solicitors.  The cost, which will be less than if the buyer has to wait 2 years, to it themselves, is then passed on to the buyer. It allows the buyer to make a better offer than if they have to wait.

• If the lease extension costs less than £20,000: if an interest free cash advance of upto £20,000 is agreed in advance of our fixed price offer, once we have found a committed buyer, sellers with sufficient equity in their property can use it to pay for the lease extension before a sale is completed meaning the property will be mortgageable and can be advertised to a wider range of buyers who will push up the price through competition.

 

Act Now!

If the time left on your leasehold is 80 years or less and you plan to sell your house ‘sometime in the future’, it could cost you dear the longer you wait.

Don’t wait until it’s too late — sell your leasehold property sooner than later. 

Phone us on 0800 612 8659 or use our contact form anytime 24/7 and we will phone you back ASAP in office hours (or at a time to suit you).

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