Almost every flat in England and Wales is leasehold. This means that there is (not surprisingly) a lease in place that allows use of the property and deals with such items as maintenance to the building, parking arrangements, garden allocations and so on.
These leases were granted when the property was first built or converted and are usually for an initial period of either 99 years, 125 years, or occasionally 999 years although in reality any length of time is possible.
There was a huge expansion of flat building during the 1960’s and 1970’s and most of these properties were given a brand new 99 year lease when built with very little thought about what might happen years later.
So what has happened to all of the leases created then which are now running down to 60 or 70 years remaining? Is this long enough? In short, no.
In property terms, decades pass quickly. After all, an average mortgage is 25-30 years and when the lease finally gets down to zero, in theory the property can be taken back from the free holder i.e. the owner of the land on which the building sits. Therefore, the shorter the lease the less valuable the property.
Generally, 75 to 80 years is considered sufficient for most buyers, their solicitor and lender, but any less than that and most people would ask for a lease renewal. To do this, the owner of the property must contact their freeholder or their agent and request permission to extend with any terms that the freeholder wishes to include.
Often this will mean an increase in the term of the lease for a capital cost, sometimes running into £10,000’s. The homeowner must cover the legal fees, usually £1000 or so and there may even be an increase in ground rent sometimes going from just a few pounds a year to say £250. No wonder that freeholders of flats really see lease extensions as a license to print money!
Until the lease actually expires, you will see little impact of the problem until you actually come to sell.
Our advice is that before going on to the market you check how long your lease has left to run and ask your solicitor for their advice, but if it is anything around or less than 70 years remaining, chances are you will have to make arrangements to renew or the value of your property will be very seriously affected.
There is a legal process to go through and freeholders can’t simply ask for any figure they wish. There is a formula to work it out, but most people tend to leave this to their solicitor who may employ the services of a surveyor to help with the negotiations.
The longer you leave it, the worse it is. So, even if you are only thinking of selling in the future, you’d best check as soon as possible.