What Happens When a Leasehold Expires?
Many people understand the difference between leasehold and freehold properties, but do you know what happens when a leasehold ends? Leases are preset for a specific period of time and they need to be updated. This is a rare occurrence, as some leases have hundreds of years on then.
Leaseholders need to contract the freeholder to help facilitate a lease extension. Understandably, because there is a cost involved with lease extensions, it can impact how long to extend by. Leaseholders of flats can currently extended a lease as often as they want by 90 years whereas leasehold houses can only be extended once for a 50 year period.
If you’re considering buying a leasehold property or want to sell one you currently own you’re in the right place. The blog below will deliver all the information you need to know.
What is a leasehold?
Properties fall into two categories, freehold and leasehold. Owners of freehold properties own the property and the land associated with the premises. This is typically of terraced homes, semi-detacheds, and detached homes.
Owners of leasehold properties own their home. However, there will be a freeholder who will own the building and the land it sits on. The freeholder could be an individual, property company, or local authority. Leasehold property owners still undoubtedly own their own home but can think of the freeholder as a landlord. Leaseholders may have to pay ground rent to the freeholder and a service charge which is used to upkeep the building and the land.
Typically leasehold properties are those which make up part of a block – flats and marionettes are the most common. These properties tend to be leaseholds because there are multiple residents sharing a main building and the land it sits on. This means costs for maintaining the land and building can be divvied up between residents, whereas there is not this requirement with a standalone house.
How can you find out how long is left on a leasehold?
If you are considering buying a leasehold property the remaining lease should be clearly displayed in the advertisement, whether online or in a window. If not, the agent selling the property will be able to give you the information.
If you currently own a leasehold property and cannot remember how long is left on your lease you can contact the Land Registry. They charge £7 for you to download a copy of your home’s Title Deeds. Alternatively find your paperwork from when you bought your leasehold property, the lease details will be available on there and you’ll be able to do the maths.
What happens when a leasehold expires?
It is not common for a leasehold to expire. As people buy and sell their leasehold homes many choose to extend the lease (more on this later). However, should a lease expire the property reverts to the freeholder. It is worth remembering that if you own a leasehold home and the lease expires the freeholder can ask you to vacate the property if you do not pay for a lease extension.
Some leasehold owners assume that once they have finished paying their mortgage, the property is solely theirs and the leasehold is not something to worry about anymore. However, even if an individual is mortgage free, keeping an eye on the lease and extending it as required is imperative. Failing to do so means the owner will lose legal claim to the property.
How to extend leasehold
Some leasehold homeowners assume that having any time remaining on a lease is positive. However, when it comes to selling some mortgage providers won’t lend on properties with anything less than 70 years remaining on a lease. Therefore, especially if you’re wanting to sell up, extending a lease is important.
Leases with upwards of 90 years tend to be the most desirable. It’s a case of, the higher the years the better, with 90 being the minimum to sell. Buyers and lenders will both be put off lower numbers because there is a cost involved with extending a lease. Anything below 80 years is coined a short leasehold – this can see a property devalued by 10% to 20%. Understandably this is so a buyer can extend the lease as required.
There are two ways to extend a leasehold.
Formal leasehold extension
Those who own leasehold properties are legally allowed to extend their lease as long as they are eligible. The formal route follows a process for both the leaseholder and the freeholder and there are timescales that both parties must meet by law. From a leaseholder’s point of view its an attractive way to perform an extension as there are dispute mechanisms that can be actioned if terms cannot be agreed.
Informal leasehold extension
Following this course of action the leaseholder will contact the freeholder and ask if they are willing to negotiate a lease extension. Unlike the formal route, this eliminates following a predetermined process but can be quicker. However, it offers less protection for both parties.
The freeholder can deny a leasehold extension. However, it is beneficial for both in terms of time and money if a solution can be negotiated.
How much does it cost to renew a lease on a property?
How much a lease extension costs depends on:
- How many years are left on the current lease
- How much the property is worth
- If any improvements have increased the property value
- The ground rent
There is no set fee to extend a leasehold but some estimations can be made. Below is an example of extending the lease by 90 years on a property worth £200,000. However, please remember this varies from property to property even if they are valued at £200,000.
|Current lease length||90 year extension cost||Professional fees||Total spend|
If you would prefer to do your own research there are a number of online lease extension calculators that will help give you an estimate.
Options for selling a property with a short lease
If you’re the owner of a leasehold property there are options available should you wish to sell. You could obtain a lease extension and then sell or offer a lower asking price to potential buyers. Just remember, lenders are unlikely to give mortgages on properties with less than 70 years on the lease, so weigh up whether saving the money is worth delays in making a sale.
A reliable way to sell your property when faced with a lease extension you cannot afford is to contact a cash house buyer such as Gaffsy. We buy any house for cash using our own funds, offering clients a guaranteed route to sale by purchasing the property ourselves. This means you can avoid issues relating to a short lease, chain breaks, or lack of interested buyers. So if you want a fast house sale or are struggling with a short lease property don’t hesitate to get a free cash offer or contact us today.