In our November newsletter we reported on an increasingly common problem of new homeowners being caught out by buying houses with long Leases. We need to report on another issue at the end of the life of a Lease - the problem of there being insufficient time at the end of the Lease, such that it might not be saleable or mortgageable.
Typically, a long residential Lease of a flat (sometimes a house) will be granted for 99 years, 125 years or 999 years.
A Lease is known as a 'wasting asset'. This is because as each year passes there is less time to run on the Lease. The number of years left on a Lease is called the 'residue'.
The problem for buyers of properties on a long Lease is that there has to be sufficient residue on the Lease to make it acceptable to Mortgage Lenders. There is no single timeframe acceptable to all Lenders. Each Lender has its own criteria but typically if there are 80 years or less to run on the Lease at the date of the mortgage it is important to ensure that the Lender is satisfied with this before progressing too far with a purchase of a Leasehold property.
The problem of insufficient time left on a Lease has long been recognised. There are statutory procedures enabling long leaseholders to acquire the freehold of the building in which their flat is situated or to demand an extension to their Lease from the Landlord. This process is known as 'enfranchisement'. However, there are potentially significant costs involved in the enfranchisement process. It is also not a swift procedure and eligibility criteria have to be met before a tenant is entitled to enfranchise.
If you are the owner of a flat with a Lease that has less than 80 years to run, you should consider enfranchisement well before you decide to sell the flat. Exercising the right to enfranchise and selling with the benefit of the Lease extension can greatly enhance the saleability (and possibly sale price) of the property.
Conversely if you are thinking of buying a flat, it is vital to check the number of years left to run on the Lease to ensure that this will be acceptable to your Lender prior to incurring any other costs.
In both cases you should take specialist legal advice. To discuss this or other property related issues, contact us.