Time trap: new buyers fall foul of a medieval tradition
Sunday 26 November 2006
You can always rely on the British to keep alive some quaint, and often impractical, traditions.
Of these, the leasehold system of property ownership, a concept that dates back to the 11th century, has to be one of the most confusing - not to mention potentially expensive.
These days, the people struggling with the archaic rules concerning leases are more often than not first-time buyers and sellers, with little experience of the market and little cash to spare. This is because the vast majority of leasehold properties are flats - a typical first-time buy.
If you're buying a property and are not buying the freehold - or part of it - you must buy a lease from the landlord or, in the case of many large blocks of flats, the managing agent who owns the building in which it is situated.
"Leasehold is basically a form of tenure," explains Anthony Essien, principal adviser at the Government's Leasehold Advisory Service. "Just as when you rent a property for a term of six or 12 months, a lease allows you to 'rent' from the freeholder for a period of 99, 125 or even 999 years. As this is such a long timespan and the lease allows exclusive possession - even from the landlord - it amounts to ownership."
The freeholder is responsible for the upkeep and maintenance of common parts of the building as well as its buildings insurance. These expenses are funded by annual service charges, which can vary widely, but are always payable by every leaseholder in the building.
Even if first-time buyers have got their heads around how the system operates, there are still pitfalls to avoid before they can purchase a leasehold property, says Rob Clifford of broker Mortgageforce.
"Most are totally unaware that lenders impose a minimum time that the lease must extend beyond the term of the mortgage."
Halifax and Abbey, like most lenders, insist that a lease has at least 30 years left to run after the borrower's mortgage has expired. This means that, on a standard 25-year mortgage, they will usually be looking for a minimum of 55 years on the lease before they lend on a property.
Other mortgage lenders are more demanding.
Leeds building society requires another 40 years after the mortgage has expired, so here the minimum lease is 65 years.
"Lenders insist on this [as a] 'minimum excess' to mitigate any threat that could affect the future market valuation of the property," explains Mr Clifford.
The amount of time remaining on the lease can affect the property value - but only within certain boundaries, says Charles Smailes, president of the National Association of Estate Agents (NAEA).
"If the lease is short enough to raise a lender's eyebrow, it could significantly reduce the value," he explains. "But once the lease is clear of these minimums, the time difference becomes more incidental. For example, it would make no difference to the property value if the lease was 99 years or 125 years."
However, many buyers can begin to get twitchy around the 75-year mark, according to Mr Essien. In this case, it's common for buyers to ask the vendor to extend the lease as a condition of sale - usually up into the safety zone of 99 years or beyond. The vendor has no obligation to do this but, with a view to getting a sale or a higher price, they will often make a proposal to the freeholder to extend.
If no response is received or the freeholder refuses, the seller can serve a notice under the 1993 Leasehold Reform Act - provided the lease has been held by the seller for two years.
Under this law, the freeholder must extend the lease for a further 90 years.
There is usually a cost for extending a lease and - in theory, at least - that cost is uncapped.
It's difficult to pin down any industry averages but you can expect to pay anything from a few hundred to several thousand pounds, depending on the type of property and the length of the lease.
It may be either the buyer or the seller who ends up paying for the new lease. The state of the housing market - and the individual property - at the time of the sale can create some room for bargaining here. But the onus is likely to be on the vendors, since only they can get the lease changed, and it will be in their interest to do so if they want to sell their property.
Where a leaseholder considers the cost of extending the lease to be "unreasonable" and a notice has been served, they can take their case to the government-sponsored Leasehold Valuation Tribunal.
The LVT describes itself as an "informal court" whose powers extend beyond the valuation of leases to issues such as service charges, ground rents and enfranchisement.
A lease extension process can easily run into problems. For example, it may not be possible to contact the freeholder, perhaps because they have died or are living abroad. Absentee freeholders can make life difficult for leaseholders, especially if part of the lease has been "sublet" to a management company.
In any case, brushing off the dust on a property's current lease is an inherently risky move, as it will trigger a review in the ground rent paid for that property, says Mr Smailes. "If [rent] had been set in 1980 at £150 a year, for example, it could easily be extended to £1,500 and beyond," he warns.
The Commonhold and Leasehold Reform Act 2002 introduced a new form of tenure called commonhold, which came into effect in September 2004. The Act aimed to simplify the process of extending a lease by having each tenant own the freehold of their own flat and making them members of one "commonhold association".
The problem here is that the whole building must operate on a commonhold basis and the process of switching the building from leasehold to commonhold is a long and complex one, although it doesn't involve consent from the landlord. In fact, few new commonhold flats are being built as developers do not have the incentive of profiting from the freehold.
125 years on the lease will see this sale kick off
Professional rugby player Rodd Penney is buying a two-bedroom flat in St Albans, Hertfordshire, on which the vendor is negotiating a lease extension.
"I made an offer in early September, based on the knowledge that the lease was already in the process of being extended from its current 73 years to 125 years," says the 28-year-old, who plays for Saracens and is originally from New Zealand.
Since then, Rodd, a first-time buyer, has spent £465 on a valuation with his mortgage lender, Birmingham Midshires, as well as around £500 in legal fees.
"The vendor could change their mind and pull out at any time and I'd lose this money," he concedes. "But with the lease taking longer than anticipated, I can do nothing but wait."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 Germanwings crash: Police make 'significant discovery' at home of co-pilot Andreas Lubitz
- 2 Germanwings captain Patrick Sondenheimer tried to break into locked cockpit door 'with an axe' as plane was descending
- 3 Zayn Malik already working on solo material, just days after quitting One Direction
- 4 The West has it totally wrong on Lee Kuan Yew
- 5 #FreeTheNipple: Women in Iceland bare breasts in solidarity with trolled student
Nigel Farage brands LGBT activists 'filth' and 'scum' and accuses them of scaring away his children after they invade his local pub
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Russia threatens Denmark with nuclear weapons if it tries to join Nato defence shield
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Germanwings plane crash live: Andreas Guenter Lubitz intentionally crashed flight 9525 into the Alps in act of mass murder and suicide – latest
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...
Day In a Page
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station