Question: I've seen a flat I would really like to buy, but its lease has 74 years left (the vendor has lived there for decades), which my solicitor says could be a problem unless I pay for an extension. Why is this? I'm not even the owner. Helen Davies, Cardiff
Answer: Unlike freeholders, who own the land, bricks and mortar, "leasehold ownership" means you're buying the right to live in somebody else's property for a fixed period.
This might sound like a raw deal but, happily, the lease is usually for a spell of between 99 and 125 years and can even stretch to as many as 999 years.
For most buyers, these vast timescales mean the lease isn't a problem but since the term is fixed, it shrinks year-on-year and, as you've discovered, there comes a point when lenders start to get twitchy. Why? Once the lease diminishes to a low enough level – usually 80 years – the flat's value can take a hit as you approach "zero" years left on the lease, warns Melanie Bien at mortgage broker Savills Private Finance. "As the lease shortens, so the value of your property can fall and eventually, the lease can technically run out; if you actually got to zero, your property would revert to the freeholder."
That could effectively leave you with nothing: with such an in-built risk, it's no wonder lenders don't like to offer mortgages to flats with smaller leases. Extending the lease on your target flat from 74 years, then, is a must, but the shaky state of the UK property market means you're in a strong position to insist the vendor pays for it all. Your solicitor is wrong to suggest you pay: buyers are pretty thin on the ground right now, and it's a safe bet your seller will bend to your demand.
Move swiftly, though: the process can take anything from two to six months and if you want to buy the property using a mortgage, you'll need a longer lease to qualify for a decent home loan.
Ask the seller to request that his freeholder (or landlord) extend the lease by 90 years: he has a right to this under the 1993 Leasehold Reform Act. In most cases, lease extension is nothing more than an administrative process: at which point you have the sticky issue of cost. This usually comprises landlord compensation for future loss of ground rent (a little-known benefit for lease extension) but the 74-year lease has a sting in the tail. "Where the lease has fewer than 80 years to go, there's what's known as a 'marriage value'," says a spokesman for online property agent www.findaproperty.com . This is calculated by subtracting the value of the property before the lease extension from its value afterwards; plus interest.
According to the Leasehold Advisory Service , a 90-year extension on a £150,000 flat carrying a 68-year lease would be £8,250.
The sum in your circumstances may be similar: see if the seller will pay for this upfront, or knock the majority off the asking price.Reuse content