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Location, location, lease term…
Have you ever been watching one of the many property programmes on TV when reference is made to a featured property having a “short lease” and the property has either failed to sell as a result or has sold at a substantially reduced price?
What does “short lease” mean and why could it have such a marked effect on the value of a property?
Most Main Street lenders require, or are starting to require, that there be a minimum term of 100 years (or so) remaining on the lease term of a property before considering it to be suitable security for a mortgage. If a property is not considered to be suitable security for a mortgage, then most potential purchasers will be unable to proceed to purchase it. This would mean that a seller might have to consider looking for a buyer in the much reduced pool of “cash” only buyers with a corresponding reduction in a property’s value.
Many properties when built were made subject to a lease and many such leases were granted for a term of 125 years or 99 years roughly from when the property was built. Many such leases are now “winding down” and are known as “short leases”.
Most leasehold property owners have the right, subject to certain conditions, either to extend their lease term or perhaps to purchase the freehold to their property, effectively making the property freehold.
This is a complex area of law, currently under review by the Government, but we should not simply wait to see how the Government plans to overhaul the law (if at all), but rather we would be well advised to check now the remaining term of any lease of our property and if this is found to be less than 100 years, and certainly if it is approaching 80 years remaining, we should act now in order to avoid our property becoming unsaleable/unmortgageable.
Delay in acting can cost dearly as the value of a freehold to our leasehold property or the cost of extending the lease of our property will rise as the lease winds down and if the lease should drop below 80 years remaining then the costs greatly increase year on year. You should therefore try and avoid allowing your lease to have less than 80 years to run, otherwise the short lease could end up costing tens of thousands of pounds to extend or purchase.
If you are unsure on how to check on your lease term of if you should require any further information or advice in connection with your lease, then please do get in contact with me on a no obligation basis and I can see if I can be of help.
Stan Wrigley is a Lawyer and member of the Conveyancing Team with Elliot Mather LLP specialising in enfranchisement and Lease Extensions and can be contacted to discuss your circumstances and provide guidance on the procedures and an estimate of the likely costs involved to extend your lease or purchase your freehold.
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