In my opinion this area has the potential to really screw up anyone’s property investment plans
This subject is important for everyone in property. Although I have yet to get into the investment side of property in this property journey, it’s something about which I now have almost 5 years of experience as a homeowner and something that EVERYONE getting into property should be aware of.
In my opinion this area has the potential to really screw up anyone’s property investment plans.
When we were in the process of buying our small victorian 2 bed garden flat in London we were told there was over 90 years remaining on the lease. Just before exchange it turned out that there was only just over 80 years left. This turned out to be a hugely significant difference….and this is why:
Currently if you serve notice to the freeholder* to extend a lease that has more than 80 years remaining then, to work out the ‘premium’ you must pay for this extension there is a particular calculation. However, as soon as the lease drops below 80 years then this calculation has another addition, called Marriage value. The addition of marriage value means that the cost of the premium could be 10 times more expensive!!
For reasons I won’t bore you with, our solicitor made a big mistake that meant our application was ‘deemed withdrawn’. This meant we had to wait a while before we could re-apply to extend and by this stage the leasehold was below the 80 year threshold. The difference has been huge and the stress, not least due to the underhand tactics employed by the freeholder, has at times been difficult.
So - when you see ‘LEASEHOLD’ on the details for a property, make sure you know what that means and what you are letting yourself in for.
A few important points:
There are certain criteria that must be met for you to be able to serve notice on your freeholder to extend the lease (e.g. you must have lived in the property for a certain number of months, currently 24). Find out what these are before making a leasehold purchase or make sure that the current owner serves notice on the freeholder before you purchase the property, so the rights to continue with the application can be transferred to you.
Employ the services of a good chartered surveyor and a good solicitor who have done lease extensions before. Several times. Successfully. Ask for proof of this and if they don’t give it to you through testimonials and references then walk away. Seriously - there are many loopholes in the legislation (not least the Leasehold Reform Act 1993 - LRA 1993) that can be used by the freeholder to cause your application to be deemed withdrawn. Pay the money - it is worth it in the long run. We didn’t and we suffered the consequences
Know the costs you are liable for before you begin the process and include these in your investment calculations with a hefty contingency. Look up things like Section 60 costs and be prepared for greedy freeholders who will try to take advantage of the legislation any way they can to turn a bigger profit from the premium and the costs - possibly through stalling and making you fall foul of time-limits.
Keep abreast of the time limits required at each stage of the process - sometimes actions have to be carried out within certain time constraints and if you don’t adhere to these limits then, again, you may come unstuck.
Remember all this is subject to change through legislation so check for yourself - possibly at lease-advice.org who also have a helpline, although some of the people I have had contact with there (and at rpts.gov.uk) do seem to have an issue with talking politely with members of the public without being incredibly arrogant and rude. Why are they in that job!!?
There’s so much more to leasehold property and the process of lease extensions for flats and houses than I can include here. Please get in contact if you want any further hints - I clearly can’t give advice though, you’ll need to find yourself a decent property lawyer for that.
*(they LOVE being called landlords but I refuse to call mine that, because, to be frank, he’s an evil bottom-feeder who looks like a war criminal and is dead behind the eyes. He’s just a freeholder.)
With thanks to Pete from his Property Journey website, where he's sharing every success and failure on his ongoing journey from property amateur to buy-to-let entrepreneur. Follow him at propertyjourney.tumblr.com, Twitter: @propertyjourney and find him on Facebook"