Time to sell your leasehold? The most common issues and considerations when selling a leasehold property

Selling a leasehold property is not always straightforward and for many leaseholders, it can quickly become more complicated than anticipated. From short leases that scare off buyers to complex service charge arrangements and slow management companies, leasehold properties can quickly become what appears to be a real challenge to sell. 

Short lease terms

One of the most common issues we see is shorter lease terms. If your lease has less than 85 years remaining, it can reduce your property’s value and be less attractive to buyers. There are several reasons for this, firstly a potential lease extension will put off some buyers due to the time this would take, the premium costs, surveyors costs and legal costs. Also, many mortgage lenders will not lend on properties with shorter leases making it more difficult for prospective buyers to obtain a mortgage. The way to get round this is by way of a lease extension. The new legislation now means that you do not have to have owned a property for two years before you have a right to a statutory lease extension which makes it easier for new buyers to do this post completion of their purchase, however if the mortgage lender will not lend, this will need to be carried out by the seller ahead of completion. Some lenders will allow the seller to start to the process of a lease extension and then assign this claim over to the incoming buyer between exchange and completion. 

When a lease extension takes place, the freeholder will be entitled to a premium figure. This is because when the lease term expires the property falls back into the freehold title. When the lease term falls below 80 years, the premium figure starts to attain “marriage value” meaning the premium price will go up as the lease term continues to fall. The best way to avoid this is to deal with this is to check the term of your lease and if it is close to 80 years, get in touch with a solicitor or surveyor to start the lease extension process. If you are looking to sell and the lease term is below 80 years, you can still get a lease extension, this just means the premium will be higher. The buyer may ask for the premium to be reduced from the purchase price if this is something that they will have to deal with on completion. 

Escalating ground rent and lender protection

Some leases contain ground rent clauses that double every 10 or 25 years. This can mean that ground rent will exceed the £250.00 threshold (outside of London) or the £1,000.00 threshold (inside of London). If the ground rent exceeds these thresholds during the lease term, then the lease could be considered an assured tenancy under The Housing Act 1988. This enables the landlord to easily take possession of the property for non payment of rent by way of an order from the court. This can cause issues with mortgage lenders and put off potential buyers. 

There are however many solutions to this. Firstly, a Deed of Variation can be requested from the freeholder to vary or cap the ground rent. They may request a premium for this in the sense that you are effectively buying them out of the ground rent. Similarly, you can request a mortgagee protection clause to be added into the lease. This clause would state that before forfeiture the lender must be given a period of notice. This is normally 14 or 28 days. This enables the lender to rectify the breach by paying the ground rent before the property is forfeited. Lenders often like to have this in the lease where there is a payable ground rent that means the lease can be forfeited if unpaid. However, the freeholder does not yet have to agree to this. 

You can also obtain a statutory lease extension. This would give you an additional 90 years on the term of the lease but also a peppercorn ground rent (NIL). Under the Ground Rent Reform Act 2022 all new leases must be granted with a peppercorn ground rent. Therefore, this would remove the issue entirely, however this is often one of the most expensive and time-consuming options. 

The Building Safety Act

The introduction of The Building Safety Act in 2022 “BSA” adds another level of investigation for conveyancing solicitors when selling a leasehold property. The BSA aims to enhance building safety following Grenfell and protect leaseholders from excessive costs related to historical building safety defects. In order to establish whether the flat is a relevant building for the purposes of the BSA the building must be at least 11 metres in height or have at least 5 storeys, it must contain at least two properties and it must not be a leaseholder owned building. Therefore, if the freehold has been enfranchised by leaseholders, then it would not qualify as a relevant building. If your building does fall into this category then your conveyancer will need to obtain a leaseholder and landlord certificate to state whether or not you would be liable for any remediation works required to the building. This process can take time, so it is advised to serve a leaseholder certificate as soon as possible if you are intending to sell. 

Multiple parties

If your property is subject to one or more management companies or agents this can cause delays. You will need to obtain service charge and ground rent statements for the incoming buyer to show these are paid up to date on or before completion. Your freeholder/management will need to complete an LPE1 form. This sets out the details of how the freehold is managed and the contributions the buyer will need to make on completion and going forward. Some people find the best way to deal with this is to reach out to the managing agent ahead of the buyers offer and request this.

Overall, selling your leasehold property does not have to be a difficult process. If you are thinking of selling and would like some advice and assistance before you do so, please contact Alisha Maidment, in the Residential Real Estate team on 020 8290 0440.