Selling a House with Leasehold Problems

According to the most recent government figures (2017-18), there are an estimated 4.3 million leasehold properties in England, equating to 18% of all housing stock. More than two-thirds of leasehold dwellings are flats.

So, what are the potential leasehold house problems that could make selling this type of property difficult? And if you own a leasehold property, how do you go about selling it?

What Is a Leasehold Property?

There are two main types of residential property in England and Wales — freehold and leasehold.

If you buy a freehold property, you will become the owner of the building and the land it stands on until you choose to sell it (or you die, and it passes to the beneficiaries of your estate). You even have rights to the “airspace” above your property — up to about 500 feet — according to the Civil Aviation Act 1982.

As a leaseholder, you effectively rent the property from the freeholder for a fixed number of years, and you have no ownership rights over the land on which the property stands.

It is more common for flats to be sold as a leasehold than houses.

Leasehold House Problems

Leasehold properties have hit the headlines in recent years due to several issues that put owners at a disadvantage both during their leasehold and when it comes to selling. These issues include:

Short leases or those with strict terms that make the property hard to sell or remortgage
Rising ground rents that become unmanageable. Some leasehold clauses mean the ground rent doubles every 10 years, turning a bill of several hundred per year into thousands of pounds.
Expensive service charges. The service charge usually covers the cost to the landlord of general maintenance, repairs and building insurance. Your lease will outline what the landlord can and cannot charge you for. These charges can be extremely high and may be off-putting to potential buyers.
Developers selling off the freehold without telling the leaseholder. The leaseholder has no opportunity to buy the freehold, which they have a right to do after two years of living in the property. The new freeholder may then change terms and conditions, often raising the cost of the leasehold considerably.

If you’re struggling to sell a leasehold property, get in touch with our friendly team of house buying experts. We buy all types of property throughout the UK for cash — in as little as 7-days!

What Does the UK Law Say about Leasehold Properties?

In response to the common complaints from leaseholders (listed above), the government announced plans to abolish the selling of new-build houses as leasehold properties and reduce ground rents to zero in June 2019. Furthermore, in September 2020, the Competition and Markets Authority (CMA) threatened legal action against any housing developers it deemed to have broken consumer protection law and misled or taken advantage of buyers regarding the purchase of leasehold properties. Good news for those yet to invest in property, but what about those who already own a leasehold?

In July 2020, the Law Commission proposed a series of changes that, if enacted, will put leaseholders in a much better position. The suggested changes include:

Making it easier for owners of a leasehold to buy the freehold
Introducing 990 years as a minimum period of extension
Eradicating ongoing ground rent under an extended lease
Granting owners greater control over the management of their property.

There has been a significant delay in enacting these proposals, possibly due to the coronavirus pandemic.

However, leasehold reform is afoot.

The Leasehold Reform (Ground Rent) Act 2022 is due to come into force on 30 June 2022. Under this Act, any new lease agreement must have a zero ground rent. As the Act passed through parliament, it was established as a precursor to wider reform of the leasehold market, which has been tabled for the third parliamentary session in 2022, which began on 10 May. This commitment to governmental reform of the leasehold market was underlined in the Queen’s 2022 Speech.

The government also launched the Commonhold Council on 13 May 2021, an advisory panel of leasehold groups and industry experts who can feedback to the government on the future of leasehold agreements.

How to Sell a Leasehold Property

Selling a leasehold property works the same as selling a freehold home — perhaps with a little extra paperwork, which your conveyancer or solicitor will take care of. As with a freehold home, property “problems” tend to make it harder to find a buyer and secure a fair price. You can boost your chances of selling by:

Selling before the Lease Drops Below 90 years.

Properties with less than 90 years to run on the lease are much harder to sell. If you know this isn’t your forever home, start thinking about marketing your property before you hit “short lease” territory.

Extend Your Leasehold.

Why would you pay to extend the lease on a home you want to sell? It is much harder to sell properties with less than 90 years left on the lease. Extending the lease will not be cheap, but if you can’t sell without doing so, it may be an investment you need to make.

Buy the Freehold property.

Most — not all — leasehold properties are flats. To buy the freehold, you’ll need your neighbours on board. The law states that if at least half of the leaseholders in a block of flats join together, they can buy the freehold from the landlord. Owning a share of the freehold will make your property much more attractive to buyers because they will have greater control over the property as well as being exempt from ground rent and service charges.

Make Sure You Comply with Assignment Conditions.

Most leases contain “assignment conditions” with which a seller must comply. Make sure you understand the terms of your lease before selling; a solicitor or conveyancer can help ensure you stay compliant.

Instruct a Good Solicitor or Conveyancer.

There are a few more hoops to jump through when selling a leasehold property, and you’ll need a qualified legal professional experienced in dealing with all the red tape involved. The process for extending a lease or buying your freehold will vary from property to property. If you want the sale to move as smoothly and swiftly as possible, choose a solicitor or conveyancer with a solid history of managing the sale of leasehold properties.

Use a Quick House Sale Company.

A reputable quick house sale company will have the funds ready to buy your property for cash. House Buyer Bureau can buy your home in as little as 7 days. Don’t leave it too late to sell, as a short lease may be problematic for any buyer. If we make you an offer you are happy with, our team of experts can manage the entire sales process remotely. We will work with you to complete the transaction in accordance with your preferred timescale.

Is Selling a Leasehold Property Hard?

A tenant who wishes to sell their leasehold must comply with all aspects of the contract regarding an assignment. It’s advisable to appoint an estate agent and conveyancer who have experience of managing leasehold sales as they will help you with this.

If you choose to sell on the open market, an estate agent will advertise a leasehold property in the same way as they would a freehold property. However, there may be an extra step when it comes to securing a buyer. Interested parties will need to direct any queries they have about the property to the landlord who may charge an admin fee for responding.

If you’re selling a retirement leasehold home, there may be an “exit” or “transfer” fee to pay at the point of sale.

Properties with a short lease remaining can be more difficult to sell. A lease with fewer than 80 years remaining costs more to extend because the freeholder is entitled to 50% of the extra value the lease extension adds to the property — “the marriage value”. It’s also more difficult to get a mortgage on a property with a short lease remaining. Few lenders will approve a mortgage on a leasehold property with fewer than 60 years to run. This limits the pool of potential buyers to cash buyers, which can mean it takes a lot longer to sell.

If you have questions about selling your leasehold property and would like to know more about how we might be able to help, contact our friendly team of house cash buyers today.

Chris

Chris has worked in property all his career, first as a successful estate agent before spotting a gap in the market for buying property directly from people looking for a simple, quick sale.

He has a passion for property and as an experienced valuer, has looked at well over 50,000 properties so far at HBB. He has extensive experience in property buying and regularly comments in the press on property matters, trends and promotes ways to simplify and speed up the selling process.

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