According to the most recent government figures (2017-18), there are an estimated 4.3 million leasehold properties in England, which equates to 18 per cent 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 rights of ownership over the land which the property stands on.
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 buildings 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. And the new freeholder may then change terms and conditions, often raising the cost of the leasehold considerably.
What Does the 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 deems to have broken consumer protection law and misled or taken advantage of buyers regarding the purchase of leasehold properties. Good news for those who have 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 and granting owners greater control over the management of their property.
It is unclear when — or if — the legislation surrounding leasehold properties will change. In January 2020, Secretary of State for Housing, Communities and Local Government, Robert Jenrick, promised that changes to the law would be implemented “shortly”. The global pandemic may have delayed these changes, but many hope they are imminent.
How to Sell a Leasehold Property
Selling a leasehold property works just 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 to secure a fair price. You can boost your chances of selling by:
- Sell 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.
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 to make sure 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 who is 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 as swiftly as possible, choose a solicitor or conveyancer who has 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.