As a proportion of housing stock in England & Wales, ‘leasehold’ represents just over 10%, but following a recent warning by one of the country’s leading chartered surveyors businesses, there are upwards of 1.4million leasehold owners who are at risk of a reducing length of lease which can costs many £000s to pay to the Landlord to have it extended.
Conveyancing solicitors are well aware to check the length of a lease as one of their first tasks when acting for client who is purchasing a leasehold property. This is because most mortgage lenders will only accept around 60 years or more; anything less and the property is unmortgageable. Sadly, the length of the lease is not always checked at the point of marketing, with the result that this ‘defect' may be spotted several weeks into the legal process, where conveyancing solicitors then need to halt the sale process and consider the options to correct things if the deal is to continue moving forward.
However, in practice, many conveyancing solicitors will become nervous and advise their clients to halt their purchase if there is 80 years or less. This is because if a lease has less than 80 years until it expires, the cost to have it extended increases, which means that the price a buyer is prepared to pay for the property – due to the expense they themselves will be put to bear to extend the lease - will reduce.
Unless the lease is extended – which costs more the shorter the lease is – the value of the property could fall below the current mortgage on the property, leaving the owner in a new and unforeseen negative equity trap. The property becomes unmortgageable and therefore very difficult to sell.
As well as the threat of negative equity, conveyancing solicitors can and must play a big part in spotting the ‘defect’ in the first instance, as a buyer should halt the process and make sure both their lender is aware of the issue as well as then negotiating with the seller for the lease to be extended or for a lower price to reflect the short lease. Failing to identify a short lease and alerting clients to the problem can leave conveyancing solicitors open to claims of negligence.
A lease extension can range from a few hundred pounds to multiple thousands – though buying the freehold could be a better option. Sellers and buyers should always consult their conveyancing solicitor who should be an expert in the area at the point of sale/purchase to check the duration, and generally in terms of the options for extending a short lease.