The most common form of flat ownership is leasehold, with an estimated 2 million leasehold flats in England and Wales. Before you enter into one of these contracts, it’s important to know what you are getting yourself into. Owning a leasehold flat means you only own the right to live there, not the actual building itself.
Under the Leasehold Reform Act 1993, a majority of flat holders have the right to extend the lease by 90 years at a fair and reasonable price. A professional Solicitor should explain the basics to ensure that you know how long is left and when the best time is to extend the Lease.
The usual rule of thumb is the shorter the Lease, the more expensive it will be to extend & the best practice would be to extend before the contract falls to 80 years or lower.
Letting your Lease drop too low is a quick and simple way to wipe any market value your property has. It also has repercussions that could financially hurt you further down the road:
- The amount of years left on a Lease directly affects the value of it on the market. If you’re looking to sell in the near future, then you should ensure your lease isn’t holding you back. A high Lease not only helps the property achieve its full market value, it makes it more attractive to potential buyers.
- The Marriage Value entitles the landlord to a sum equivalent to half the increase of the property’s value, so avoid this by renewing before you hit the 80 year mark and it’ll save you money in the long run.
- Flats with low Leases are hard to get mortgaged and can limit you to selling only to cash buyers.
By ignoring your Lease, you are setting yourself up for unnecessary stress and financial loss. There’s no need to sacrifice the market price of a flat just because you weren’t aware of how long was left. By talking to the Landlord you should be able to find out how many years remain on the Lease, or failing that your Solicitor will be able to find out and offer you the best advice.