Many of the flats built after the Second World War, and indeed more recently, were sold on 99 year leases. Consequently they may now have less than 60 years remaining. On the face of it, this may not appear a problem, but it can create difficulties on resale and also affect the value.
Mortgage lenders normally require the lease to have about 40 years remaining after the mortgage has been paid off. As most mortgages are for 25 years, lenders are looking for 65 years or more on the lease.
However, the Leasehold Reform Housing & Urban Development Act 1993 gives leaseholders, subject to certain qualifications, the right to extend their lease by another 90 years on top of the current unexpired term.
The freeholder can require payment for extending the lease to compensate for their loss. The amount is usually made up of the following criteria:
Prior to the 2002 Act, a leaseholder needed to have owned and occupied the flat for a minimum of two years before applying for an extension. Now, provided you have simply owned the flat for a minimum of two years you should be able to qualify. This concession is to help overcome the problems that many investors would encounter with “buy to let” flats.
The procedure for applying for an extension is set out in the Act, but this is not the place to go into the detail. However, if the freeholder rejects the offer proposed by the leaseholder, the matter can be referred to the First-tier Tribunal to determine the amount payable. Inevitably this takes some months, which is a good reason to consider applying for a lease extension before you are about to sell. Often the problem with short lease terms only becomes apparent when a purchaser has been found, which can result in delay and perhaps extra cost. The consequence of this is that you may end up having to pay the freeholder more than you really need, to avoid the delay of applying to the First-tier Tribunal and to keep hold of your purchaser.
Contact McNeill Lowe & Palmer, Chartered Surveyors for further advice and guidance.