Before deciding to sell a home or flat in London, there are important laws and regulations to be aware of. In order to understand the implications of selling a short lease flat in London, it’s vital to get comfortable with some of the terms and different types of agreements made when selling or buying a property.
Related Article: Navigating the London Real Estate Market in 2022
Read on as Rickman Properties details how to prepare to sell a short lease flat on the London real estate market.
Leasehold vs Freehold Properties
Before deciding to sell a flat in London, it’s important to make sure you’re aware of what type of property you’re currently holding. The words “leasehold” and “freehold” might sound complex, but their concepts are simple. The specific terms of these two types of contracts can quickly become complex, however, and having an estate agent who is familiar with selling these types of properties will ensure that nothing is overlooked during the selling process.
Leasehold is simply defined as owning the property for a set period, not including the land it is built on. Freehold, on the other hand, is defined as owning the property and the land it’s built on– for as long as desired. It may seem, at first, that obtaining a leasehold property has many disadvantages, but this isn’t always the case. Leasehold properties generally apply to flats, and most flats are leasehold agreements, but in some cases, homes can be bought as leasehold properties, too. There can be worthwhile benefits to potential buyers looking for a flat apartment leasehold, as this ensures property holders are not responsible for repairs or upgrades of communal spaces in your building, owned by the landlord. This includes areas such as gardens, hallways, lounges, or gyms in the building that are accessible to tenants living in the building, and awareness of the conditions of these areas is important when buying or selling leasehold property.
Owning a leasehold property allows you to own a portion of a larger property without the responsibility of certain types of maintenance. However, details of responsibility vary based on the lease signed at the time of purchase. Lease agreements will include the agreed upon conditions, such as:
- If permission is needed to make alterations to a unit
- How much you’ll have to pay to maintain the property
- Whether you or your landlord has responsibility for repairs and dealing with noisy neighbours
Selling a Short Lease
The general rule of thumb is that if there are 80 years or less remaining on a given lease, it is categorised as ‘short’, whereas long leases range from 99 to 150+ years. This may seem like a long time, but in terms of leasehold properties, 80 years is the minimum, and this is commonly referred to as the ‘80-year rule’. You can check the status of your lease here. For this reason, allowing a lease to drop below 80 years means any costs associated with extending it will begin increasing dramatically as marriage value (the value increase created by a new lease being granted) becomes payable. In other words, each year below 80 years can cost leaseholders up to a few thousand pounds. As a result, the HOA recommendation for leaseholders with a lease at, or close to, 80 years remaining should extend their lease before marriage value becomes payable.
Perhaps the biggest drawback of trying to sell a short lease flat is that mortgage lenders have regulations on what types of properties they lend for. Most mortgage lenders will verify that the lease will run for at least 25-30 years beyond the end of the mortgage. Some specialist lenders will lend for short lease property, but this will often incur much higher rates. So, in order to avoid severely limiting your pool of potential buyers, it’s best to either extend your short lease or find a buyer who is ready to pay cash for your flat, as this removes the need for a mortgage entirely.
Related Article: Advice for Selling London Property with a Short Lease
Rickman Properties Estate Agents
Having a good estate agent eliminates the guesswork when selling your leasehold flat. Rickman Properties estate agents are always up to date with current legislation and requirements in the London area. A good estate agent will also be well-connected, and will be aware of potential buyers based on your criteria for selling. Peace of mind when selling a property is of the utmost importance, and our estate agents ensure that you are protected from all angles when putting your property on the market.
If you’re considering selling your property, contact us here for a free quote.