Before delving into the world of leases and short hold leases, let me give you a little background. A lease is the length of time that one owns a property for, as opposed to freehold when one owns a property outright in perpetuity. Leasehold properties are usually when a property is on someone else’s land (i.e. the freeholder). A flat for example will usually be leasehold as it will be on land owned by a freeholder.
A short lease is exactly that; a short period of time left unexpired on the property. If the lease runs to ‘zero’ the property reverts back to the freeholder. Therefore, as a leaseholder, one should look to extend the term. Short lease property in London is common and not to be avoided, if you understand how owning a property like this works.
In summary, if the owner has held the property for 2 years or more, then under lease enfranchisement and extension laws the vendor can pass benefit to extend the lease to the purchaser. Leases of over 80 years unexpired are cheaper to extend and less prone to valuation disputes.
A cautious approach to leaseholds
New consumer protection regulations expose estate agents to redress, so be cautious in advising exact amounts unless the seller has a Red Book valuation report from a specific valuation surveyor who is knowledgeable and has the expertise to assess, analyse and value a lease extension.
Garrington has worked with a number of clients who have looked at properties on short leases and helped advise in the lease extension and enfranchisement process.
In addition, always be mindful not to trust hearsay from an estate agent, as an example, the often-heard phrase around London at the moment is “the neighbour extended last year for £100,000” – Let me be frank, this is often incorrect and misleading and as a buyer you need to ensure that you are in receipt of the facts.
It is therefore essential to speak to specialist professionals, or direct either party to take specialist advice before wasted costs are incurred.
What you need to know about leaseholds
As a buyer learn about the subject – it is not complicated to understand the principles; after all, to be forewarned is to be prepared.
If you are selling shorter leases this requires more finesse, and an in-depth knowledge of the legal process; but they can be profitable if you make sure you understand the process and take into account the premium for the lease extension. Also try and factor in any associated costs such as; legal fees and valuation fees, but always be aware and guarded that short leases can be price sensitive.
To find out more information about Garrington and short leasing a property in London, please get in touch to find out how we can help.