Additionally, their annual forecast for 2024 now anticipates a 2.5% increase, a change from their earlier expectation of a 3% decline due to reduced mortgage costs.
Savills had previously expected house prices to fall by 3 per cent this year, but made the revision on the back of falls in the cost of mortgage debt.
Savills predicts that housing transactions will reach 1.05 million this year, a slight increase from the 1.01 million forecasted previously. Despite this, the housing market remains susceptible to short-term fluctuations in debt costs and political uncertainty leading up to the General Election.
According to Lucian Cook from Savills, the outlook for house prices has improved since their last forecast in November. This improvement is attributed to slight reductions in mortgage costs, which have become less volatile recently.
According to Mr. Cook, there’s a slight improvement in the outlook for economic growth, indicating moderate house price growth this year, with greater potential in the following years.
In November, purchasing a property with a 25 per cent deposit on a two-year fix could cost 5.34 per cent. However, now, that same mortgage would cost 4.84 per cent, while a five-year fix could cost 4.5 per cent.
These changes reflect a more stable mortgage market, with reduced costs compared to previous forecasts, potentially influencing property buyers’ decisions.
He stated, “The increased cost of debt suppressed demand and pushed prices downwards. However, the fiercely competitive mortgage market has seen lenders adjusting their rates in anticipation of potential cuts in the bank base rate. This has bolstered buyer confidence and led to a partial recovery in prices.”
As a result, monthly mortgage approvals surged above 60,000 in February and March. By the end of April, annual house price growth stood at 0.6 per cent.
Mr. Cook noted that ongoing uncertainty in the Middle East and higher-than-expected US inflation have led to a continued rise in swap rates, which lenders use as the basis for their fixed rates.
He stated, “As a result, we are unlikely to witness a significant further decline in mortgage rates this year. Short-term fluctuations in the cost of debt and house prices, as observed over the past week, remain possible.”
Additionally, he highlighted the potential impact of an Autumn election on sentiment towards the end of the year. However, polling data suggests that most buyers and sellers have already factored in the possibility of a change in government, thus mitigating the potential impact.
Savills indicated that affordability challenges would become increasingly significant towards the end of the next five-year period, particularly in London and the South East, where markets are already strained.
While overall house prices are projected to surge by over £60,000 in the coming five years, regional discrepancies are expected. For instance, Savills predicts a 28.8 per cent increase in the North West, whereas London is anticipated to see a more moderate rise of 14.2 per cent during the same period.
Following the North West closely in terms of price growth is Yorkshire and the Humber, expected to experience a 28.2 per cent surge. Similarly, Wales and Scotland are poised for robust performance, with anticipated price growth rates of around 26.4 per cent and 25.8 per cent, respectively.
Jeremy Leaf, a North London estate agent, commented on the figures, highlighting the housing market’s resilience despite economic forecasts. He emphasized that while concerns persist about the cost of living and a slower-than-expected decline in the base rate, demand for housing remains strong. Leaf noted that realistic sellers are the ones likely to benefit, even though some price adjustments may occur in the short term.
What are the effects of the lease?
A lease is a critical document for owners and potential buyers of leasehold properties. It’s a legally binding contract that transfers possession of a flat for an agreed period, often allowing access to communal areas. It outlines rights and duties for both landlord and leaseholder, sometimes involving a third party like a manager. Maintenance responsibilities, usage restrictions, and conditions for lease sale or transfer are typically included.
Leases commonly require leaseholders to pay ground rent and contribute to building maintenance costs via service charges and reserve funds. When a property changes hands, the new owner usually inherits the remaining lease term. However, some leases necessitate a ‘surrender and re-grant’ process, issuing a new lease from the purchase date.
While leases vary, most long leaseholders possess statutory rights to extend their lease or purchase the freehold alongside other leaseholders. Understanding one’s lease, possibly with professional guidance, is crucial for grasping rights and obligations. Residential leases within the same property are often similar, differing mainly in personal details and lease term specifics.
In case of inquiries or disputes, referencing the lease and seeking professional advice is advisable. The Leaseholder Association (LA) offers guidance to its members on interpreting residential leases.
What are a leaseholders’ rights and obligations under a typical lease?
Leaseholders’ Rights:
– Peaceful enjoyment of the property
– Reasonable access to common areas
– Support, shelter, and protection from other parts of the building
– Access to utilities and service media
– Common parts kept in good repair and redecoration
– Benefit from specified services in the lease
Leaseholders’ Obligations:
– Pay ground rent
– Contribute to service charges and reserve funds
– Maintain their flat
– Cover costs of damage to common parts
– Allow access for repairs or emergencies
– Use the flat appropriately and avoid nuisance
– Seek consent for structural alterations or subletting
Landlords’ Rights:
– Receive ground rent
– Recover expenditure through service charges
– Appoint a manager
– Make regulations for common areas
– Inspect properties with notice
– Make alterations without affecting leaseholders’ rights
– Receive the property in reasonable condition at lease end
Landlords’ Obligations:
– Enforce leaseholders’ covenants
– Ensure consistency among leases
– Ensure leaseholders’ quiet enjoyment
– Maintain common parts
– Provide specified services and insurance
– Properly demand and manage service charges
What statutory rights does the leaseholder have?
Below is an expanded version of the summary outlining leaseholders’ statutory rights, in addition to the contractual rights specified in the lease:
Leaseholders possess a range of statutory rights that complement the contractual obligations delineated in their lease agreements. These rights are designed to empower leaseholders and ensure fair treatment in their interactions with landlords and property management entities.
- Right to Information About the Landlord: Leaseholders have the entitlement to obtain comprehensive information regarding their landlord, facilitating transparency and accountability in property management.
- Right to Form a Tenants’ Association: Leaseholders can exercise their right to organize and establish a tenants’ association, enabling collective representation and advocacy for their shared interests and concerns.
- Right to Challenge Service Charges: Leaseholders retain the right to dispute the reasonableness of service charges at a First-Tier Tribunal (FTT), providing a mechanism for redress in cases of perceived overcharging or unjustified expenses.
- Right to Challenge Administration Charges: Similarly, leaseholders have the right to contest administration charges at an FTT, ensuring that fees levied for administrative tasks are fair and proportionate to the services rendered.
- Right to Information About Insurance: Leaseholders are entitled to access information regarding insurance coverage for the property, enabling them to understand their obligations and liabilities in the event of damage or loss.
- Right to Be Consulted About Major Works: Leaseholders have a say in decisions concerning major works and long-term agreements affecting the property, ensuring that their voices are heard in matters impacting their living environment and financial commitments.
- Right to Seek Lease Variation: Leaseholders possess the right to seek variations to their lease terms, with the option to escalate unresolved disputes to an FTT for adjudication if consensus cannot be reached among involved parties.
- Right to Extend Lease: Leaseholders can extend the term of their lease by an additional 90 years, providing them with greater security and flexibility in their tenure arrangements.
- Right to Request Appointment of a Manager: In cases of alleged mismanagement by the landlord, leaseholders have the right to petition for the appointment of a manager through an FTT, safeguarding their interests and ensuring proper property management practices.
- Right to Management Audit and Surveyor Appointment: Recognized tenant associations possess the authority to conduct management audits and appoint surveyors to assess property conditions and management performance, empowering leaseholders to uphold standards of accountability and transparency.
- Right to Manage Collectively: Leaseholders collectively hold the right to assume management responsibilities for the property without the burden of proving landlord fault or providing compensation, fostering greater autonomy and control over property affairs.
- Right to Enfranchisement: Leaseholders have the collective right to purchase the freehold of the building, even in instances where the landlord is unwilling to sell, empowering them to take ownership of their property collectively and assert greater control over its management and destiny.
- Right to First Refusal: In situations where the landlord intends to sell a controlling interest in the property, leaseholders are afforded the collective right of first refusal, enabling them to preemptively acquire ownership stakes and preserve their stake in the property’s management and governance.
These statutory rights serve as essential safeguards for leaseholders, providing avenues for recourse, advocacy, and collective action to uphold their rights and interests within the property ownership framework. Understanding and asserting these rights empower leaseholders to actively participate in property management decisions, ensure accountability from landlords and management entities, and safeguard their long-term investment in the property.
What is ground rent?
Ground rent, outlined in the lease, is a fee payable by residential leaseholders to the landlord. The lease specifies the amount and potential increases, with recent legislation requiring landlords to serve a written notice when ground rent is due.
This notice must detail the amount owed, payment date, leaseholder’s details, recipient’s information, and supporting notes. The payment date must be within 30-60 days after service, or as per the lease terms.
The landlord cannot impose additional charges without serving a notice, nor initiate forfeiture action without issuing a Section 146 notice for unpaid ground rent. Legal action is only viable if the leaseholder fails to respond after receiving the demand notice as per legal requirements.
What might happen if charges are not paid by a leaseholder?
Although there’s no dedicated legislation for housing debt recovery, landlords typically follow government-approved codes of practice. These include:
- Monitoring Payments: Landlords track service charge and ground rent payments to help leaseholders avoid arrears.
- Providing Information: Leaseholders are given necessary information to manage arrears effectively.
- Prompt Communication: Landlords promptly contact leaseholders when arrears occur to discuss solutions.
- Offering Support: They may recommend welfare agency advice or debt counselling if appropriate.
- Consistency and Compliance: Actions align with lease terms, laws, and codes of practice.
In cases of persistent arrears, seeking independent advice from The LA, housing advice centers, citizens’ advice bureaus, or solicitors is advisable.
What enforcement action might be taken?
If a leaseholder does not adhere to payment agreements or maintain communication, the following enforcement options may be pursued for debt recovery:
- Contacting the leaseholder’s mortgage lender.
- Initiation of civil action, such as a small claims action or county court judgment.
- Forfeiture – details below.
In instances of a deceased leaseholder, the landlord or manager might opt to defer charges until the property is sold or rented out. However, this concession is discretionary, and the landlord or manager retains the contractual right to take recovery action as per the lease.
What is forfeiture?
If a leaseholder violates any terms of the lease, the landlord may have the right to initiate forfeiture proceedings and reclaim possession of the property. However, legislation provides safeguards for leaseholders in such situations. The landlord cannot re-enter the premises without a court order while the property is lawfully occupied. Additionally, a section 146 Notice must be served before forfeiture.
The process typically begins with the landlord serving a Notice of Seeking Possession under section 146 of the Law of Property Act 1925. This notice outlines the alleged breach and allows the leaseholder to rectify it or compensate the landlord. For non-payment of service charges, forfeiture action can only commence if the charge is agreed upon, admitted by the leaseholder, or determined by a court, FTT, or arbitration.
During forfeiture proceedings:
– The breach must be acknowledged by the leaseholder or determined by a court, FTT, or arbitration.
– The leaseholder must be given 14 days to resolve the breach or pay arrears after a final determination.
– If the breach remains unresolved after 14 days, the landlord can serve the Section 146 notice, subject to county court determination before enforcement.
Throughout legal proceedings, the leaseholder has opportunities to address the issue and prevent lease forfeiture.
What restrictions are there on forfeiture action?
The landlord cannot issue a valid Section 146 notice for forfeiture unless:
- The outstanding amount of service charges, administration charges, or ground rent exceeds £350, or
- The outstanding amount, if less than £350, has been due for over three years.
- Administration charges for non-payment are not considered in this £350 limit calculation.
While forfeiture may not occur, landlords can pursue arrears through other means, such as the small claims court. Therefore, leaseholders should not withhold payments below £350, assuming no action can be taken.
Though not legally required, some approved codes of practice suggest that after forfeiture and property repossession, landlords should reimburse the former leaseholder for the forfeited lease’s value. However, deductions may include:
- Legal and management costs for forfeiture.
- Costs related to property marketing and resale.
- Other reasonable costs incurred during the lease period or upon resale.
What are the leaseholders’ rights to information about their landlord?
Landlords must:
- Provide a designated address in England or Wales for legal notices.
- Non-compliance exempts leaseholders from paying until the information is provided.
- Include landlord’s name and address on all written charge demands.
- Without this, charges aren’t payable until details are supplied.
- If landlord’s address is abroad, provide an address in England or Wales for notices.
- For corporate landlords, leaseholders can request directors’ and secretary’s details in writing.
- Notify leaseholders in writing of any change in landlord, providing new details.
- Failure to comply is a criminal offense.
What is a management audit?
Long leaseholders have the option to conduct a management audit to assess the activities of their landlord or manager. This audit entails covering the fees of the auditor as well as the reasonable costs incurred by the landlord or manager during the process. However, it’s advisable to explore other avenues before opting for an audit, with the Leaseholder Association offering assistance through conciliation services if needed.
This right extends to long leaseholders who pay variable service charges and mandates that the audit be conducted by a suitably qualified individual. If there are only two properties, either leaseholder can initiate the audit. However, if there are more than two properties, at least two-thirds of the long leaseholders must agree to exercise this right. Importantly, the audit right doesn’t grant leaseholders or their representatives the authority to conduct independent investigations into the activities or practices of the landlord or manager.
What is the objective of a management audit?
The primary objective of a management audit is to assess whether the landlord fulfills their management responsibilities as outlined in the lease and statutory regulations efficiently. It encompasses reviewing various management aspects and scrutinizing expenditure to ensure cost-effectiveness. Auditors inspect common areas and examine pertinent documents, potentially uncovering evidence of inadequate management, valuable in legal proceedings.
While a management audit doesn’t inherently offer remedies, it serves several purposes:
– Evaluating management standards and procedures.
– Conducting a comprehensive review of service charge accounts.
– Enforcing lease covenants on management, maintenance, and services.
– Ensuring compliance with approved management codes.
– Providing evidence for challenging service charges at an FTT.
– Supporting applications for manager appointments.
Qualified surveyors or accountants, independent of tenants and with no affiliations to the landlord, must conduct the audit. Leaseholders supporting the audit sign a notice served to the landlord. However, it’s crucial to note that while a management audit reveals irregularities, leaseholders may still need to resort to legal avenues like courts or FTTs for resolution.
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]]>In their assessment, LGIM highlights the widespread occurrence of landlords taking advantage of tenants financially, leading to dissatisfaction and frustration among renters. This critique underscores the urgent need for improved standards and ethical conduct within the buy-to-let sector, emphasizing the importance of providing fair and transparent rental experiences for tenants.
In an interview with the Daily Telegraph, Bill Hughes, global head of real assets at L&G, voiced concerns about the quality of many buy-to-let landlords’ practices, labeling them as “suboptimal and substandard.” Hughes’s remarks come amid L&G’s significant investment in the Build To Rent (BTR) sector, signaling their commitment to addressing issues within the rental market.
The Telegraph highlights Hughes’s pivotal role in L&G’s expansion into the BTR industry, underscoring the company’s strategic shift towards providing high-quality rental accommodation. Concurrently, industry stakeholders such as the British Property Federation and Savills have raised concerns about the sluggish pace of the planning system, hindering the growth of the BTR sector. Additionally, efforts to enhance consumer confidence and standards in the rental market are evident in the rebranding of the BTR trade body to the “Association for Rental Living” and the introduction of a code of practice aligned with forthcoming legislative reforms.
L&G, overseeing assets worth nearly £1.2 trillion, has amassed a portfolio of 10,000 Build To Rent (BTR) homes over the past eight years, with 5,000 currently occupied, representing a £3 billion investment in the sector.
According to Hughes, the company aims to address concerns surrounding poorly managed rental properties and unethical landlord practices, emphasizing the need to elevate standards for renters. He asserts that institutional investors like L&G can play a crucial role in setting high-quality standards due to their substantial scale and long-term commitment, prioritizing reputation preservation over short-term gains.
Hughes, as described on the L&G website, is credited with expanding its UK property fund management business into a global-reaching real assets platform. His role entails transforming the company’s UK property fund management business into a broader real assets platform with a global reach, indicating a significant shift in focus and strategy.
Furthermore, Hughes is actively engaged in various influential government and industry committees focusing on environmental, social, and governance (ESG) issues, infrastructure, regeneration, and housing. This involvement underscores his commitment to addressing key challenges and driving positive change within the real estate sector, aligning with broader societal and environmental goals.
In recognition of his leadership and expertise, Hughes was appointed as a UK Built Environment Climate Ambassador by the UK Green Building Council. This appointment highlights his pivotal role in mobilizing the real estate industry to tackle climate change and advocate for sustainable practices. At COP26, he played a key role in championing the development of the Net Zero Whole Life Carbon Roadmap for the UK Built Environment, emphasizing the importance of collective action and collaboration.
Hughes’ multifaceted role and extensive contributions underscore his dedication to advancing sustainable development and driving positive outcomes within the real estate industry. His leadership positions and active involvement in influential committees reflect a commitment to driving meaningful change and shaping the future of the built environment in alignment with sustainability objectives.
Bill serves as Chair of the Property Industry Alliance (PIA), a coalition of prominent property organizations in the UK. Through the PIA, these bodies collaborate to advocate for shared interests and address key issues such as policy, research, and best practices within the industry. Additionally, he holds the position of Trustee at the UK Green Building Council and is recognised as an Honorary Fellow of the College of Estate Management, reflecting his significant contributions to the field.
His extensive involvement in various industry associations underscores his commitment to driving positive change and advancing industry standards. Bill has previously chaired the Green Property Alliance, served as President of the British Property Federation (BPF), and led the Association of Real Estate Funds (AREF) as Chairman. Moreover, his role as Commissioner for the Lyons Housing Review highlights his dedication to addressing critical challenges in the housing sector and shaping policy initiatives for the benefit of communities.
While the full interview may be accessible through the Telegraph’s paywall, Bill’s leadership and insights offer valuable perspectives on the current state and future trajectory of the property industry. As a trusted figure with a wealth of experience and expertise, his contributions to the discussion are instrumental in shaping the direction of the sector and driving positive outcomes for stakeholders across the board.
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SDLT is only applicable to lease extensions exceeding £40,000 for the premium and an annual ground rent below £1,000. This overview provides insight based on Government guidance and should not substitute for personalized tax advice.
Does Stamp Duty apply to Lease Extensions?
SDLT applies to lease extensions surpassing £40,000 for the premium and having an annual ground rent below £1,000.
How much Stamp Duty do I need to pay?
The standard stamp duty rates apply, varying based on whether the property serves as your primary residence or not.
Residential Conveyancing
Extending your lease term may entail more complexities than anticipated.
Even if termed as a ‘variation’, a lease extension is deemed a surrender of the existing lease and the granting of a new one, effectively ending the old lease.
This process triggers Stamp Duty Land Tax (SDLT) implications. SDLT is applicable on the new lease, considering the rent and any additional consideration, like a premium. Typically, landlords may seek a premium for extending the lease, thus both the new rent and premium could incur SDLT based on applicable thresholds.
Overlap Relief
Regarding SDLT on the rent, overlap relief might apply, but only if the old lease was subject to SDLT, not if old stamp duty was paid, and not if the lease predates SDLT (before December 1, 2003). This relief aims to prevent double taxation, ensuring fair treatment during lease transitions. However, tenants can’t reclaim stamp duty paid on the original lease, adding to the financial considerations of lease extensions.
The “overlap period” spans from the new lease grant date to what would’ve been the old lease’s end. This period signifies a crucial juncture in SDLT calculations, impacting the financial implications of lease extension transactions. Rent reduction under the new lease during the overlap period depends on whether it factored into SDLT calculations for the old lease, reflecting the complexity of SDLT regulations in lease transactions.
For the surrender and regrant, SDLT isn’t payable on a deemed premium, but regular SDLT applies to any rent (with overlap relief). This distinction underscores the nuanced nature of SDLT calculations, requiring meticulous attention to detail and adherence to legal provisions. Moreover, cash consideration for surrender or a premium for the new lease incurs SDLT at regular rates, further emphasizing the financial implications and obligations associated with leasehold transactions.
If the property is your home
| Rate | Charge Band |
| 0% | Up to £125,000 |
| 2% | Over £125,000 to £250,000 |
| 5% | Over £250,000 to £925,000. |
| 10% | Over £925,000 to £1,500,000. |
| 12% | Over £1,500,000 |
Higher Rate Stamp Duty (rented property)
Properties that aren’t your main residence incur a higher Stamp Duty rate, applicable to second homes or buy-to-let properties. An additional 3% SDLT is imposed on such properties.
| Rate | Charge Band |
| 3% | Up to £125,000 |
| 5% | Over £125,000 to £250,000 |
| 8% | Over £250,000 to £925,000. |
| 13% | Over £925,000 to £1,500,000. |
| 15% | Over £1,500,000 |
Example 1 – Principal Private Residence
If you’ve consented to extend your residential lease by 90 years for £50,000 and the property is your main residence, no Stamp Duty is due.
Example 2 – Buy to Let
If you’ve accepted to extend your residential lease by 90 years for £50,000 and the property is rented or vacant, Stamp Duty at a rate of 3% is due, totaling £1,500. If the premium were under £40,001, no Stamp Duty would be owed.
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According to Rob Smith, Managing Director of Parkers, the process might seem daunting, but with the right approach and assistance, it can be manageable. Smith emphasizes that understanding the nuances of selling a leasehold flat or apartment is crucial.
To navigate potential hurdles effectively, this guide provides comprehensive information on what sellers need to know when selling a leasehold property.
What is a leasehold property?
In the UK, most flats, apartments, and Shared Ownership houses are owned on a leasehold basis. This means you own the property itself, but the land it stands on and communal areas are owned by a freeholder.
As a leaseholder, you’ll typically pay ground rent and a service charge to the freeholder, who uses these funds for maintaining the common areas and the building.
Leasehold properties come with a lease term, determining how long you have the right to stay in the property before ownership reverts to the freeholder. However, extending a lease is a statutory right for all leaseholders, provided you’ve owned the property for at least two years.
Can you sell a leasehold property?
Selling a leasehold property mirrors the typical process of selling any other type of property. When you sell, the lease agreement and its terms are passed on to the new owner. This means that the new owner must comply with the obligations outlined in the lease and fulfill any financial commitments laid out by the freeholder.
The terms of the lease, including any ground rent or service charges, are binding on the new owner upon the transfer of ownership. It’s essential for both the seller and the buyer to understand these terms and obligations before completing the sale transaction.
Is it hard to sell a leasehold property?
Selling a leasehold property may present more challenges compared to selling a freehold home due to the involvement of a lease agreement. However, if your lease has considerable length remaining and you have all the necessary documentation prepared for potential buyers, there’s no need to worry about selling your property.
Having a long lease term and having all essential documents readily available can streamline the selling process and reassure buyers about the property’s tenure and legal standing. With proper preparation and understanding of the leasehold terms, selling a leasehold property can be as straightforward as selling any other type of property.
How to sell a leasehold property
Before listing your leasehold property for sale, there are several essential steps you must take:
- Find out your property’s value: To accurately gauge the market value of your leasehold property, it’s crucial to enlist the expertise of a local estate agent. They’ll conduct a comprehensive assessment, considering recent sale prices of similar properties in your area and current market trends. Additionally, they’ll factor in any upgrades or renovations you’ve undertaken to provide a precise valuation. Armed with this information, you can confidently determine an appropriate asking price for your property, maximizing its potential in the market.
- Study your lease and check how long is left: Selling a leasehold property entails understanding the intricacies of your lease agreement, particularly the remaining lease term. Take the time to thoroughly review the terms and conditions outlined in your lease document. Pay close attention to the length of time remaining on your lease, as this significantly impacts your property’s marketability and value. Generally, properties with longer lease terms are more desirable to prospective buyers, as they offer greater security and flexibility. Conversely, leases with less than 80 years remaining are considered ‘short,’ potentially diminishing your property’s appeal and complicating the selling process. It’s essential to be aware of these factors and their implications for potential buyers, including potential challenges with mortgage approvals.
- Get your documentation in order: Selling your leasehold property involves gathering essential documentation to streamline the process for potential buyers. Key documents include a copy of your lease agreement and a leasehold information pack or TA7 form. This pack contains comprehensive details required by the buyer’s solicitor, covering aspects such as service charges, ground rent fees, maintenance costs, and planned building works. Since leasehold packs are typically provided by the freeholder, ensure timely access to this information before listing your property for sale. For Shared Ownership properties, the selling process may differ slightly, requiring specific documentation outlined in our Shared Ownership guide.
- Consult with your local agent: Once you’ve assembled your documentation and verified the adequacy of your lease term, it’s advisable to engage with your local estate agent to initiate the sales process. Seek out an agent experienced in handling leasehold properties, as they can offer valuable insights and guidance tailored to your situation. Collaborating with a knowledgeable agent ensures a smoother selling experience and maximizes your property’s market potential. They’ll assist you throughout the sales journey, from setting an optimal listing price to navigating negotiations and finalizing the sale.
- Select a suitable solicitor: Engage the services of a competent solicitor or conveyancer well-versed in handling leasehold property transactions. An experienced professional can effectively navigate any complexities that may arise during the sale process. In case of lease-related issues or requests for detailed information from the buyer’s solicitor, a proficient leasehold solicitor will provide invaluable assistance, ensuring a smooth and efficient sale.
What to do if you have a short lease
If your property lease has less than 80 years remaining, it doesn’t necessarily render your property unsellable. You still have several options to consider:
- Consider extending the lease: If you’ve owned your leasehold property for over two years, you’re legally entitled to request a lease extension. This process involves negotiating with the freeholder to prolong the lease duration. The cost and complexity of extending the lease can vary, depending on factors such as property value and remaining lease duration. Seeking advice from a solicitor experienced in leasehold matters is essential to navigate the process effectively. They can provide guidance on your rights, the associated costs, and the best approach to take based on your circumstances.
- Explore freehold purchase: Another option to consider is purchasing the freehold of your property, either individually or collectively with other leaseholders in the building. Acquiring the freehold grants you greater control and ownership rights over the property and eliminates the need to pay ground rent to the freeholder. However, this decision requires careful consideration, as it comes with added responsibilities and potential complexities. Consulting with a solicitor who specializes in property law can help you understand the implications of freehold purchase, assess the feasibility of collective freehold acquisition, and navigate the legal processes involved.
What’s the timescale of selling a leasehold property?
The conveyancing process for selling a leasehold property typically takes longer than for a freehold property. Leasehold conveyancing involves more extensive work for your solicitor and often triggers additional inquiries from potential buyers, which require responses from either you or your freeholder. While a straightforward leasehold sale may be completed within 10-12 weeks, more complex cases can extend the timeline further.
Can a freeholder force a leaseholder to sell?
A freeholder cannot compel a leaseholder to sell their property as long as the lease terms are upheld and there’s sufficient time left on the agreement. However, if a leaseholder violates the lease terms, the freeholder may pursue forfeiture action. Not all leases permit forfeiture proceedings. Some leases include a Licence to Assign clause, requiring the freeholder’s consent for property sale. Yet, in most instances, leaseholders can sell to any buyer, who then assumes residency based on the lease terms.
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What is leasehold?
There are two primary forms of property ownership: freehold and leasehold. Freehold grants permanent ownership of both the building and the land it occupies. In contrast, leasehold ownership entails:
- Partial ownership of the building for a specified duration.
- Lack of ownership of the land beneath the property.
Under a leasehold arrangement, the portion of the property owned is termed the “demised premises,” as defined in the lease agreement. Typically, this encompasses the interior of the flat, including wall surfaces, ceilings, and joists. However, structural elements like external walls, roofs, and communal areas such as stairs and gardens are typically excluded from the demised premises.
Leasehold properties are governed by legal agreements that bind all occupants to the landlord (freeholder). These agreements facilitate adherence to various rules and obligations outlined in the lease, including:
- Payment of service charges to cover building management, maintenance, insurance, and communal area upkeep.
- Compliance with covenants, which may include restrictions on certain activities like operating a business from the property.
How long should a lease be when buying a flat?
Leases come with a notable limitation: their fixed term. When selling a leasehold flat, the buyer obtains the remaining years on the lease, referred to as the “lease term.” Eventually, as the lease term concludes, ownership reverts to the freeholder.
While there’s no fixed term for a lease, older residential leases often lasted for 99 years. Nowadays, most new leases span at least 125 years or even longer. The primary rationale for longer leases is to enhance mortgage eligibility. Mortgage providers typically decline loans for leasehold properties with insufficient lease terms, often below 90 years. A dwindling lease term significantly impacts the flat’s value and the owner’s ability to remortgage or sell.
Statutory lease extension
Fortunately, there’s a legal solution. If you meet the eligibility criteria, the Leasehold Reform, Housing and Urban Development Act 1993 (the Act) grants you the right to:
- Extend your remaining lease term by 90 years.
- Eliminate the ground rent.
Additionally, you have the option to voluntarily extend your lease without resorting to the statutory process.
Marriage value
Yet, the expense of extending a lease surges notably when the remaining term dips below 80 years. This hike is due to the inclusion of ‘marriage value’ in the calculation.
Marriage value denotes 50% of the rise in the property’s market worth resulting from the lease extension. Essentially, it signifies you and your landlord dividing the financial gain from extending your short lease. However, marriage value frequently amounts to tens of thousands of pounds, in addition to the fundamental cost of extending the lease.
Is 125 year lease long enough?
When purchasing a flat, future saleability is crucial. A lease term of 999 or 250 years poses little concern, but with a 125-year lease, issues arise after 35 or 40 years. Each year of ownership diminishes the property’s appeal to potential buyers, making it challenging to sell or secure a mortgage.
While the Act allows for one lease extension, costs escalate as the term nears 80 years, even without marriage value. Extending the lease early offers certainty and reassurance to future buyers, even if most of the 125-year term remains.
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]]>The complexities between statutory and contractual tenancy agreements underscore the importance of clarity in legal frameworks within the rental sector. Offley’s advocacy aims to mitigate risks for both landlords and tenants by ensuring that agents are well-versed in the nuances of these agreements, thereby fostering smoother transactions and reducing the likelihood of disputes arising from misunderstandings.
“We recently encountered a scenario where a tenant contested a section 13 notice, raising concerns about their periodic status,” Paul Offley explains. “Upon thorough investigation by the letting agent, it became apparent that the tenant had misconstrued the terms of their contractual and statutory tenancy agreements.”
Offley elaborates further: “In instances where a fixed-term tenancy is initially established for a period of six months, the transition to a periodic tenancy occurs at the end of the fixed term. However, the type of periodic tenancy depends entirely on the specifics outlined within the Assured Shorthold Tenancy agreement (AST),” he underscores.
“In essence, a contractual periodic tenancy ensues when the AST explicitly outlines the transition to a periodic tenancy at the end of the fixed term. This means that both the landlord and the tenant have agreed, in writing, to continue the tenancy on a periodic basis after the initial fixed term expires. On the other hand, a statutory periodic tenancy emerges when the AST makes no mention of post-fixed term arrangements, and the tenant continues to occupy the property without signing a new agreement.”
Offley highlights two key differences between the two types of tenancies, particularly regarding rent increases and council tax obligations. In a contractual periodic tenancy, the terms for rent adjustments are typically outlined in the original AST agreement, allowing for clearer communication and agreement between the landlord and the tenant. However, in a statutory periodic tenancy, the rent may be subject to change according to statutory regulations, which could lead to potential disputes between parties if not clearly understood from the outset.
Understanding these distinctions is crucial for both landlords and tenants to ensure clarity and compliance with legal obligations throughout the tenancy period. By being aware of the type of tenancy agreement in place, both parties can navigate issues such as rent adjustments and council tax responsibilities more effectively, ultimately fostering a smoother and more harmonious landlord-tenant relationship.
“Many ASTs include a rent increase clause, allowing landlords to potentially raise rent annually. In the case of a contractual periodic tenancy, this clause, if deemed fair, permits a rent increase without the necessity of a section 13 notice. However, if the AST lacks a rent increase clause, serving a section 13 notice becomes imperative,” he explains.
“In the instance of a statutory periodic tenancy, landlords should refrain from incorporating a rent review clause, as the fixed term and statutory periodic tenancies are distinct agreements. In this scenario, landlords must adhere to the statutory procedure outlined in serving a section 13 notice, without the presence of a rent increase clause.”
Offley stresses the importance of updating tenants with any revisions to the ‘how to rent’ guide if changes occur during a fixed-term lease, subsequently transitioning into a statutory periodic tenancy, thus establishing a new tenancy.
Moreover, he highlights the nuanced implications regarding council tax responsibilities for landlords. “In a contractual periodic tenancy, tenants are liable for council tax until the tenancy concludes, regardless of vacating without notice,” he explains.
“In contrast, under a statutory periodic tenancy, tenants are responsible for council tax only while residing in the property, as these are considered new tenancies. Therefore, if a tenant vacates or abandons the property without notice, the landlord may become liable for council tax payments.”
“Although most ASTs likely contain clauses or wording that establish contractual periodic tenancies, it’s advisable for agents and landlords to review agreements for clarity,” Offley concludes.
What Do We Mean By A ‘Short Lease’?
Residential leases for flats, maisonettes, and some houses are typically granted for an initial term of 99 years or more, with some extending up to an impressive 999 years. This long-term arrangement offers security and stability to both leaseholders and freeholders. However, as the lease term progresses, its remaining duration becomes a significant factor in property valuation and marketability. Once the lease term expires, ownership of the property reverts back to the freeholder, unless the leaseholder takes proactive steps to extend the lease. This process, known as lease extension, allows leaseholders to maintain ownership and control over their properties for an extended period, safeguarding their investment and securing their housing arrangements.
Properties with less than 80 years left on the lease are generally considered to have a ‘short’ lease. While this designation may raise concerns among potential buyers, it does not necessarily render the property unsellable or unattractive. In fact, short-lease properties are frequently bought and sold, particularly in areas with high demand and limited housing supply. In cities like London, where property prices are notoriously high, it’s not uncommon to encounter properties with leases of fewer than 5 years changing hands. Despite the apparent risk associated with short-lease properties, buyers are often willing to invest in them due to various factors such as location, potential for lease extension, and investment opportunities.
What is considered to be a ‘short’ lease?
In simple terms, a lease that dips below 80 years is classified as a short lease. Despite seeming lengthy, in leasehold terms, the 80-year mark serves as a crucial threshold, known as the ’80-year rule.’
Once a lease falls below 80 years, the expenses linked to extending it soar significantly. This increase is attributed to the introduction of marriage value, which refers to the value uplift generated by granting a new lease.
Can you extend the lease?
In most cases, extending the lease on a property is feasible, offering leaseholders options to secure their tenure. There are two primary methods for pursuing a lease extension:
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Statutory Lease Extension:
Leasehold owners can exercise their statutory right to a lease extension under the Leasehold Reform, Housing and Urban Development Act 1993. This process involves serving a Section 42 Notice on the freeholder, outlining the proposed terms, including the desired extension length and ground rent adjustments. Eligibility criteria include a minimum ownership period of 2 years and an original lease term of at least 21 years.
If purchasing a property with a short lease, while you may not meet the eligibility criteria, the seller might. In such cases, it’s possible to request a statutory lease extension as a condition of purchase, with the benefits transferred upon completion of the sale.
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Informal Lease Extension:
Alternatively, leaseholders can pursue an informal lease extension by directly approaching the freeholder without adhering to statutory procedures. This method allows for flexible negotiations between parties, although it lacks the statutory protections provided under the 1993 Act. Without statutory safeguards, leaseholders may encounter challenges in negotiating favorable terms, potentially leading to less advantageous agreements.
It’s worth noting that the landscape of residential leases is poised for significant changes, with the government proposing comprehensive leasehold reforms. These reforms aim to empower leaseholders by extending leases up to 999 years without ground rent obligations, signaling a potential shift towards greater leaseholder rights and protections.
Do I have to extend a short lease?
No, it’s not obligatory, but in most cases, extending a short lease proves advantageous.
Considerations for letting a lease expire may include:
- Landlords seeking to collect rental income without concerns about the lease reverting to the freeholder in the future.
- Individuals without heirs or retirees confident the lease will outlast them, avoiding unnecessary expenditures.
There’s no definitive right or wrong, but if you don’t fall into these categories, extending the lease sooner rather than later, or not at all, is likely the wiser choice.
What if you don’t extend the lease?
While extending the lease is often seen as the logical step to safeguard property value, there are scenarios where allowing the lease to expire might be preferable. For instance, older homeowners without heirs may not prioritize preserving property value as they have no estate to pass on.
Short-lease flats can also appeal to investors seeking high buy-to-let rental yields relative to the property’s purchase price. The potential for significant profit margins has historically enticed risk-tolerant investors to consider short-lease properties. Additionally, impending reforms to the leasehold system are expected to mitigate financial risks associated with such investments.
Is it possible to get the seller to extend the lease for me?
Yes, it’s feasible and frequently the optimal choice.
However, there’s a condition: the seller must have owned the property for at least two years to qualify for a statutory lease extension.
If they meet this requirement, they can serve the initial notice to the freeholder. You can then inherit the benefits of this notice, circumventing the two-year ownership prerequisite linked with statutory lease extensions.
Can you get a mortgage?
Purchasing a flat with a short lease can pose challenges when seeking a mortgage, particularly if the remaining lease term is less than approximately 80 years. Many mortgage lenders perceive the financial risks associated with such properties as significant, making it difficult to secure financing.
For those in need of financing, consulting an independent mortgage broker is advisable. They can explore various options, including shorter mortgage terms and specialist lenders. However, be prepared for higher interest rates, reflecting the lender’s heightened risk compared to traditional leasehold properties.
Short lease properties are often auctioned rather than being listed by estate agents due to their non-mortgageable status. Cash buyers looking for astute investments may find short lease properties appealing, despite the additional expenses and efforts required post-purchase to extend the lease term.
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]]>This partnership between Citra and Barratt underscores a commitment to meeting the growing demand for rental accommodation. By introducing these new properties to the rental market, Citra seeks to address the need for affordable and accessible housing options, particularly for families in Gloucestershire.
Citra, a division of Lloyds Banking Group, has announced a significant expansion in Gloucestershire’s rental market with the acquisition of over 150 new family homes. These homes are part of a strategic partnership with Barratt Homes Bristol and are located in the Winnycroft Lane development in Matson, near Gloucester. The move underscores Citra’s commitment to providing quality housing solutions across the UK, adding to its existing portfolio of more than 2,000 homes.
The newly acquired properties offer a diverse range of living options, including 2, 3, and 4-bedroom homes. With the first wave of homes set to be completed by summer, families can soon anticipate modern and comfortable living spaces. Situated just 3.5 miles south of Gloucester, the Winnycroft Lane development is poised to become a vibrant community hub within easy reach of the city’s amenities.
Winnycroft Lane forms part of a larger housing project aimed at delivering up to 420 residential units. This expansion not only addresses the growing demand for housing in the region but also contributes to the development of sustainable communities. Citra’s partnership with Barratt Developments signifies a concerted effort to streamline the delivery of new homes in the private rental sector. By leveraging their combined expertise and resources, the collaboration aims to accelerate the availability of high-quality rental properties.
The strategic alliance between Citra and Barratt Developments represents a significant step towards meeting the evolving needs of renters in Gloucestershire. With an emphasis on affordability, accessibility, and community integration, the Winnycroft Lane development is poised to offer residents a desirable blend of modern living and convenience. As the project progresses, Citra remains committed to delivering exceptional rental experiences and contributing to the ongoing growth and vitality of the local housing market.
Citra and Barratt have joined forces to deliver more than 1,500 homes through collaborative projects across several regions, including Bedfordshire, Northumberland, Lancashire, and the South West. This partnership marks a concerted effort to address the increasing demand for quality housing in these areas. By leveraging their respective strengths and resources, Citra and Barratt aim to provide homes that cater to the diverse needs of families in these communities.
Andy Hutchinson, Citra Living’s managing director, emphasises the allure of Gloucestershire as a prime location for residential development. He points to several factors contributing to the region’s attractiveness, including its thriving knowledge-based economy, well-established transportation links, and the appealing blend of rural tranquillity and urban conveniences. With a track record of sustained growth and significant investment over the past decade, Gloucestershire stands out as an ideal destination for families seeking to establish roots in a vibrant and dynamic environment.
“Our long-standing partnership with Barratt has created a significant portfolio of high-quality homes – growing communities and delivering homes in places where people want to live. We look forward to welcoming our first customers to Winnycroft as we reach this latest milestone in the partnership which will pave the way for more new schemes in future.”
And Steve Mariner, sales and marketing director at Barratt Developments, adds: “Winnycroft is an excellent development that showcases our ongoing partnership with Citra really well. It brings new homes to the private rental sector in Gloucestershire where they join a thriving new community ready for people to move in this summer.”
Leasehold properties come with disadvantages that can pose problems if not fully understood. Without proper awareness, you may find yourself facing unforeseen expenses and complications.
In this article, we explore the downsides of leasehold ownership, drawing from personal experiences to provide valuable insights for prospective buyers.
What Are The Disadvantages of Buying a Leasehold Property?
When purchasing a leasehold property, several drawbacks require careful consideration:
- Fire Safety Checks and Costs: Leaseholders may bear the responsibility for fire safety compliance, incurring additional expenses.
- Ground Rent and Service Charge Expenses: Ongoing payments for ground rent and service charges can significantly impact the property’s affordability.
- Lease Extensions: Extending the lease can be a complex and costly process, affecting the property’s long-term value.
- Shared Communal Spaces: Maintenance and upkeep of communal areas may require coordination among multiple leaseholders.
- Lack of Regulation for Freeholders: Freeholders’ actions may be less regulated, potentially leading to disputes or unforeseen costs for leaseholders.
- Less Flexibility for Letting the Property: Leasehold agreements may impose restrictions on subletting, limiting rental opportunities for leaseholders.
- Higher Conveyancing Fees: Legal fees associated with leasehold transactions may be higher compared to freehold properties.
- Noise from Neighbours: Proximity to other units in leasehold developments can result in increased noise levels and disturbances.
- Restrictions Imposed: Leasehold agreements may include various restrictions on property usage and alterations, limiting leaseholders’ flexibility.
When purchasing a leasehold property, you’re obtaining a lease agreement rather than ownership of the property and land. The freeholder maintains ownership of both the property and its land.
It’s a common misconception that leaseholders own the property and merely rent the land, which can lead to misunderstandings.
In extreme cases, failure to pay service charges and ground rent could result in the freeholder repossessing the property.
This risk highlights one of the significant drawbacks of buying leasehold property, as it could potentially lead to loss of investment without recourse.
Here are some of considerations of buying leasehold property:
Fire Safety Checks and Costs
Fire safety checks and their associated costs pose a notable drawback for leasehold property owners. These checks are essential for resident safety and compliance but can be financially and temporally demanding.
In cases where a building fails fire safety assessments, the implementation of a waking watch may be necessary. This entails hiring personnel to patrol the premises, adding to maintenance expenses.
Failed fire safety ratings can significantly impact property sales, particularly for buyers seeking mortgages. Lenders are increasingly cautious about financing properties with inadequate fire safety measures, reducing marketability.
Personal experiences with these checks have been challenging. My leasehold property has a B2 fire safety rating, necessitating remedial work. This has hindered sales and led to increased service charges to cover additional costs.
Ground Rent
Ground rent poses a significant challenge for leasehold properties, representing the fee for leasing the land beneath your property. As a leaseholder, you pay for the right to utilize this land owned by the landlord throughout your lease term.
While this practice is common and legal in the UK property market, the recent introduction of the Leasehold Reform (Ground Rent) Act 2022 aims to reduce all ground rent to a nominal level on new leases. However, existing leases remain unaffected by this change.
When considering a leasehold property purchase, it’s crucial to examine the current ground rent rates and the method of calculating future increases. Additionally, an alternative form of ground rent, known as Peppercorn Rent, often involves negligible fees, sometimes as low as £10 per year, which landlords may overlook collecting.
Lease Extensions
A lease agreement is time-limited, typically spanning a set number of years. It’s essential to extend this lease before it dwindles to less than 80 years. The cost of such an extension can escalate significantly, often reaching tens of thousands of pounds, contingent upon factors like your freeholder and legal expenses.
Moreover, once the lease drops below the 80-year threshold, expenses tend to surge further due to what’s known as ‘marriage value.’ This entails the freeholder being entitled to 50% of the value added to the property through the lease extension.
When contemplating lease extensions, three key considerations come into play:
- Extend your lease early: Procrastination should be avoided when contemplating a lease extension. Acting promptly to extend your lease well before it dips below the 80-year mark is crucial. The upside is that any lease exceeding 80 years can be extended without incurring marriage value costs.
- Beware of delaying tactics: If you’re within a year or less of the 80-year threshold, exercise caution. Some freeholders and landlords might employ tactics to stall the process, deliberately allowing the lease to drop below 80 years.
- Act promptly if the lease falls below 80 years: Should your lease have already dipped below the 80-year mark, swift action becomes imperative. Delaying further only inflates the marriage value, making prompt action all the more essential.
Rising Service Charges
Service charges are a fundamental aspect of any lease agreement, encompassing property maintenance, cleaning, ad hoc repairs, and building insurance. However, these charges have a tendency to escalate over time, amplifying the financial burden associated with owning a leasehold property.
Shared Communal Spaces
Leasehold properties, especially in apartment blocks, commonly have shared communal entrances, which can result in disturbances and noise throughout the day. I’ve encountered issues firsthand, such as balconies above mine littering cigarette butts that often end up on my balcony due to the wind. Additionally, a neighboring child frequently throws bread for birds, leading to increased cleaning needs. While you can’t control your neighbors, these are challenges less likely to arise with freehold properties.
Lack of Regulation for Freeholders
Freeholders operate without regulation, allowing them to impose high fees on leaseholders without much accountability. Whether it’s for lease extensions, alterations, or pet permissions, these charges can be substantial. Prior research is crucial before buying a leasehold property to prevent future stress and financial burdens.
Higher Conveyancing Fees
The buying or selling of a leasehold property is notably more intricate and lengthier compared to a typical house sale, resulting in elevated conveyancing fees. Due to this complexity, some conveyancers may decline to handle leasehold transactions. Be prepared for additional standard checks during your purchase, which could incur an extra cost ranging from £100 to £250.
Noise and Disturbance from Neighbours
Residing in a flat block presents its unique hurdles. If you’re not on the highest floor, expect noise from neighbors above, particularly if the floor insulation is lacking. A simple fix for this issue could be investing in a sleep headphone mask.
Less flexibility if you need to let the property
Due to the added expenses like ground rent and service charges, it’s improbable for a leasehold property under a buy-to-let arrangement to yield profit. This limits flexibility if you need to rent out the property in urgent situations. Shared-ownership schemes often stipulate that the property cannot be let out as a condition of the mortgage.
Is it a Bad Idea To Buy a Leasehold Property?
The decision to buy a leasehold property hinges on various factors, including your personal situation and the property itself. While owning a leasehold property entails restrictions and financial commitments, careful planning and understanding can help sidestep potential drawbacks and enable informed decision-making. After weighing the downsides of leasehold properties, it’s essential to also consider the disadvantages of purchasing freehold properties. Seeking professional advice is crucial to ensure the best financial outcome for your future.
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Buy Refurb Refinance Rent (BRRR) Explained
Section 24 Tax Guide for Airbnb Hosts
Can you make money investing in property?
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