What happens when a leasehold expires?
Do you already own a leasehold property or are you thinking about buying one? You might be wondering what happens when the leasehold expires on a property. It’s important to be aware of the difference between leasehold and freehold property, and the advantages and pitfalls of each so that you can make an informed decision about your purchase.
In this guide we’ve answered all your questions about what happens when a leasehold expires. We’ll explain what a leasehold is, and how to find out how long is remaining on your lease. We talk about what happens when your leasehold expires, and how you can extend it to prevent that from happening. We’ll also talk about the cost of leasehold extension. Finally we’ll walk you through the advantages and disadvantages of leasehold property and talk about some of the ways that you can sell a property with a short lease.
Looking for the answer to something specific, like how you can extend your leasehold? Or what happens if a leasehold expires? Use the menu below to navigate through the article quickly. If you want to become a leasehold expert though, read on for our entire guide!
What is a leasehold?
There are many types of UK property. Properties in the UK are either leasehold or freehold.
In short, a freehold property is one where the ‘freeholder’ owns both the land that a property is built on, and the property itself. A leasehold property is one where the ‘leaseholder’ owns only the property that the land is built on. They don’t own the title that the property is built on, and they essentially rent this from the freeholder.
So, by having a leasehold property you essentially still have a landlord. You will likely pay what is known as ‘ground rent’ as the lease on the land that the property is built on. It’s also possible that you will pay a ‘service charge’, which is basically a maintenance charge to ensure the good upkeep of the building.
This confuses some people because of the fact that they have a mortgage on a leasehold property. Your house repayments for your mortgage are in addition to the charges you may pay for ground rent and service charges, and not part of them. It’s no wonder that so many people find themselves wondering what exactly will happen if the leasehold expires.
In the UK, the general rule is that flats are leasehold properties and houses tend to be freehold properties. Flats tend to be leaseholds because they formalise an arrangement between many residents on a shared piece of land. They help to divide the responsibility for the good upkeep and repair of the property between many residents. Typically the freeholder is a management company who charges the leaseholders a service charge and takes responsibility for this upkeep.
How long is left on my leasehold?
If you own a leasehold property you might be concerned about the length of the lease remaining. There are a few different ways to find out how long is left on a leasehold. The first port of call is the Land Registry. For a small fee (£7) you can download a copy of the Title Deeds. This gives a clear indication of how long is left on the lease.
If you’re thinking about buying a leasehold property the process is even more straightforward. The estate agent will typically advertise the property on online portals such as Rightmove and Zoopla with the remaining lease clearly displayed. If it’s not, they’ll be able to answer questions you have about the amount of time left on the lease if you enquire directly. The length of time remaining on the lease will also come up during the conveyancing process. So there are a number of ways you can find out how long is left on the lease, both as a buyer and an owner/seller of leasehold property.
What happens when a leasehold expires?
Leaseholds rarely expire. But when a leasehold does expire then the property and the land it is built on reverts to the freeholder. This means that you no longer have the right to live in the leasehold property, and the lease and freehold become one, instead of separate interests in land.
If the freeholder wishes to serve you notice to vacate the property then they can. You must follow the terms of this notice as it is a legal requirement. If they decide not to serve you notice to vacate the property, then you may wish to extend your leasehold to continue living there.
Remember, it’s possible for your leasehold to expire even if you have finished repaying mortgage payments on a leasehold property. This is why it’s so crucial to stay on top of the amount of lease remaining on your property, and extend it as early as possible so that you don’t lose legal claim to the property.
How can I extend my leasehold?
The length of a leasehold remaining on a property influences its value. In general, a ‘good’ lease length is one that has over 90 years remaining. Mortgage providers tend to be hesitant to lend on properties that have a lease length of less than 70 years remaining because there is a cost associated with extending a lease.
When the length of remaining lease on a property falls below 80 years it becomes known as a ‘short leasehold’. This is important because the cost of a property becoming a short leasehold could mean that your home loses between 10-20% of its value. Insurance premiums also start to rise pretty heavily at this level.
So, how do you extend a leasehold? There are two routes to do this: formal and informal. Under the formal route, leaseholders who own flats are legally allowed to extend their leases so long as they meet certain criteria. Under the informal route, they can ask the freeholder if they are willing to negotiate a lease extension informally.
Under the formal route for lease extension the leaseholder and freeholder will need to follow a predefined procedure and adhere to timescales that are clearly outlined in the law. This is a more secure route to extend a lease for the leaseholder because it gives a dispute mechanism if terms cannot be agreed. This involves the leaseholder applying to a Tribunal to make a judgement on the terms.
Under the informal route for lease extension the leaseholder can approach the freeholder and ask them if they’re willing to consider a lease extension. The freeholder isn’t obliged to agree to the extension, but it can save both parties time and money if they are amenable.
How much does it cost to extend a leasehold?
Now that we’ve discussed how critical a ‘good’ leasehold is to both retain the right to live in your property and preserve its market value, you’re probably wondering how much it costs to extend a leasehold. The answer to this depends on a few different factors, the main ones are listed below.
- The number of years left on the current lease.
- The ground rent.
- The value of any improvements already made to the property.
- The market value of the property.
So, the answer is that there is no set amount to extend a leasehold. Homehold (lease extension experts) have said that typical costs for adding 90 years to a £200,000 flat range from £4,500 when there are still 90 years remaining on the lease, right up to £28,000 when there are only 60 years left on the lease.
If you want a ballpark figure for how much it will cost to extend your leasehold you can make use of online lease extension calculators to give you a rough estimate.
Can I sell a property with a short lease?
If you have a property with a short lease you may find yourself in a difficult situation. You’re probably panicking about what happens when your leasehold expires. As we’ve mentioned, it can be expensive to extend a lease, but mortgage providers may not be prepared to lend on properties with a short lease. This drastically reduces the pool of prospective buyers for your property. It could mean that it’s left languishing on the market and losing value all the time that the lease is becoming shorter.
One method to sell your property with a short lease is through auction. This is a popular route for vendors looking to sell their house fast, but still obtain a reasonable price for the property. Auction is a good route for this sort of property because they are typically attended/visited by investors. These investors might be looking for an opportunity to extend the lease and add value to the property. Be aware that there are pitfalls of selling your house at auction though, so we recommend reading our guide on how to sell your house at auction.
Another, more reliable method to sell your short lease property is to a cash house buyer like SmoothSale. Because cash house buyers tend to buy any house for cash using their own funds, you don’t have to worry about the sale falling through due to a lack of mortgage provision. SmoothSale has expertise buying properties with a short lease, so if you find yourself in this situation then don’t hesitate to get in touch with us on 0800 368 8952 or simply get a cash offer today.