It is always advisable to discover how long you have remaining on the term of your lease before you go through the process of selling your property. This is because the length of term has a great effect on attracting and deterring potential buyers.
The advice of a specialist property solicitor can clarify your leasehold position with clarity and accuracy and before applying for a leasehold extension it is also useful to be aware of the following facts.
The first fact is that both buyers and lenders tend to favour properties with leases with a remaining duration of in excess of 95 years. The second fact is that lenders have been tightening their mortgage criteria over recent years and currently will not generally consider providing a mortgage for any property with a lease due to expire in under 70 years or less. This criteria could tighten further if the direction of travel by lenders in this respect is anything to go by — the cut off point for mortgage acceptability just a few years ago was 50 years of lease remaining! A final fact is that even if your property has a lease with more than 70 years to run, and your buyer can thus perhaps obtain mortgage, if the lease has less than 80 years to run, when the inevitable application for a lease extension has to be made post sale, to restore the value of the property, the applicant, your potential buyer, will have to budget for paying the Marriage Value – an additional cost .
The Marriage Value only comes into play with applications for a leasehold extension where the original lease has less than 80 years to run and is based on the legally required 50/50 division between the leaseholder and the landlord of the ‘profits’ arising from an assumed increase in the value of the property as a result of its having been granted a leasehold extension. In the UK the calculation of this assumed increase in value is unavoidably subjective, based on local knowledge and market factors. It can amount to a considerable sum of money and might well deter a would-be buyer.
Unscrupulous freeholders have also been known to take advantage of leaseholders who desire a rapid sale and need to make an application for a leasehold extension to secure that sale. The freeholder might promise no delay on their part in exchange for the leaseholder accepting a much shorter lease than the maximum of 90 years that could be requested under the Leasehold Reform, Housing and Urban Development Act 1993 (as amended). This situation can be avoided providing that the leaseholder is aware that he is permitted to serve and register the initial notice in the lease extension application and then transfer the right to the buyer. This allows the application to proceed without the soon-to-be new owner having to have satisfied the 2 year minimum ownership eligibility qualification.
The longer that your lease is, the more marketable a residential property becomes – and, of course, the converse is equally true. It therefore makes sound commercial sense to ensure that the necessity for a leasehold extension is given just as much due consideration as is the structural condition and presentation of your property when you come to putting it onto the market for sale.