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What happens when a leasehold expires?

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The property reverts back to the freeholder even if you bought it outright. In this article, we will cover what does leasehold mean, what happens to leasehold property when the lease expires and how to extend your lease.

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What is a leasehold?

Leasehold is a common type of ownership in the UK housing market. As a leaseholder, what you purchase and then own is the right to live in a property for a fixed period, typically ranging from 99 to 999 years, in exchange for ground rent.

In contrast, the land on which the property is built, and usually the property itself, belongs to the freeholder, who is the landlord of the leaseholder.

The easiest way to understand leaseholds is to think of a block of flats. Each flat is owned by a separate person, the leaseholders, while the building itself is owned by someone else.

Expenses for the maintenance of the building, such as cleaning or gardening, are split between the leaseholders, with each paying what is known as a service charge.

Most flats in the UK are leasehold, and many houses are as well. The relationship between the leaseholder and the freeholder is defined by a document called a lease.

This lease outlines the property boundaries, the rent, fees, and the rights and responsibilities of both the leaseholder and the freeholder.

With a leasehold, your position is similar to that of a long-term tenant. Due to the extended duration of the arrangement, a leaseholder enjoys certain additional rights under the law compared to a short-term tenant. They also have specific rights and obligations outlined in the lease.

Ownership of the freehold property is often considered preferable because it eliminates the obligation to pay ground rent and imposes fewer restrictions on what can be done with the property.

Advantages of being a leaseholder include the lower cost of leasehold properties compared to freehold ones and their greater availability for purchase, especially in urban areas.

There is often confusion between leasehold and freehold properties. Many people mistakenly believe that by paying a mortgage, they own the freehold.

However, since leasehold rights can extend for tens to hundreds of years, mortgage providers are generally willing to lend for the purchase of a long lease.

What happens if my leasehold runs out?

When a lease expires, all legal rights in the property revert to the freeholder. The leasehold title and freehold title are no longer separate interests, but a single one.

If you’re the leaseholder, and your lease runs out, the property no longer belongs to you, even if you’ve lived there for a long time.

Leaseholds rarely expire, with most being extended well before the lease ends.

If the lease does expire, the arrangement continues. The landlord may serve a prescribed notice proposing an assured periodic tenancy in return for a monthly rent. Alternatively, they might serve notice to gain possession of the property, although they will need a court order to do this.

If neither of these options becomes available, you might still have the opportunity to extend the lease or purchase the freehold, although it could be costly.

It’s important to note that your leasehold may expire even after you have completed mortgage payments on a leasehold property. Your mortgage covers the expense of the lease, not the cost of the freehold.

What happens when a leasehold expires
When a lease expires, all legal rights in the property revert to the freeholder.

How do you find out how long is left on a lease?

Determining the remaining term on a lease is simple.

If you are the owner, this information should be available in your copy of the lease agreement or your property’s official copies (the ‘title deeds’) from the Land Registry. You can easily download the title deeds from the Land Registry’s website for a small fee.

Alternatively, you can ask your solicitor or the freeholder for the lease title, but they are likely to charge you more.

If you’re considering making an offer to purchase a leasehold property, your estate agent should inform you of the remaining lease term. Your solicitor will also identify a short lease during the leasehold’s conveyancing process.

What is a reasonable lease length?

A lease of 80 years or more is considered long, but for a purchase, it’s preferable to have at least 83 years remaining. When the lease falls below these numbers, referred to as a short lease, extending it becomes significantly more expensive.

An ideal term is 99 years or more.

How do you extend the term of a lease?

UK law grants leaseholders legal rights to extend the lease on their property. These rights come in two forms: the formal route and the less formal or negotiated route.

The formal route is usually preferred as it follows a predefined procedure and provides a dispute mechanism for the leaseholder if the freeholder does not agree to the extension.

On the other hand, if you negotiate via the informal route, the freeholder may not agree to some terms that the statutory route provides as rights.

However, like any legal process, extending a lease involves procedures that need to be followed and costs to consider.

How much does it cost to extend a lease in the UK
The amount needed to extend a lease depends on factors such as the current property value, remaining lease length, and ground rent.

How much does it cost to extend a lease in the UK?

Extending a leasehold involves various financial considerations. The amount needed to extend a lease depends on factors such as the current property value, remaining lease length, and ground rent. Generally, the shorter the lease, the higher the cost to extend it.

Even with long leases, there will be a small fee to the freeholder for their time and legal costs when extending. It’s important to remember that the cost of not extending a lease can be much higher.

As the lease length decreases, the value of a short lease significantly drops. This could impact future house repayments and potentially limit the pool of potential buyers if you decide to sell.

Is it worth buying the freehold?

Buying the freehold is another option to consider. When you buy the freehold, you become the complete owner of both the property and the land it’s situated on. This process is called ‘enfranchisement’ and essentially makes you your landlord.

However, there are challenges to this route. Not all leaseholders have the right to buy the freehold, and there might be resistance from the current freeholder.

Additionally, it’s important to note that the cost of purchasing a freehold can be high. The amount usually depends on the property’s market value, the length of the lease, and the annual ground rent.

Therefore, seeking professional advice is often crucial in this process. Conveyancing solicitors or lease extension specialists can help you understand the total costs and assist you through the process.

While their expertise comes at a cost, their involvement can potentially save you time and reduce the risk of legal errors.

Is buying a leasehold property a good investment?

Deciding whether to buy a leasehold property depends on many factors. It’s a decision that requires careful thought, considering your financial situation and long-term plans.

Buying a leasehold flat can provide a more affordable way into property ownership, especially in areas where freehold properties are much more expensive.

This might make it an appealing option if you’re keen to step onto the property ladder. It’s important to note that most flats in the UK are leasehold properties.

However, leasehold ownership does come with its challenges. You may have to pay ground rent, annual service charges, and other costs that could accumulate over time. It’s essential to understand the expected expenses as a leaseholder.

There may also be restrictions on the changes you can make to the property, as outlined in the lease agreement. Additionally, when the lease expires, the property reverts to the freeholder.

To make an informed decision, you need to comprehend the terms of the lease agreement, including the remaining years of the lease, the associated costs, and your rights and responsibilities as a leaseholder.

As always, it’s beneficial to seek advice from a conveyancing solicitor during the purchasing process. While it’s possible to navigate the process on your own, involving a professional can provide a more secure route.

They can offer guidance, manage documentation, and communicate with the estate agent, mortgage providers, and the land registry on your behalf, saving you time and helping avoid potential pitfalls along the way.

Buying a leasehold can be a significant step towards home ownership. However, as with all property purchases, it’s important to do your homework and ensure you’re fully informed before making the decision.

Can I sell my house if its leasehold
Even if your property has a short lease, we will buy it for cash.

Can I sell my house if its leasehold?

As the leaseholder, you have the right to sell your property at any point during the lease. However, when selling a leasehold property, it’s important to consider that the new owner will be subject to the same lease terms as you are now.

The terms of the lease may also influence how attractive the property is to potential buyers.

Even if your property has a short lease, we will buy it for cash.  By selling it, you won’t have to worry about lease extension, all the fees, hassle and stress of dealing with the freeholder.

Get in touch with us today.

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