Go down below around ninety years and the notional value of your flat falls ever faster each year, though initially only at a snail's pace. Without wanting to terrify flat owners, the unexpired period reduces eventually to zero, at which point the freeholder can take possession of the flat. The good news is this is extremely unlikely ever to occur. The down side is that you may need to pay for the lease extension to make sure it does not.
A theoretical suburban flat with a lease outstanding of a year will be practically worthless in comparison with a comparable property with 100 years. After all, who would wish to acquire an apartment that they would have to hand back to someone else in a year or so?
Leasehold experts agree that a typical flat with 80 years remaining on its lease will be worth 5% less than one with a lease in excess of 100 years. (The numbers will be different depending on a number of conditions however these can be used as a guide - you ought to seek advice from a specialist surveyor and you can reach them on the web page of the Association of Leasehold Enfranchisement Practitioners, ALEP). 10 years later, with 70 years left over, it would have lost another 8% of its value so that it will be worth 13% less than a long-lease neighbour. Wait another 10 years until the unexpired term is 60 years and it will have lost 20% of its peak value. Looking at a flat of £200,000 with a long lease in suburban London, this would be worth £40,000 less when the lease has 60 years.
These numbers fail to yet take into account the marketability of the flat. If you've a neighbour with an indistinguishable apartment with a short lease and your lease has been extended, any potential buyers would clearly rather view the one that won't require the inconvenience and outlay of having the lease extended.
You will find several main milestone years in the case of the unexpired term:
80 years - as soon as the lease length drops below 80 years a definite aspect, called marriage value, will become incorporated in the technical valuation of a property. To work out how a flat is valued, look at our item on that, but you need to understand that marriage value becomes built-in in how surveyors determine how much flat owners pay for a longer lease.
70 years - scores of mortgage lenders will not make loans on properties with leases this short. Lender policies fluctuate on acceptable lease length; a number are longer, a few are shorter. Not only would it influence you if flat owners are considering buying such a flat, but it has a large affect in the event that you are selling one. As numerous properties are bought through mortgages, if scores of your buyers can't get one then the quantity of people who can buy your apartment drops. Having a smaller market, the price would be forced lower.
60 years - hardly any solicitors would advise that their clients buy an apartment with a lease this short. If you are selling, your marketplace shrinks further, dragging the value downward appreciably. If flat owners are selling, they may possibly want to set aside the money to make bigger the lease so that you can appeal to buyers.
A note of caution about where lessees get information as regards lease length. Although there are loads of superb managing agents and estate agents who recognize leasehold issues, anecdotal experience suggests that many do not. Rather than admitting a lack of understanding, a considerable number could be concerned about their individual self interest and make an effort to win over buyers and sellers that a short lease may not be a big hindrance. This is an expert matter and blunders are costly: you should think about getting advice from a qualified leasehold surveyor, solicitor or intermediary if you have any doubts or problems regarding residential property leases.
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About the author
Andy Szebeni is part of the management team of the Association of Leasehold Enfranchisement Practitioners. ALEP has in excess of 100 members, each vetted ahead of joining. They include solicitors, surveyors, intermediaries, managing agents and other professionals specialising in the field of leasehold enfranchisement. Have a look at the searchable list of vetted members at http://www.alep.org.uk/membership/.
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