September 17, 2013

Why Extending Your Lease is Important

If you own a leasehold property, you may or may not know about the importance of extending your lease. It is likely you bought your property with many, many years left on the lease, as the vast majority of sellers will make a point of extending their lease before they sell up. If there is any chance you will need to sell your property in the next few years, or need to do anything else that depends on your property value, it is crucial that you think about extending your lease sooner rather than later.

Firstly, back to basics. What exactly is a leasehold property? They are usually flats or apartments or otherwise buildings where there is shared residency, although it is possible for some small housing estates to operate under a leasehold structure. Essentially, one person owns the building, and while people can buy a property within that building, the building itself is still owned by that person. To extend the period of ownership for your part of their building, you extend your leasehold by paying them a sum of money to secure the building for yourself for X amount of years.

Your leasehold is a way to tell the landlord how long your flat is legally your own for, whether that’s 100 years or 50 years. Ideally, you should make sure you have a lease of, at the very least, 70 years left on your home, but it is safer still to go for something over 80 years. This generally covers a lifetime, and means the property is yours for your entire life.

When this starts getting tricky is when you want to sell. If you only have, say, 50 years left on your lease, it will be worth significantly less than if you extended this lease to make it last a lifetime. If you don’t do it, the burden will fall on the buyer, which can put them off buying once they find out they will be paying a fortune on top of the initially diminished property value to extend the lease themselves. A home which comes with an extended lease already offers the buyer security and makes them feel safe in the knowledge that their home will remain theirs for as long as they need it.

In August, a property in London hit the news for being presumably the last ever home available for less than £100,000. The zone 2 flat in Brixton was apparently a snip at a mere £99,500, making this property vastly cheaper than the average London house price. Among the poor decorative order and unattractive building, the 56 year lease was cited as one of the reasons for the low value of this studio flat, showing that even in an expensive city such as London, sellers just can’t get away with not extending their lease. It will save the seller from spending money initially, but it will be very hard to sell the property and many buyers won’t want the hassle of extending a lease on their new home.

The message is clear: extend your lease before it starts to affect your property’s value. The longer you leave it, the more expensive it gets to extend, so catch it ahead of time for the best value.

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