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How many years are left on the lease? Is this relevant?

Napthens - May 25th 2017

What is the length of the lease?

When selling a leasehold property, one of the first questions you will ask your seller client is, what is the length of the lease term?

You will usually provide details of the lease term within the sales particulars, and the length will have a direct impact on the market value of the property.

Lease terms can be very different, ranging from 999 year leases, to 125 year and 99 year leases. Therefore, it is extremely important for owners of leasehold properties to keep a watchful eye on the remaining lease term and ensure that the property is still marketable and very importantly, attractive to mortgage lenders.

What will mortgage lenders accept?

It is important to note, that even if a prospective purchaser is interested in a shorter lease term, if they are obtaining mortgage finance, it will be their lender’s decision as to whether the lease term remaining is acceptable.  Lenders differ in their lending criteria, some lenders are not happy with less than 75 years remaining, whilst others are happy with anything over 70 years. However, if there is less than 60 years to run, some lenders will refuse to lend at all.

What to do if the length of the remaining lease term is 80 years or less?

As soon as you become aware that a lease has less than 80 years to run, or is approaching that point, then it is extremely important to ask your seller client whether they have approached their landlord in order to obtain a lease extension. The fact that the seller may be in the process of arranging a lease extension, could positively affect the value of the property.

If the seller does have 80 years or less remaining, then it would be prudent to recommend that they speak further to a lawyer straight away, even prior to agreeing a sale. As lawyers, we would then review the existing lease and check the term. We could then advise the seller to either contact the landlord directly on an informal basis in order to negotiate a lease extension. Or, if the landlord is not forthcoming, serve a statutory notice in order to extend the lease term for a further 90 years. The latter option would only be available to the client on the basis of certain criteria in the legislation being met, which we would advise upon.

It may be that a lease extension does not have to be finalised prior to agreeing to a sale. So, for instance, a prospective purchaser could be attracted to the very fact that the landlord is agreeable to a lease extension, has provided a cost estimate and valuation which is reasonable and the buyer may be happy to proceed with the lease extension after completion.  Alternatively, if a statutory notice has been served by the seller, the benefit of the notice could be assigned to the buyer who would then proceed with the lease extension after completion.

Another option would be for the lease extension to run alongside the sale, and complete at the same time.

Any further queries in relation to lease terms and extensions, please do not hesitate to contact a member of the Conveyancing team.