Are you selling your home, which is a leasehold property?
Selling a leasehold property is not any more complicated than selling a freehold; although there are some differences. It involved some more planning extra paperwork. This article will guide you on selling your leasehold property.
What is a leasehold?
Owning a leasehold means that you have a lease to use the property for a certain amount of time, usually several years. If you are purchasing leasehold, you will not be an absolute owner of the property and your rights and obligation will defer as from those of a freeholder. You will be living in the property under a contract which sets out your legal rights and obligations.
In the United Kingdom, usually, flats come with leaseholds. Leasehold properties do not put off potential buyers as they are quite common to come across.
How to sell a leasehold property?
The process of selling a leasehold property isn’t much different from selling a freehold.
- Find an estate agent – The first thing to do is to engage an estate agent. Your estate agent will market the property, arrange viewings, and inform you of all the offers received.
- Accept an offer – Your estate agent will inform you all the offers received. You have to pick on which you think is best.
- Hire a conveyancer – The next thing to do once you have received an offer is to hire a solicitor or a licensed conveyancer and instruct them.
- Pre-sale questions – Your buyer may have some pre-sale questions. Your estate agent will contact the freeholder and get an answer. The freeholder may charge an admin fee to provide information as they are under no legal obligation to do so.
- Exchange contracts – Once you have come to a deal with the buyer, you will be exchanging contracts with each other. This will bind both you and the buyer to complete the purchase.
- Completion – You and the buyer will decide on a date for completion. This is the day when the sale will take place, and the remaining sale proceeds will be transferred to you.
What issues can come up when selling a leasehold property?
Generally, selling a leasehold property does not pose any issues.
Issues may arise, however, if you are selling a leasehold property which has a short lease.
What is a short lease?
Generally, short leases are those which are 80 years or less.
Why is short lease an issue?
- Low sale price – If the time left on the lease in 80 years or less, this will negatively impact the sale price.
- Difficult and expensive to extend – Short leases are both more difficult and costly to extend.
- Hard to find mortgages – It is quite hard to get a mortgage on a property which has a short lease. It will be near to impossible to get a mortgage on a leasehold property which has 60 years or less left
- Limited to cash buyers – If your buyer cannot get a mortgage, then your sale will fall through, or you would have to find a cash buyer.
Disputes with freeholder
If there is an ongoing dispute with your freeholder, then it is likely to cause hold-ups in the conveyancing process. There is even a risk that you could lose your buyer if you have not already informed him.
You will be required to inform the buyer to complete a set of questionnaire. You cannot provide incorrect or misleading information as you could later face a claim for misrepresentation.
What are the solutions?
For short leases, you can either choose to extend the lease or buy the freehold
Extending the lease
You can extend your short lease, which will increase the value of your home. The Leasehold Reform, Housing and Urban Development Act 1993 provides a right to all leaseholders who have held the lease for two years or more. Discuss with your solicitor when you should extend your lease.
Cost of extending the lease
The cost of extending the lease varies depending on several factors including, the value of your home, the current lease length, ground rent charges, to name a few.
When to extend the lease
For most leaseholders, they only choose to extend their lease when it comes close to the 80th year mark. This is because the cost of developing the lease by 90 years, which is the most commonly sought extension, does not outweigh the profit you will make when you sell.
Buying the freehold
The second option is for you to buy the freehold. If there are other leaseholders, then you can club with them and buy the freehold together.
What are the benefits?
This will attract more buyers as people are usually more interested in buying flats which comes with a share of the freehold because then they do not have to pay the ground rent and service charges. This is a significant benefit.
If you own the freeholder, you can decide yourself the provider you want to take care of maintenance and upkeep of the property.
Resolve the dispute
Buyers will be cautious about investing in a property which has a dispute issue that will continue after they buy the property. Therefore, you should consider amicably resolving the dispute.
Service charge payments
You should not withhold service charges or ground rent and let them fall in arrears. While you can challenge unreasonable charges, you are entitled to withhold any payment.
Further, the buyer’s conveyancer will ask the freeholder to provide a 3-year service charge account. The buyer will want you to clear the accounts with the freeholder. Otherwise, they will ask that you deduct that amount from the sale price.
The situation may get a little bit more complicated if you are in ongoing litigation over a dispute with your freeholder. It would help if you spoke to your conveyancer to advise you on the best possible option.
Please note that the information provided on this page:
- Does not provide a complete or authoritative statement of the law;
- Does not constitute legal advice by Net Lawman;
- Does not create a contractual relationship;
- Does not form part of any other advice, whether paid or free.
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