The owners of many leasehold properties in Newcastle upon Tyne encounter problems when they come to sell their properties because buyers’ Newcastle Conveyancing Solicitors consider that the outstanding term of the lease is too short. Leases are granted for a ‘term’ of years, and the leases of many Newcastle flats were traditionally granted for a term of 99 years. When a leasehold property is sold, the buyer’s Conveyancing Solicitor will look at the lease to ascertain the length of the term and the date it runs from, so that he can calculate the length of the term unexpired at the date of the sale.
Mortgage Lenders' Requirements
A major problem has arisen over the last few years because mortgage lenders keep increasing their requirements for the length of the unexpired term. For instance Northern Rock PLC requires an unexpired term equal to the Mortgage Term plus 30 years, while many lenders require the mortgage term plus 35 years. Some require a minimum of 70 years outstanding at the date of the mortgage. One even requires that there should be 70 years unexpired after the expiry of the mortgage term; if the mortgage term was the usual 25 years that would mean that the lease would have to have a minimum period of 95 years still to run at the time of the sale.
Owners now often find that even with fairly modern Newcastle properties, the unexpired term of their leases is too short for lender’s requirements, or that buyers are worried that they will be affected when they come to sell. Buyers frequently ask for sellers to arrange for an extension of the lease term. Although this may be a nuisance for sellers, and will involve them in extra expense, it should be borne in mind that once the lease term gets too short, it will seriously affect the value of a property and potential buyers will find it difficult to get a mortgage.
Under the Leasehold Reform, Housing and Urban Development Act 1993 leaseholders have the right to ask for the freeholder to add 90 years to what is left on the existing lease. Not all leaseholders may be able to apply, and in particular an application under the statutory provisions can only be made by a flat owner who has owned the property for at least two years. Where a buyer wants the lease extended a common procedure is for the sale contract to require the seller to serve a statutory notice on the freeholder, and the benefit of this notice is then transferred to the buyer at completion. The buyer then continues with the process, negotiates terms with the freeholder, and pays the premium for the lease extension. Of course the price that the buyer is prepared to pay for the flat will take into account the amount of this premium, together with the other expenses which may be incurred, so the seller may not get the best price.
Negotiation of Lease Extension
Some sellers prefer to try and negotiate terms with the freeholder outside the statutory framework. Many freeholders are happy to do this, but they will often require higher premiums than might be payable under the 1993 Act, they will not necessarily be willing to give a 90 year extension, and they will require regular increases in the yearly ground rent payable (under the Act the new term will be at a peppercorn rent). Of course sellers may not be too concerned about these terms if they are intending to sell, but buyers Property Lawyers may advise their clients against them.
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If an owner has negotiated terms with the landlord he may try to sell on the basis that the buyer completes the lease extension with the landlord. However that is risky for buyers, because landlords will offer to extend ‘subject to contract’ and may not be willing to honour any agreement with the seller. Therefore buyer’s Conveyancing Solicitor will usually require the seller to arrange completion of the extended lease before completion. This can cause problems for sellers who are intending to pay the premium for the lease extension out of the proceeds of sale.
If you are intending to sell a leasehold flat in Newcastle then you should get advice from your Conveyancing Solicitor before marketing the property. Fridaysmove can arrange for a Conveyancing Solicitor to advise you on all aspects of lease extensions. If you want to utilise the procedure under the 1993 Act we can also arrange for a proper valuation to be carried out to determine the amount of the premium which should be payable. This is important as this figure has to be inserted in the statutory notice served on the freeholder and if it is not a reasonable amount the court may decide that the notice is invalid.
Please note that the above comments only apply to leasehold flats. The owners of leasehold houses are entitled to buy the freehold of their properties, and if you are in that situation you should seek advice from a Newcastle Conveyancing Solicitor.
Much general advice on leasehold properties and tenants’ rights is also available from the government’s leasehold advisory service.