Short leases – at what point do you need a lease extension ?

One of the facts that you will be most  interested to know when you are purchasing a residential leasehold property is how many years the lease has remaining.  
The number of leasehold properties have increased considerably since the 1950’s and 1960’s.   Areas of greatest population, London, Manchester, Bristol and other major cities generated new leasehold property as building land became scarce.   Many of these early leases were for a 99-year term.
Let’s use an example a lease of a flat with a term of 99 years and granted on the 1st January 1976, where the purchaser  is using Cheltenham and Gloucester for their mortgage. There are less than 70 years left to run on that lease.   The following points need to be noted for the mortgage lender, the buyer and the conveyancer:
Buyer – in this case a buyer might well proceed with the purchase, given that they can raise a mortgage on the flat.   But they must consider what the situation will look like if they propose selling in say 5 years.   In our example, unless the buyer was getting a loan for less than 25 years, there could be real problems selling, if the lease cannot easily be extended.  
Conveyancer – as you will see from the above, the length of the term is something that a conveyancer must be concerned to ensure is adequate.   You will see that as the length of the term decreases, over time, conveyancers – quite understandably will be cautious in advising prospective buyers about the wisdom of proceeding on this type of leasehold property.   In our example, the conveyancer must explain the implications of the potential risk on resale for obvious reasons.  

Bank or Building Society ( Lender ) – Some of the main mortgage lenders (not all) are willing to lend on a lease of this length – they require 30 years plus the length of the mortgage term.   Most loans are for 25 years or less.   So in our example the C &G  would be not be willing to lend.  
The problem of the ‘short lease term’ can be and often is resolved.   Provided certain criteria can be met, it is possible to obtain a lease extension.   The procedures for dealing with an extension are quite involved, and are not always capable of being completed within the time scale of the usual purchase transaction.   However, it is always worth making an enquiry of the landlord as to whether or not they would be willing to extend the term, and the cost of doing that.   In many cases the cost of that extension can be negotiated with the seller.

For further information on how to deal with a short lease by way of a lease extension please contact our lease extension team here at Fridaysmove .