Are leaseholds worth no value at the end of lease?

Are leaseholds worth no value at the end of lease?

11:19 AM, 10th January 2014, About 9 years ago 29

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I was wondering what happens with leases when they reach the last year of the lease, the lease I am interested in is a 123 years lease on a 1 bed flat in London, the original lease was for 125 years so was recently granted? Obviously I will not be around at that time of the end of the lease but for my family that will inherit this flat, would the value of the flat at the end of the lease be zero. This is all based on the assumption that the freeholder for some reason does not wish to grant me an extension as I do realise that some freeholders will extend if you are prepared to pay for the extension.

I am just looking at the worse case scenario where the freeholder will not offer an extension. Are leaseholds worth no value at the end of lease

Many thanks

Marcus



Comments

Gary Nock

19:24 PM, 15th January 2014, About 9 years ago

Extract from lease.org website as follows:

Terms of the new lease

You should be aware of the legislative requirements for the terms on which the new lease is to be granted:

to be at a peppercorn rent (i.e. no rent) for the whole of the term (the 90 years plus the present unexpired term)
to be on the same terms as the existing lease, subject to minor modifications and certain statutory exclusions and additions:
modifications - to take account of any alterations to the flat, or the building, since the grant of the existing lease (e.g. reference to gas lighting or coal stores), or to remedy a defect in the lease.
exclusions - since the 1993 Act provides a right to perpetual renewal of the lease, any existing clauses relating to renewal, pre-emptions or early termination are to be excluded.
additions - a requirement not to grant a sub-lease of sufficient length so as to confer on the sub-lessee a right to a new lease under the Act.
the landlord's redevelopment right - the new lease must also contain a clause giving the landlord the right to repossession of the flat for the purposes of redevelopment. This right does not arise until the end of the term of the existing lease and is subject to a court application and the payment of full compensation to the leaseholder for the full value of the remaining 90 years. This will not cause any difficulties in mortgaging the flat.

So Freeholder needs a court order to repossess and leaseholder has to be compensated for the remaining lease. If it's nothing. It's no compo. But who would buy a lease so short as to be in this position?

Marcus Taylor

9:59 AM, 16th January 2014, About 9 years ago

So as long as you have say 75 years left on a lease, a rogue freeholder would have no possible way of not renewing your lease? This is as long as new government legislation does not come along to revert long leases legislation back to the way it was to favour Freeholders. I understand it was Thatcher's government that allowed this change where leaseholders have this protection.

Mark Alexander - Founder of Property118 View Profile

10:47 AM, 16th January 2014, About 9 years ago

Reply to the comment left by "Marcus Taylor" at "16/01/2014 - 09:59":

That's a bit like suggesting that Lenin will be reincarnated, become a Labour politician, kill at the academics and wealthy people and communise the UK. It's not going to happen!
.

Gary Nock

10:54 AM, 16th January 2014, About 9 years ago

Marcus the other thing to remember is in a block of 16 flats or even 4 if just one has extended the lease how will the freeholder redevelop the rest if he has to get a court order and compensate that one leaseholder for his lease. It gets very messy and complicated. You do not need 75 years on your lease to have the protection of the leasehold law. A short lease may make refinancing difficult and it may be costly but as long as you have it then you have that protection against rogue freeholders.

Marcus Taylor

14:53 PM, 16th January 2014, About 9 years ago

Reply to the comment left by "Gary Nock" at "16/01/2014 - 10:54":

Hi Gary, you are absolutely right, I never thought about that, some blocks have as many as 100 plus tenants all expiring at different points if they renewed at different times so makes it very difficult and messy.

Thank you for that, very logical thinking mind you have, very much appreciated your comments.

Hazel de Kloe

13:23 PM, 30th January 2014, About 9 years ago

Hi Marcus

Following Mark's comment above, I successfully rent out a number of leasehold properties and have always obtained the correct 'consent' from the Freeholder before doing so. It is always a matter of reading the lease through carefully before purchasing a property so that you know what your rights are in terms of letting.

One incident we encountered a while back was a letting agent who had successfully found us a tenant but then neglected to inform us that she was in receipt of housing benefit. The lease clearly stated that this was in breach of the terms of the lease and therefore got us into a spot of trouble with the management company. We subsequently had to let her live there for the fixed term but then serve notice immediately that this ended. The lesson was learned and we are now very careful about making sure that only working/retired tenants move in to that property.

On the 'buying the freehold note', we successfully bought a share of the freehold of a flat in a block of four at the time we bought it. There are rules around the circumstances by which this can happen and I believe you may find this a useful link to understand this better: http://www.leaseholdadvicecentre.co.uk/Collective%20Enfranchisement.htm

Good luck!

Marcus Taylor

14:39 PM, 30th January 2014, About 9 years ago

Reply to the comment left by "Hazel de Kloe" at "30/01/2014 - 13:23":

Hi Hazel,

Thanks for the link, its very interesting that leaseholders can get the share of freehold and the freeholder can not refuse as long as criteria is met.

I was having second thoughts about lease hold properties as I dont like the service charges too much, in some instances it eats into 18 months of rent earned and so far each leasehold flat I have seen, I can not see where the money is being spent due to the shabby conditions of the flats, I guess the freeholder is just using this money as extra profit. Not saying all are like that but from what I have seen all have been so far.

So I am considering share of freehold or share of freehold as in maisonette so only 2 freeholders involved.

Thanks for your comments though, much appreciated

Hazel de Kloe

16:26 PM, 30th January 2014, About 9 years ago

You're welcome.

You're right in that service charges do eat into profits, though it depends on where the property is located and how much margin you have to work with.

It is often a management company who 'looks after' the building on behalf of the freeholder and which is in control of the service charge budget and repairs to the fabric of the building. There are good ones and of course, unfortunately there are some which do not do such a great job!

Linda Crook

8:33 AM, 15th November 2021, About 9 months ago

I am looking at buying a leasehold holiday bungalow. It is brick built but only has 50 years left on its' lease. I have been told there will not be the opportunuty to renew the lease at any time. Firstly is this allowed/legal? Secondly if it is allowed would the property devalue if I sold it woth 40 years left on the lease? Thanks

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