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Selling a leasehold property is slightly more complicated than selling a freehold, but if you’re well prepared there’s no reason why the sales process should be hard.
Making sure you’re aware of the specific terms of your lease agreement and having key documents to hand is a great place start. And, because they’ll be handling the majority of the more complex elements, working with an experienced estate agent and legal team will make a huge difference in encouraging a stress free sale.
Owning a leasehold means you live in a property on a piece of land that is owned by someone else - ‘the freeholder’. Most flats in England and Wales are leaseholds. You might also find that some new-build homes are leaseholds.
As a leaseholder you’re allowed to live in the flat or house for a set period of time as long as you pay an agreed ‘ground rent’ and service charge to the freeholder. In return your freeholder will take responsibility for the communal areas and the general structure of the building.
Your lease might also include a number of covenants, which describe how you're allowed to use the property. These can be either 'restrictive', which prevent leaseholders from certain actions, like owning a pet; or 'positive', which place the responsibility for maintaining certain things on the leaseholders.
Generally, leases last for 99 years, though you may find some lasting 125 years, or even as long as 999 years.
When you sell a leasehold flat or house, your lease agreement is passed on to a new leaseholder. They will be bound by everything that was in this original contract, and will be allowed to reside in the property for the amount of time left remaining on your agreement. This process is called an ‘assignment’.
It’s important to ensure you know exactly what is in your lease agreement before you begin the sales process because most leases contain assignment conditions which the seller must comply with. Luckily, your estate agent and conveyancer will deal with a lot of this.
The first step is to appoint an estate agent.
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Before you’ve received an offer, your chosen estate agent will market your property in the same way as a freehold property. They will list it on the major online portals, be in touch with interested buyers, and arrange viewings.
If your buyer has any pre-sale questions, your agent will get in touch with your landlord to get an answer. Your landlord doesn’t have any legal obligation to respond to these queries, but in most cases will happily do so. They may sometimes charge an admin fee.
Once you’ve accepted an offer, your solicitor will prepare a draft contract of sale. This will be sent to the prospective buyer’s conveyancer, along with a copy of your title, a copy of the freehold’s title, and a copy of your lease agreement. You might also need to send over a 'managing information pack' which you can request from your freeholder.
There may be a few extra bits of paperwork to sort out. For example, if you’re a member or shareholder of a company set up to manage the block of flats you currently live in, you’ll also need to provide details to your solicitor. They will then return your shareholder’s certificate, or assign your membership to the buyer, as necessary.
Once you’ve handed over the keys to the buyer, your solicitor will formally notify your landlord of the assignment, and the sale will be complete.
Note: If you’re selling a retirement home you may also need to pay an ‘exit’ or ‘transfer’ fee when you sell. If this is the case it’ll be detailed in your lease.
To make the sales process easier make sure you know the terms of your lease agreement, and keep any documents relating to the management of the block to hand. This will make it quicker and easier to answer any queries potential buyer’s might have, and ensure there are no off putting surprises that only appear during the conveyancing process.
In most cases there won’t be any particularly difficult issues to overcome. Problems only tend to arise if you’re attempting to sell a property with a short lease. A short lease is generally considered to be 80 years or less.
Once the length of the lease is less than 80 years, it is more difficult and expensive to extend it. This is because the freeholder takes 50% of the property’s ‘marriage value’. (Marriage value is the amount of extra value a lease extension adds to your property). It’s harder to get a mortgage on these properties, and pretty much impossible if the lease has less than 60 years left. This limits a seller to accepting offers from cash buyers, or selling at auction.
Fortunately if you have been the leaseholder for 2 years you have a legal right to extend the lease on your home. You can do this with a ‘Section 42’ notice.
It is also possible for you, as a seller, to serve a Section 42 notice to start the lease extension process and give the benefit of the notice to the purchaser. However, it needs to be clear when you start the process that this is what you intend to do.
You may also experience reluctance from buyers if your lease requires you to pay a ground rent that doubles every 10 years. Dramatically increasing ground rents make a property look unattractive, and can make it harder to remortgage too.
To get around this issue you might consider serving a Section 42 notice and extending the lease, even if you don’t actually need an extension. By doing so you add 90 years to your lease at ‘a peppercorn rent’ - meaning you'll no longer have to pay any ground rent. This is because of a recent leasehold reform which imposes restrictions regarding ground rents on freeholders.
Before you decide, weigh up whether the cost of paying for extending is worth the value it adds to your property.
If you have a shared ownership lease, you may have some extra things to take into account when you sell. For example, it’s common in a shared ownership lease to state that you must give right of first refusal to your landlord - even if you’ve now purchased 100% of your home under the staircasing provisions of the lease.
For more advice on the selling a shared ownership property, head to our blog.
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