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Back to basics: Leases

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Back to basics: Leases

In this article, Leasehold Property Specialist Niki Adkins gives a 'back to basics' overview of leases. Niki outlines what a lease is and explains the key differences between short and long leases.

What is a lease?

A lease is essentially a ‘contract’ between the freeholder and the leaseholder which dictates:

  • The length of the lease (i.e. how many years the leaseholder can live there)
  • What ‘property’ is included (e.g. flat, garage, garden etc.)
  • Who is responsible for what (i.e. maintenance responsibilities)
  • What the parties can/can’t do (i.e. restrictions on use, subletting etc)
  • Service charge contributions
  • Annual ground rent.

You can have a succession of leases, as long as each lease is shorter than the last. Here’s a diagram that demonstrates a succession of leases, all decreasing in length:

What’s the difference between a short and long lease?

As well as being different in length, short and long leases differ in their advantages and disadvantages for leaseholders and freeholders.

A lease is a depreciating asset. If a lease gets all the way down to zero days, the leaseholder would essentially move out and have to hand the flat back to the freeholder.

The freeholder could then re-sell that flat with a new long lease for its full market value.

Therefore;

  • A short lease benefits the freeholder and is less valuable to the leaseholder, whereas;
  • A long lease is better for the leaseholder and less valuable to the freeholder.

When is a lease considered ‘short’?

As a general rule of thumb, if the lease is less than 90 years you should almost certainly try to extend it.

This is because properties with shorter leases can be more difficult to get a mortgage on, as mortgage companies will worry that its value might decline and so won't be good security. 

Therefore a lease over 90 years would usually be considered a long lease.

Why are short leases problematic for leaseholders?

As well as the threat of losing your flat if the lease term falls to 0 days, there are more issues that short leases can cause for leaseholders.

As the lease shortens and decreases in value, it becomes less attractive to buyers and mortgage lenders.

Different banks and building societies have different lending criteria regarding what lease term they consider acceptable.

Most mortgage lenders don’t like leases with terms either approaching the 80 year mark, or where it is already below the 80 year mark.

My colleague Anne Albritton discusses buying a short lease in further detail in a recent article, which can be read here.

Specialist Leasehold Property Solicitors

Our specialist Leasehold Property Team are one of the largest in the region and happy to assist any buildings in this situation.

If you have any questions, please call 01202 499255 and a member of the team will be happy to chat about your situation and your specific requirements.

We offer all new clients a free initial chat with one of our bright, knowledgeable lawyers.

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