Drop below in the order of 90 years and the notional value of your apartment falls continually faster each year, though initially only at a snail's pace. Without wanting to concern apartment owners, the unexpired time falls in due course to nothing, when the freeholder can take possession of the flat. The good news is this is incredibly unlikely ever to come about. The bad news is that you may have to purchase the lease extension to be sure it does not.
A theoretical suburban apartment with a lease remaining of a year will be virtually worthless compared with a similar property with 100 years. After all, who would want to buy an apartment that they would have to hand back to someone else in a year or so?
Leasehold experts have the same opinion that an archetypal flat having 80 years left over on its lease will be worth 5% less than one with a lease well over 100 years. (The figures will be different depending on a variety of conditions however these can be used as a guide - you should seek advice from a specialist surveyor and you can reach them on the website of the Association of Leasehold Enfranchisement Practitioners, ALEP). 10 years later, with 70 years outstanding, it would have lost another 8% of its value so that it will be worth 13% less than a long-lease neighbour. Wait another 10 years until the unexpired term is 60 years and it will have lost 20% of its peak value. Looking at a flat of £200,000 with a long lease in suburban London, this would be worth £40,000 less when the lease has 60 years.
These numbers fail to yet consider the marketability of the apartment. If you've a neighbour with an indistinguishable apartment with a short lease and your lease has been extended, any probable buyers would evidently rather view the one that won't need the hassle and cost of getting the lease extended.
You will find several key milestone years in the case of the unexpired term:
80 years - at the point of dropping below 80 years a specific aspect, called marriage value, will become included in the professional valuation of an apartment. To understand how an apartment is valued, read our item on that, but you have to be aware of that marriage value becomes built-in in how surveyors determine how much you pay for an extended lease.
70 years - many mortgage lenders will not make loans on properties with leases this short. Lender policies vary on acceptable lease length; a few are longer, some are shorter. Not only would it influence you if lessees are thinking about buying such a flat, but it has a large affect in the event that flat owners are selling one. Given that a lot of apartments are obtained through mortgages, if scores of your buyers can not obtain one then the number of people who can purchase your apartment falls. With a smaller market, the price might be pulled lower.
60 years - the minority of solicitors will recommend that their clientele obtain a flat with a lease this short. If you are selling, your marketplace decreases further, pulling the price downhill considerably. If lessees are selling, you may well need to set aside the money to make bigger the lease so lessees can attract buyers.
A note of warning on the subject of where you get information with reference to lease length. While there are a lot of exceptional managing agents and estate agents who understand leasehold matters, anecdotal experience suggests that many do not. Rather than admitting a lack of understanding, a major number may perhaps care about their individual self interest and try to convince buyers and sellers that a short lease may not be a large hindrance. This is an expert area and blunders are costly: you should think about getting advice from a qualified leasehold surveyor, solicitor or intermediary if you have any doubts or issues vis-à-vis residential property leases.
Author Resource:-
About the author
Andy Szebeni is part of the management team of the Association of Leasehold Enfranchisement Practitioners. ALEP has more than a hundred members, each vetted before joining. They consist of solicitors, surveyors, intermediaries, managing agents and other professionals specialising in the topic of leasehold enfranchisement. Have a look at the searchable list of vetted members at http://www.alep.org.uk/membership/.
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