How Will Lease Duration Affect The Price Of A Flat?

Essentially the shorter the time left on a lease, the less a property is valued at.
An unexpired duration of lease of one hundred or more years has little or no affect on the worth. In the instance of leases above 100 years, the worth of the home is essentially unchanged, regardless of the years remaining. The duration of the lease is significantly longer than the lifetime of most people so this is not a problem for mortgage lenders in particular.

Go down below in the order of ninety years and the theoretical value of your apartment falls continually faster each year, though at the outset only bit by bit. Without wanting to scare apartment owners, the unexpired term drops in due course to zero, at which point the freeholder can take possession of the apartment. The positive side is this is incredibly unlikely ever to happen. The bad news is that you may need to invest in the extension of the lease to ensure that it does not.

A theoretical suburban apartment with a lease remaining of a year will be almost worthless in comparison with a comparable property with 100 years. After all, who would wish to acquire an apartment that they would have to hand back to someone else in approximately a year?

Surveyors specialising in lease extensions have the same opinion that an archetypal apartment having 80 years outstanding on its lease would be worth 5% less than one with a lease much over 100 years. (The numbers will vary based on several factors however these can be used as a guide – you ought to check with a specialist surveyor and you can get hold of them on the web page of the Association of Leasehold Enfranchisement Practitioners, ALEP). 10 years later, with 70 years remaining, 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 an apartment 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 have got a neighbour with an identical flat with a short lease and your lease has been extended, any probable buyers would without a doubt rather view the one that doesn’t call for the inconvenience and expense of getting the lease extended.

There are several key milestone years when it comes to the unexpired term:
80 years – as the unexpired term falls below eighty years a particular component, called marriage value, becomes included in the official valuation of an apartment. To work out how a flat is valued, read our article on that, but you should appreciate that marriage value gets incorporated in how surveyors calculate how much lessees pay for a longer lease.
70 years – scores of mortgage lenders will not make loans on properties with leases this small. Lender guidelines differ on acceptable lease length; some are longer, a few are shorter. Not only will it affect you if you are looking to buy such a flat, but it has a considerable impact if you are selling one. As so many properties are acquired with mortgages, when many of your buyers are not able to get one then the quantity of people that can acquire your flat decreases. With a smaller market, the value will be forced lower.
60 years – hardly any solicitors will advocate that their clientele obtain an apartment with a lease this small. If you are selling, your market decreases further, pulling the value down significantly. If flat owners are selling, you may well need to set aside the finances to make longer the lease in order that you can attract buyers.

A word of caution about where lessees get information in relation to lease length. Although there are many superb managing agents and estate agents who comprehend leasehold issues, anecdotal experience suggests that several do not. Rather than aknowledging a lack of expertise, a large number may care about their personal self interest and endeavor to win over buyers and sellers that a short lease may not be a big setback. This is an expert area and blunders are expensive: one should think about getting advice from an experienced leasehold surveyor, solicitor or intermediary if you have any doubts or concerns on the subject of residential property leases.

About the author
Andy Szebeni is part of the management team of the Association of Leasehold Enfranchisement Practitioners. ALEP has over a hundred members, each vetted prior to joining. They include 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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