What Happens When Leasehold Expires?
Leaseholds are common in the UK, especially in flats. But what happens when they expire? It can become complicated if you’re not prepared, and your best bet is to avoid them expiring at all costs. Why? We take a look at what happens when a leasehold expires.
What is a leasehold?
Leasehold gives someone the right to use and occupy a property for the specific period outlined in the lease agreement. The lease owner is known as the freeholder, while the person on the lease is the leaseholder. An agreement outlines essential terms regarding the property. This includes the length of the lease, ground rent due and any restrictions or conditions on use of the property.
Leaseholders have the right to live in the property for the duration of the lease and are responsible for maintenance. It’s common to find leaseholds in purpose-built buildings with several apartments inside.
How do I know how long is left on the leasehold?
You can see how much time is left on the lease by looking at the agreement or contacting the freeholder.
As the lease gets shorter, the property’s value decreases, and a leasehold property with a shorter lease may be harder to sell or mortgage. It’s also handy to know that in some cases, if the lease has less than 80 years remaining, the leaseholder may have difficulty getting a new mortgage and could end up paying higher ground rent.
What happens if my leasehold runs out?
When the leasehold on a property runs out, the leaseholder no longer has the right to live there. The freehold owner will be the legal owner of the property, and you won’t have any rights regarding the home. This means the freeholder can increase the ground rent as they see fit or even ask for the property back!
What happens if I don’t renew my leasehold?
If you don’t renew your leasehold, it reverts to a freehold. The property owner will then regain possession, and you may be required to vacate. Depending on the terms and conditions of the lease, you may also be liable for any damages to the property.
Ultimately, you don’t want the leasehold to expire. Expiry could mean you find yourself in a complicated situation where you no longer have the right to the property. Fortunately, most new homes now have long leaseholds (more on that shortly). If you’re buying a leasehold property the solicitor’s property check will tell you how long is left on the lease.
What’s the difference between a leasehold and a freehold?
When it comes to owning a property, there are two main types of ownership: leasehold and freehold.
Leasehold
A leasehold property is essentially a long-term rental agreement. The leaseholder owns the right to live in and use a property for a specific period of time. This is usually between 99 and 999 years. The length of the lease is outlined in a lease agreement with the building’s owner, known as the freeholder.
Freehold
A freehold property is when the owner holds both the right to use and occupy the property, as well as the legal title. The owner has full control over the home and the land it’s built on and is responsible for maintaining and managing it.
Can a lease be changed by the freeholder?
Generally speaking, the terms of a lease can be changed by the freeholder only if both parties agree to those changes or if the lease itself allows for changes to be made. If a lease has a provision that allows changes by the freeholder, it must be reasonable and in compliance with the lease and all relevant laws.
How much does it cost to extend a leasehold?
The cost to extend a leasehold varies widely depending on several factors, including the lease’s length, the property’s value and current market conditions. The cost to extend a leasehold is calculated as the difference between the value of the property with a long lease and the value of the property with a shorter lease, known as the “marriage value”.
Extending a leasehold can end up being a substantial outlay. Costs can be anywhere from several thousand pounds to hundreds of thousands of pounds, depending on the circumstances. The closer the lease is to expiry, the more expensive it’ll be to renew.
What is the 20-year lease rule?
The “20-year lease rule” is a specific provision in UK law that applies to leasehold properties. Under this rule, if a lease has less than 80 years remaining on it when it is first granted, and the term of the lease is for more than 21 years, then the leaseholder has the right to extend the lease for an additional 90 years, at a cost.
The 20-year rule is based on the Leasehold Reform, Housing and Urban Development Act 1993. This applies to most residential leases in England and Wales. The cost of the extension depends on several factors, including the length remaining, the value of the property and current market conditions.
The rule allows leaseholders to extend leases to a reasonable term and prevent their property losing value due to a short lease. However, the rule doesn’t apply to properties such as some rent-controlled flats, flats in National Trust properties, flats in certain types of charitable housing trusts and some flats in almshouses.
What is a 999-year lease?
A 999-year lease is a type of long lease granting the leaseholder the right to occupy and use a property for a period of 999 years. It’s a long-term agreement between the freeholder and the leaseholder and is becoming more common in new-build homes thanks to suggestions made to reform how leaseholds work.
What is leasehold reform?
In recent years, there have been calls for further reform of the leasehold system in the UK. Particularly concerning the sale of new-build leasehold houses and the high ground rents charged on many new leases. The government has announced plans to ban the sale of new-build leasehold houses and to cap ground rents on new leases at a nominal level.
There’s also a process in place to give leaseholders more rights and make it cheaper for leaseholders by reforming the process of valuation they need to follow to calculate the cost of extending their lease or buying the freehold. In June 2022, the first stage setting future ground rents to zero was passed, but leaseholds still remain.
Avoiding a leasehold expiry
When a leasehold expires, you essentially lose all of your rights to the property. That can be a huge blow if you’ve invested hundreds and thousands of pounds buying it in the first place.
Thankfully, conditions are in place that gives you the right to extend. Yet, you still want to avoid letting the years run down as a leasehold gets more expensive closer to expiry. Fortunately, most new builds come with 999-year leases, and if reform happens, leaseholds might just be a thing of the past.
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Last Updated: November 1st, 2024
