Leasehold and Unregistered London Properties - Know This When Renewing or Selling
- Jacob Littorin
- Feb 26, 2024
- 5 min read
Hi 👋
In London, 36% of dwellings are owned leasehold in the years 2021 to 2022, according to the Government's statistics. The Greater London Authority’s (GLA) housing report for the same year (2021) stated that there were around 1.25 million leasehold dwellings in London, with flats making up the vast majority.
In this article, my guest and architectural drafter Theodoros Ioannou at Newington Plans will share his secrets for leaseholders looking to extend or sell their London home. After, I will dive into the actual extension process and share news on the Leasehold & Freehold Reform Bill - which is set to have its third hearing tomorrow 27th of February.
‘Leasehold’ is a long-term tenancy where someone buys the right to live in a property for a certain period, for instance, 999 years. This leaseholder usually pays a ground rent to the freeholder who owns the land. The lease sets out the rules to follow such as restrictions to have pets or rent the property out, and the rights to use common parts, gardens, or to park a car.
Unless the leaseholder makes arrangements to extend it, once the lease ends, the ownership of the property returns to the freeholder. This is when you should renew the lease. If the leasehold property has not been sold - or the lease extended - since 1990, it likely needs to be registered with the Land Registry. Additionally, the lease extension itself needs to be completed and registered with the Land Registry anyway, as it makes the extended lease legal.
Below, Theodoros shares his secrets.
1. Don’t Forget New Aspects
When renewing a lease it is sometimes required to have a new Land Registry compliant plan drafted and submitted to the Land Registry. The existing Lease Plan could be very old and not include aspects of the property that are now part of the new lease.
There are situations where leaseholders have added balconies or other outside areas to their lease and this would therefore need to be shown as part of the new demise, which will ultimately be written in the new deeds.
2. Don’t Miss Adding Value
When selling your leasehold or freehold property there could be boundary issues you’ll need to consider. In a building with two flats for example, which could be owned by you and a relative, you will need to ensure the leases are clean with clear deeds written by your lawyer and a Lease Plan showing the boundary of each leasehold flat. The Lease Plan will also show which areas are shared by the two flats and will need to be drafted by a specialist for it to be Land Registry compliant.
There are opportunities to add value in such situations as you could decide to create a garden space for one or both of the flats, extra storage, or even parking spaces. If you are selling a top-floor flat then ask your lawyer who owns the loft space. If the loft space belongs to the Freeholder then you could arrange to purchase it for a good price prior to selling.
This could hold extra value as it could be used for storage or a potential development above. If somehow that loft space belongs to all flats in the building then you could arrange to purchase it from the other leaseholders who may not want the responsibility of taking care of it. Many agents will not make these suggestions as it is extra work for them and they may not have much of an understanding about how leaseholds work exactly.
3. Don’t Skip the Fine Print
Have a good look at what you’re buying. Check the length of the lease and what responsibilities or lack of power you will have as a leaseholder. Things can be changed prior to a purchase such as having the opportunity to purchase the flat with extra storage space, or you could decide to agree with the freeholder to extend the lease once the flat is yours.
Ask your agent or lawyer for a copy of the current Lease Plan as you may spot something in the plan which conflicts with what the agent is selling you. Alternatively, you could be getting more than you thought when you agreed the price with the agent. The Lease Plan and Site Plan hold many clues.
Find out more and produce Lease Plans, Site Plans, and As-Built Plans with Theodoros Ioannou and the team at Newington Plans.
Let's dive into the extension process and news on the Leasehold & Freehold Reform Bill, set to have its third hearing tomorrow February 27th. I (Jacob Littorin) am learning to become a great personal estate agent in Islington, London. On this occasion, you want to sell your leasehold property, and that is why you meet with me.
However, if the lease has less than 125 years left, potential buyers will have a tricky time getting a mortgage approved. When the lease drops below 80 years, it will be way more expensive to extend the lease as you would need to pay a ‘marriage value’ to the freeholder. That’s why you should extend the lease.
Seek independent advice from a great solicitor and surveyor. If you have owned a flat leasehold for at least two years, and the original lease was at least 21 years long, you have the right to claim for a lease extension of 90 years at a peppercorn (zero) ground rent.
The surveyor will carry out a valuation of your property, and the solicitor will serve a section 42 notice (the formal request to extend the lease) to the freeholder. The price paid for the lease extension is called the premium. The surveyor’s role is to estimate the premium payable by you, and then negotiate a fair and reasonable amount of the premium with the freeholder (the ‘competent landlord’).
In the section 42 notice, the proposed premium is stated. The freeholder must then respond within 2 months to admit or deny that you qualify for a lease extension. Within 6 months, the premium should have been negotiated and agreed upon. Both parties’ solicitors agree to the terms of the new lease, allowing a further 4 months to complete the process. While the freeholder grants you the additional 90 years, the fees for their legal and valuation advice are payable by you, the leaseholder.
Now, the Leasehold & Freehold Reform Bill (set to have its third reading tomorrow on the 27th) would make long-term changes intended to improve homeownership for leaseholders and freeholders in England and Wales.
The second reading (11th Dec 2023) was welcomed, but criticism and frustration aired that the bill did not go far enough in reforming leasehold. Since then, the Public Bill Committee has scrutinised the bill line by line, and with the help of experts, now suggested a considerable number of amendments to the House.
If passed, the bill would make lease extension cheaper and easier, it would tackle increasing ground rents, make service charges more transparent, make it easier for leaseholders to buy their freehold, and abolish the ‘marriage value’, among other proposals.
A new substantive addition to the bill includes measures to ensure that relevant property sales information (such as building insurance, financial records, and transparent service charges) is provided to the leaseholder by the freeholder in a timely manner, which should speed up the selling and buying process. In addition, the eligibility requirement that you must have owned the leasehold for at least two years- to extend the lease or buy the freehold - is proposed to be amended with the bill.
The future looks bright for leaseholders.
Thank you for reading, and thank you Theodoros Ioannou at Newington Plans for being my guest on this 3rd edition! 💜 The next edition is out on the 11th of March.
Want advice on your property needs?
I'm your aspiring Personal Islington Estate Agent in London - let's chat! Read more or get in touch at jacob@jacoblittorin.com. 💜
