Survey reveals leaseholders potentially facing costs running into thousands of pounds to extend leases under 80 years
- Survey reveals “shocking” lack of knowledge from leaseholders on how leases work; how they can be extended; and the consequences of failing to extend a short lease
- Law firm Bolt Burdon Kemp, which carried out the research, attributes homeowners’ lack of lease knowledge to poor advice from conveyancing solicitors
- Survey of 2,000 property owners reveals that over half of leaseholders are unaware of the crucial ‘80 year rule’ – once the time left on a lease falls below 80 years, the extension will immediately cost thousands, sometimes hundreds of thousands of pounds more
- A fifth of leaseholders are aware that they have leases with less than 80 years left to run and therefore face hefty bills to extend
- 36% do not know the length of their lease at all
- Majority of leaseholders unaware they can extend their lease after two years of ownership
The lack of knowledge amongst property owners about their own leases is a time bomb, warns law firm Bolt Burdon Kemp. Its survey of leaseholders revealed that over a third (36%) do not know the length of their lease and 55% have no knowledge of the 80 year rule. This means that a lease with less than 80 years left steadily becomes less valuable, leaving the property owner with a diminishing asset that they may be unable to sell or mortgage.
This lack of knowledge has been attributed to poor advice from conveyancing solicitors, as the survey reveals that many respondents were not given basic information about the importance of lease length and renewing the lease in plenty of time – crucially whilst it has more than 80 years left to run. If the lease is not extended before this point, the extra cost will start in the thousands and can be hundreds of thousands depending on the value of the property.
Almost all flats and apartments are leasehold property. As buying freehold property becomes more expensive and out of reach for many, the number of leaseholders in England and Wales has rocketed in recent years – most recently it was cited there were 4.2 million leasehold properties in England. However buying a leasehold can be fraught with issues and, as Bolt Burdon Kemp’s survey demonstrates, the lack of knowledge can create an avoidable and very expensive problem for homeowners further down the line.
Bolt Burdon Kemp’s professional negligence team surveyed 2,000 property owners in England and Wales for their views on the process of buying a leasehold property, their knowledge of the importance of a lease’s length and the quality and extent of professional advice these property buyers are getting when purchasing a leasehold property.
Commenting on the survey’s results, partner at Bolt Burdon Kemp, Stephen Hill, said:
“It is clear from these results that leaseholders are simply not being given enough information by their professional advisors before buying flats and apartments.
“This is creating a ticking time bomb for many leaseholders. Not knowing the length of your lease or the impact if it falls below 80 years is very serious – it could mean you struggle to sell the property or renew your mortgage.
“Solicitors and conveyancers advising leaseholders must do more to ensure property owners are fully aware of what they are getting themselves into when they buy a lease.”
The 80 year rule
Once you have been registered as the owner of a lease for two years, you have the right to extend it.
However, after the unexpired term of a lease drops below 80 years, the way that the cost of a lease extension is calculated changes. When a lease is extended, the freehold becomes less valuable. It is only if the lease has less than 80 years to run when you extend it that the law requires you to pay the owner of the freehold compensation for the lost value. If there are more than 80 years left to run on the lease, no compensation is payable and the cost will usually be minimal.
With each year that passes below 80 years, the lease becomes increasingly less valuable and it will cost more and more to extend the term of the lease.
Once the lease approaches 60 years, lenders are much less likely to lend on a property.
54% of leaseholders are unaware of this legal rule and the significance of the lease dropping below 80 years.
Although half of those surveyed knew that their lease had more than 80 years left on it when they bought their home, 20% purchased a property which had less than 80 years left on the lease and 29% are not sure or couldn’t remember if they did.
“The general lack of knowledge around the 80 year rule is shocking – this is one of the first things property buyers should be enquiring about when they are looking to buy a home which has a leasehold title rather than a freehold,” said Stephen Hill.
Solicitor negligence to blame
39% of the leaseholders surveyed were not advised of the significance of the 80 year rule when they bought their property and 42% were not advised to take legal advice in good time before the length of the lease dropped below 80 years.
The majority of people also were not, or cannot remember being, advised that a lease will continue to fall in value, that it is difficult to gain a mortgage once the lease has less than 60 years on it.
38% of those surveyed had no idea whether they had the right to buy the freehold to their property.
Commenting on the apparently overwhelming lack of advice, Stephen Hill said: “In almost every question where we asked leaseholders about the advice or information they were given by their conveyancing solicitor the majority were either not given the information at all, or could not remember receiving it. This is shocking. Knowing your rights around extending a lease and the importance of doing this in good time before it drops below 80 years is absolutely essential and should be part of the basic, fundamental advice given to those buying a leasehold property.”
The hidden costs plaguing leaseholders
The vast majority of property owners have complained of hidden costs once a lease is taken on, with the average hidden cost totalling £2,268. 28% have paid between £2,000 and £5,000 in hidden lease costs. 26% of those who faced unexpected costs have had to ask family or friends for a loan to cover the extra costs.
Stephen Hill believes that the bulk of these hidden charges could be avoided or taken into account when negotiating the purchase price if the conveyancing solicitors involved are doing their jobs properly.
“Buying a property is one of life’s greatest expenses and these purchases often cost more than expected. People simply should not be facing hidden costs when buying a leasehold property – their solicitor should be doing everything they can to ensure their clients avoid that sort of nasty surprise.”
“My lease has less than 80 years on it…what should I do next?”
It is expected that short leases on property will affect more and more people, but there are steps people can take both before buying a leasehold property, and after, to ensure they are not stung by an expensive bill further down the line.
Firstly, Stephen recommends reading all contracts very carefully and asking your solicitor to explain anything you don’t understand– don’t assume your solicitor will have explained everything and don’t be shy about asking. 39% of those surveyed admitted to skim-reading contracts when time is tight, 37% agree to terms and conditions without reading them and 28% miss or ignore small print.
“It may sound like common sense to read everything in the contract you are signing – including the terms and conditions and any small print, but the reality is that when you buy a house time is pressured and everyone involved is stressed and wants to get the deal done as quickly as possible. Many people will rely on their solicitor and other advisors entirely to give them the right contracts and tell them the most important information. However, as this survey shows, this is simply not happening.”
If you find that your lease has less than 80 years left on it, and you feel you were not given this information by your adviser or not warned about what to watch out for in the future, you may be able to bring a claim.
“If it can be proved that a conveyancing solicitor has failed to give a client this basic information and the client is then left with an expensive lease renewal there could be a claim for professional negligence to get back some of this lost money,” said Stephen.
The good news is that 70% of leaseholders surveyed said that if they found out their solicitor had neglected to inform them of something which later led to costs or another adverse impact, they would do everything they could to get their money back and make sure the solicitor firm pays.
There are strict time limits for bringing claims in this area so owners or former owners should seek advice as soon as possible.