What happens when a leasehold expires?

Leasehold properties are available throughout the country - and are a popular choice for many wanting to place a toe on the rungs of the property ladder.

When a property has a long lease, particularly, the leaseholder can feel protected and comfortable when purchasing the property.

But what happens when the lease is short and about to expire? What are the options for a leaseholder with an expiring lease and what are the legal implications to extending a lease?

In the home-selling business, the terms leasehold and freehold are bandied around freely, so it helps to understand what the difference between them is and what the specifics relating to a leasehold property are.

With a freehold property, the buyer owns not only the bricks and mortar structure but the land on which it is located. But, for a leasehold property, the buyer, while still owning the building, they don't own the land surrounding it - that is controlled by the freeholder of the land who rents it out the leaseholder(s) of the home(s) on it.

This means that the owner of the land is the legal landlord of those owning the properties that sited on it.

Most flats and apartments in the UK are leasehold, usually because the landlord owns the building while the tenants own their bit of it (i.e. the flat). 

This is different from renting a property, since in this case, the renter has no call of ownership on the property - once the rental agreement ends its term, it'll either be renewed or the renter walks away from it with nothing to sell on to someone else.

Because the terms by which the property can be owned by someone wanting to buy it need to be laid out so that both the landlord and the property owner know what their responsibilities are, the details are encapsulated in a legal document, which is what is known as the lease. 

Specifically, this lease document will provide information on where the boundaries are for the property, the amount payable for the rent of the land upon which the property is located, any charges for administering the common areas that the property owner has access to, and all the rights and obligations of each throughout the term of the lease.

The lease agreement will also lay out the process for dealing with issues as they arise, which is why it is important to involve an experienced conveyancing solicitor at as early a stage as possible when you're considering buying a leasehold property.

In many respects, buying a leasehold property over a freehold home is better because of the relative costs associated with it. 

Usually, buying a leasehold will not be the same price as a similar property that is freehold, while, assuming the mortgage companies are willing to lend the money for its purchase, the terms will often be more advantageous.

On top of this, if the mortgage loan is lower the monthly repayments will also be cheaper, which means that there will be more disposable income for other things.

However, you have to bear in mind that there will be a land rent cost that comes with the lease, and there will be potential management and maintenance costs to consider for the communal areas and others that are specified within the lease.

It would be inadvisable not to read the details of the lease before you sign any agreements, so that you know what is required of you as the leaseholder and how much your involvement is going to cost either as a one-off amount or an ongoing fee payable to the leaseholder or any maintenance and management companies working on their behalf.

The principal consideration is that, as a leaseholder, you don't own the freehold.

In addition, there may be caveats and stipulations within the lease that further curtail your use of the property beyond its immediate boundaries. For this reason, it is essential that you involve your conveyancing solicitor as soon as possible so that they can work through the details and results of any specific enquiries that they make on your behalf to identify what is involved and how you might be impacted.

As already mentioned, although the mortgage costs might be lower than that for a freehold, there are other fees that need to be factored into your budget, which might even things out in terms of your ongoing outgoings.

You also need to understand what the length that remains on the lease. 

As with all things when buying a new home, it pays to do your homework and ensure you understand what's involved before taking the plunge and making an offer on the remaining lease of the property.

When a leasehold expires, the reality of the situation is that you no longer own the property upon which the lease is based. Legally, as soon as the lease expires, regardless of how long you have lived there and how much you have paid on a mortgage to buy the leasehold property, it's no longer yours. This is the case even if you have paid the last repayment of the mortgage.

Remember that you took out a mortgage to buy the lease and not the property itself, so when the lease expires, it reverts back to the freeholder. In such cases, you effectively have nothing to sell on to a prospective buyer.

After that sobering revelation, it is worth pointing out that this rarely, if ever, happens.

Instead, there are two steps that are taken before it gets anywhere near this troubling position: first, the freeholder as your landlord may issue with a prescribed notice advocating an assured periodic tenancy on which you pay a monthly rent; second, the freeholder might decide to serve notice to repossess the property, which gives you a grace period to find other accommodation and move out before the deadline.

When you are planning on buying a property with a short lease, you will need to consider the impact financially and legally of going ahead with the purchase. Take legal advice as soon as you can and decide what you want to do with the lease should you want to go ahead.

It can be worrying if you find out that the lease is short, because it means your options are either limited or expensive to remedy.

But the first step to take before looking into any extension or purchase options is to identify precisely how long there is left to run on the lease.

When buying the property, there are three immediate choices to establish the required information:

• Ask the freeholder - since they are the owner of the freehold and therefore the plot of land upon which the leasehold property is built, they should know what the length of the lease is. But you should consider this to be a guide, unless it is formalised in a legal document.
• Ask the estate agent - the estate agent responsible for marketing and selling the property should have this information readily to hand, so that you can use it as a guide to help make the purchase decision (and, if the lease is short or near expiry, renegotiate the leasehold price to manage the cost of extending it).
• Request information from HM Land Registry - this will incur an additional  cost, but the Land Registry will hold all information regarding the property and the length and terms of the lease.
• Solicitor search results - your conveyancing solicitor will carry out a number of searches on a property once you are looking to buy the lease, including its duration. Lining up your solicitor as soon as you are considering its purchase will pay dividends in the long run and reduce the extra stress if the lease is found to be short.

Anything over 99 years is generally considered a long lease and relatively safe when it comes to searching for a mortgage, while a term fewer than 80 years is generally thought to be too short and, as such, mortgage lenders may steer clear of lending you any money - unless they apply punitive repayments to cover their anticipation of the risk they would be running.

The obvious reaction to a property that has a short lease or one that is likely to expire within a few years is to walk away from the process of buying it, because there is a lot of work to get it to the point that mortgage lenders will be happy to let you borrow the money necessary to buy it.

But there are some other options that you might want to consider before dropping the idea of purchasing the leasehold property:

• Extend the lease - if you want to keep living in the property with a short lease, one step you might wish to consider is a lease extension.

• Buying the freehold - you might decide that it's worth buying the freehold. Our guide provides more information.

• Commonhold - there is also the option of setting up a commonhold. 

If you are planning on buying a leasehold property, irrespective of its lease length, you'll want an experienced and focused conveyancing solicitor to handle the legal side of things.

The experts at Homeward Legal are well-versed in all aspects of the leasehold conveyancing process, providing a quality service at a fee that is great value for money!

Call  to get your conveyancing quote started, or to discuss your concerns with your plans to purchase or sell your next home.