A shocking new survey has indicated that many property owners in Britain who are leaseholders do not know enough about how the system works.
This is due to poor advice being passed on by conveyancing solicitors, according to the investigation conducted by law firm Bolt Burden Kemp.
Knowledge
The firm believes that some owners have a very poor understanding on how leases work, what to do to get them extended and the consequences of not extending a short lease.
Results from the survey show that over half of leaseholders are unaware of an 80 year old rule that states once the time left on a lease falls below 80 years, an extension will immediately cost thousands, if not hundreds of thousands, to renew.
Nearly all flats and apartments in England and Wales are leasehold property, yet only a fifth of leaseholders know that they have leases with less than 80 years let. They therefore are facing lofty bills to extend their agreement. Worryingly, 36% do not know the length of their lease.
Leaseholders are said to not know that they can extend their lease following two full years of ownership. Bolt Burden Kemp points out that a lease with less than 80 years left to run becomes less valuable, leaving the owner with a diminishing asset.
Lack of information
In addition, the survey shows many respondents were not given basic information about the importance of the length of a lease. It points out that buying a leasehold can be full of underlying issues and a lack of knowledge can lead to expensive problems.
‘It is clear from these results that leaseholders are simply not being given enough information by their professional advisors before buying flats and apartments,’ noted Stephen Hill, partner at Bolt Burdon Kemp. ‘This is creating a ticking time bomb for many leaseholders.’[1]
‘Not knowing the length of your lease of the impact if it balls 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,’ he added.[2]
Results from the survey indicate that 39% of respondents were not advised of the significance of the 80 year rule when purchasing a property. 42% were told not to take legal advise in time before their lease dropped below the 80 year mark.
Calculations
The law currently states that when an unexpired term of lease falls below 80 years, the calculations to work out the cost of an extension changes. When a lease is extended, the freehold becomes less valuable. Should the lease have less than 80 years left, when a leaseholders comes to extend, the law states that compensation for any lost value should be paid to the freehold owner.
Despite half of those surveyed knowing that their lease had more than 80 years left to run when they purchased their home, 20% said that bought a home which had less than 80 years left on the lease. 29% could not remember.
Hill believes that, ‘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.’[3]
[1] http://www.propertywire.com/news/europe/uk-residential-property-leases-2015110911182.html