The mad, mad world of leases. If you were not born and bred in the U.K. (and even if you were) the whole concept of buying a lease seems odd- why would you pay millions for a property which, according to the lease, you wold have to relinquish after a stated number of years and which by default must then decline in price the longer you own it?
It appears to make no sense which is why many buyers insist on only buying freehold or share of freehold properties.
However, if you do the same you will severely limit your choice if you wish to buy a flat (most apartments are held on a lease while most but not all houses are freehold). Indeed, although the leasehold rules may seem complicated, you should not fear leases. After all, millions of people have bought leasehold properties in the past and the legal process has never been more favourable for leaseholders.
I will not go into the intricate details of lease extensions here. However, you may want to know what the shortest lease you should consider is. Well the obvious answer is any lease that is undervalued. However, if you do not understand lease valuations then this is not much help.
So as an easy guide, I would recommend that you only buy leasehold properties that have over 82 years remaining on the lease. The reason for this is that you can only legally ask for a lease extension after you have owned the property for two years. However, it becomes noticeably more expensive to extended once the term is under 80 years because you then have to include the “Marriage Value” in the calculations.
Again l will not go into details of the “Marriage Value” calculations. All you need to know is that it only comes into effect once a lease is under 80 years. Hence my suggestion of buying an 82 years lease to allow for the two year ownership period.
To give you an example of how the cost of a 90 year lease extension will change according to the lease length, see the table below which is based on a long lease value (there are other costs that one needs to take into account, but this is for illustration only based on a flat in Chelsea).
Lease Length Cost of Lease Extension
90 years £24,794
88 years £27,333
86 years £30,133
84 years £33,219
82 years £36,622
80 years £40,374
79 years £101,196
77 years £113,367
Please note that this is for a specific property and the numbers will vary for other properties. Do not use these figures for a property may be considering buying. Please seek expert advice.
As you can see there is a disproportionate jump in cost once the 80 year lease has been breached. Therefore, if you want to keep things simple while giving yourself as much choice as possible, I recommend you consider leasehold properties with at least 82 years remaining as the cost of extending the lease for an additional 90 years is relatively minor.
I hope this will give you confidence that the buying of a leasehold property is not quite as daft as it might seem at first.