Is it hard to sell a leasehold property?
Is it hard to sell a leasehold property?
Selling a leasehold property might seem like a tricky process. Aside from a little more documentation, there’s actually not that much difference from a regular house sale.
In this blog, we’ve outlined everything you might need to know when it comes to selling a leasehold property.
What is a leasehold property?
If you own a leasehold property, it essentially means that someone else, the ‘freeholder’, owns the land that your property is built on. If you own a flat, there’s a pretty good chance it’s a leasehold property, with the freehold being held by the property developer. Some new-build houses are also leaseholds, but there’s been some controversy about that in recent years. We’ll explain why shortly.
Leasehold property owners are allowed to live in their property for a set period of time, as set out in their lease. Most leases start at 99 years, but some last for 125 years, or even 999 years in some cases. Some freeholders might charge something called ‘ground rent’ or a service charge to the leaseholder, to pay for the upkeep of the land or any communal areas in an apartment building. Some freeholders might also have some restrictions or rules on using the property, like whether or not you can have a pet. These can vary though, and a lot of leaseholds don’t have any restrictions at all.
If you’d like to learn more about freeholders, you can check out our blog ‘What is a freeholder?’
Who can sell a leasehold property?
If you own a leasehold property, you are entitled to sell your flat or house as you would normally, if you were a freeholder. When you sell a leasehold, the lease agreement is simply passed on to the next leaseholder. They’ll be bound by everything that is set out in the agreement and can live in the property for as long as is left on the lease.
How to sell a leasehold property
Selling a leasehold property follows all the same principles as selling a freehold property, you just might have to provide a bit more documentation to your buyer. It’s also a good idea to talk to your freeholder or managing agent to make sure that you can get any information you need as quickly as possible. The sale will all go through you and your solicitor, but you’ll need certain information from your freeholder, so it can help to maintain a strong relationship with them throughout the process.
These are a few things you might be asked for when selling a leasehold property:
- Your lease - This is about as important as it gets when selling a leasehold property. You’ll need to have full documentation of your lease agreement, including proof of ownership and how much is left on the lease.
- Seller’s pack - Your buyer’s solicitor might request a seller’s pack, particularly if you’re selling a flat. Your managing agent should keep one of these, so you might have to ask them to pass on a copy. Seller’s packs should contain most of the important documentation regarding property details, any ground rent or service charges, building restrictions, details of building insurance, and any proposed building works.
- TA7 form - There are all sorts of forms to fill out when selling a property anyway, but you might be asked for a TA7 for leaseholds. This is a leasehold information form which asks for information like building maintenance regulations and the landlord or management company details.
What can make it hard to sell a leasehold property?
For most people, selling a leasehold property will not be very hard. The process can get harder in a few cases though. Here are the main problems you could face.
Lease length is the main thing that could make selling a leasehold property hard. Mortgage lenders can be reluctant to grant mortgages for properties with less than 80 years left on the lease, so your buyer might have to put up a bigger deposit to get their mortgage or just not be able to afford it at all.
If you’re considering selling a property with a short lease and you’ve owned your property for 2 years or more you can extend your lease by completing something called a ‘Section 42’ notice. This can be costly though, particularly if you are already under the 80 year boundary. It’s usually best to do this before you start trying to sell the property as well, as it can slow down the process and potentially cost you more money. It’s essentially a case of working out if it will cost you more in reduced property value with a short lease, or in paying for the extension.
You might also have the chance to buy out the freehold. This can be a complicated process but could make selling your property far simpler. Some apartment buildings choose to group together to buy out the freehold, so if you are considering selling in the future this is something you could look into.
Ground rent is a bit of an odd principle. It’s essentially an arbitrary rule that means technically a freeholder can charge the leaseholder any amount of money to live on their land. There have been reforms in recent years though, and most leaseholders won’t have to pay more than a ‘peppercorn’ in the future (this means basically there’s no ground rent, but because it’s a contract something technically has to be exchanged). If you’re paying a lot in ground rent, you might find it harder to sell your property, so it might be worth talking to your freeholder about this to negotiate the lease agreement before you put the property on the market.
If you’d like to learn more about ground rent reform, you can check out our blog ‘When will ground rent be abolished?’
Condition of the property
Regardless of whether your property is a leasehold or not, it’s hard to sell a property that’s in a state of disrepair. It’s worth doing everything you can to make the property look its best before anyone sees it, from cleaning to repairs. You might have to talk to your freeholder about any bigger repairs, depending on what it says in your lease agreement. In an apartment building, you could even clean communal areas yourself. In most cases, this is technically the freeholder’s job, but you may find it faster to take care of it yourself.
A few final tips…
Selling a leasehold property in most cases shouldn’t be any harder than selling a freehold property. Here are a few last things to keep in mind:
- Having a good relationship with your freeholder can really help with selling a leasehold property, particularly in the case of any negotiations around ground rent or lease extensions
- Having a short lease is not the end of the world, but it can hold up the sale of a leasehold property
- As long as you have all the right documentation, you shouldn’t face many hurdles with selling a leasehold property