Leasehold properties typically take longer to complete than freeholds and are at greater risk of falling through. Here we look at what homehunters can do to help things go smoothly
It isn’t harder to buy or sell a leasehold property, but it can take longer for a sale to complete because there is more legal work for your conveyancer to do. This extended time frame increases the risk that the sale or purchase may fall through.
There are various reasons why the conveyancing can take longer, but homehunters can help make sure things go as smoothly (and quickly) as possible if they know what to expect.
What is the difference between leasehold and freehold property?
Houses are usually freehold properties. Flats and maisonettes are usually leasehold.
If you own a freehold property, you own both the property and the land it is built on.
If you own a leasehold, you do not own the property or the land on which it stands. Instead, you own a lease.
A lease is a legal contract between the leaseholder and the freeholder. The leasehold property itself, along with the rest of the building and the land it is built on, is owned by the freeholder (sometimes called the landlord).
The lease grants you the right to use the property for a period, usually 99, 125 or even 999 years.
The lease will set out the conditions (known as “restrictive covenants”) under which you can use the property. These covenants could include restrictions on whether you can modify the flat, put wood floors down or even keep pets.
There are also “positive covenants” which obligate the leaseholder to carry out certain actions, such as painting the exterior of the property.
To cover the freeholders costs in maintaining the property, including the grounds and common parts, you will normally have to pay service charges. You will also have to contribute to the buildings insurance and may also have to pay ground rent.
How much longer does it take to sell a leasehold property?
Once an offer has been accepted, the conveyancing on a leasehold property typically takes three weeks longer than on a freehold.
“Conveyancing solicitors will tell you that, on average, freehold sales take around 6 to 10 weeks and leasehold sales around 8 to 12 weeks to complete,” Chris Salmon of Quittance Legal Services.
“In reality the conveyancing process can take anywhere from just a few weeks to not completing at all. A third of all sales fall through. As leasehold transactions take longer and are more complex, they are more likely to fall through.”
“In a chain, all the transactions can only complete as fast as the slowest link. As one in five properties sold in the UK is leasehold, it is easy to see how a high proportion of chains can be set back when there is just a single leasehold link. This means that leasehold issues not only delay leasehold transactions, but can also delay freehold ones too.”
Why does leasehold conveyancing take longer?
There is considerably more legal work involved when buying a leasehold property.
In addition to the work that would be carried out on a freehold purchase, the buyer’s solicitor will also need to:
review the terms of the lease
correspond with the landlord, managing agent, management company or residents’ association
review the management accounts
identify any planned works
ensure the mortgage lender’s requirements are met
investigate any disputes.
Once the solicitor has collated and reviewed all of the leasehold information, they will report to the homebuyer. If the buyer is taking out a mortgage, their solicitor will also have to report to the lender.
As there are more moving parts in a leasehold transaction, problems (and therefore delays) are more likely.
Short leases can also lead to delays. Leases with 85 to 90 years or less remaining are more difficult to mortgage. If your lender will not lend on properties with fewer than 85 years remaining, and the property you plan to buy has only 83 years left, you will need to find another lender and this can cause further delay.
If a lease has fewer than 80 years remaining, the cost of extending the lease increases dramatically. New lessees do not qualify for a statutory lease extension until they have owned the property for two years.
If the 80-year limit is approaching, the seller may be prompted to start the formal leasehold extension process before completion and then assign their right to extend the lease to the homebuyer. This process adds further work and complexity.
What if I have a share in the freehold?
With share of freehold, there is often even more complexity to the conveyancing process.
Owning a share of freehold is not the same as owning a freehold property. Each leaseholder in the building owns a share in a management company that owns the freehold.
Sometimes leaseholders own individual shares in the freehold directly. This can lead to less formal management of the property.
Your solicitor will need to unravel the management of the freehold. The running of the freehold is often outsourced, so the solicitor may still need to correspond with a managing agent.
The solicitor must not only investigate the lease, but also the share in the ownership of the freehold and the structure of the management company.
How can I speed up a leasehold sale?
Sellers can play a big part in speeding up the conveyancing of a leasehold property.
You should instruct a solicitor as soon as you put your flat on the market and ideally should find a solicitor who specialises in leasehold.
Your solicitor will need you to apply for a managing agent information pack from your freeholder. Sellers can be reluctant to order these before an offer has been accepted because management companies often incur a fee of around £300 to £800 to answer the enquiries.
But ordering the managing agent information pack from your freeholder before a buyer is found can shave weeks off the conveyancing process.
It usually takes around 3 weeks for freeholders to supply the managing agent information, but it can take as long as 8. If you don’t apply for this before accepting an offer, you are effectively suspending the start of the conveyancing until this information arrives no matter how keen your buyers are.
More often than not, sellers still wait for an offer before applying for the managing agent information. One reason for this oversight is that, by not instructing a solicitor immediately, sellers are simply unaware of the need to get the information.
As flat owners are more likely to have been first-time buyers (and therefore first-time sellers), they may not have learned the hard way on a previous property purchase that applying for the managing agent information pack first is key.
Once instructed, your solicitor will send you various property transactions forms. The TA7 Leasehold Information Form gives your solicitor information about how the freehold is managed and who to direct enquiries to. Nothing can happen until the solicitor has sight of these forms, so complete and return them without delay.
Give your solicitor any other documents pertaining to the lease, such as correspondence with the freeholder or managing agent, annual statements of account or minutes of meetings (if there is a residents’ management company) as promptly as possible.
Another thing that can enable a smooth sale is if sellers obtain a copy of the lease and make sure that their estate agent has a copy. This way potential buyers can review the lease and make more informed decisions upfront, such as identifying a lender who will be prepared to lend, before conveyancing starts.
Please re-lease me?
Despite technological advances such as electronic searches and registration, the conveyancing process is beset with the same old problems.
Leasehold delays affect freehold transactions too. Until the causes of leasehold delays are addressed, probably by changes in the law, this state of affairs will continue.
Fortunately for individual buyers and sellers, working proactively to manage and avoid these delays can result in happy homeowners.
You may also be interested in...
- Homebuying fees: what you need to know
- 11 steps for getting on the property ladder
- Space-saving tips and tricks for your home