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anonguest

A Few Curious Questions Regarding Pricing A Leasehold

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A few curiosity driven hypothetical questions regarding opting to sell a property leasehold....

For houses only what, if anything, is the a standard/generally accepted length for a lease? Is it 100 years? 125? 500? 1000?

How does one go about determining an appropriate price if selling a house leasehold? i.e is there some generally accepted 'formula' (based on time, interest rates, equivalent rental yield, etc etc) for arriving at a guiding price OR is it, just like selling freehold, a case of picking whatever price the seller thinks the house is worth and hoping someone will snap it up.

Also is there, similarly, any accepted 'formula' for adjusting a selling price in the event that the property is to be sold with an unconventionally short lease (say, for example, 25 years or less as opposed to 100+ years). IF say, for example, a property is priced at £100,000 for a 100 year lease, how much would the price be reasonably be expected to be lowered IF the lease were only 25 years in length?

would be interested in any links to any useful websites/resources on this.....

Edited by anonguest

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A 25 years leases wont get a mortgage from a bank. So it'd have to be a cash buyer, one who will have to price in the cost of renewing the lease unless he expects value from yield on remaining lease. i.e 25 yr yielding £20,000 where sale price is £240,000 potentially doubling money over the full term although no capital appreciation so its less attractive.

Without renewing the lease the price would be much much lower as less buyers in a position to throw 95% mortgages at any old dive ;)

Edited by Lifes a game

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I don't know whether this can help

http://www.lease-advice.org/publications/documents/document.asp?item=10

It's on the website of "LEASE, The Leasehold Advisory Service, ... a Non Departmental Public Body (NDPB) funded by Government to provide free legal advice to leaseholders, landlords, professional advisers, managers and others on the law affecting residential leasehold in England and Wales."

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A 25 years leases wont get a mortgage from a bank. So it'd have to be a cash buyer, one who will have to price in the cost of renewing the lease unless he expects value from yield on remaining lease. i.e 25 yr yielding £20,000 where sale price is £240,000 potentially doubling money over the full term although no capital appreciation so its less attractive.

Without renewing the lease the price would be much much lower as less buyers in a position to throw 95% mortgages at any old dive ;)

Thanks for that. Yes I appreciate that relatively short leases will likely only appeal (or indeed be possible) for cash buyers.

The curiosity is partly driven by the fact that, for some people in some situations, there could well be situations where buying a property with an unconventionally short lease may be a desirable option? For example, a single person in later life with no family or persons they would want to bequeath personal property/assets to in any significant amounts. Thus, with limited funds, rather than allocate the bulk of their money and lock it up in bricks and mortar they may alternatively wish to minimise the outlay for putting a roof over their head for the remainder of their days and spend the bulk on 'living it up'. The advantage of a leasehold over a conventional rental tenancy being obvious (security of tenure, ability to sublet, decorate as you wish, etc).

Thus the question regarding pricing for a shorter than usual lease is somewhat interesting as, so I gather, the discount to be had over standard market price grows significantly?

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For commercial property I think there is a trend to much longer leases usually 1000 years

For domestic property you can get away with shorter leases, but lenders generally require an unexpired term of at least 70 years.

Buyers will often look for longer than that because they normally will want to sell on after 5 or 10 years.

The Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”) allows lessees to extend their lease by 90 years in addition to the unexpired term of their lease at a peppercorn rental by serving a Section 42 Notice (“Notice”) upon their landlord.

Leasehold is a recipe for solicitors to make money, if a property doesnt HAVE to be leasehold i.e. its not a flat in England then you should avoid. If two houses in the same street are for sale one freehold and one with a lease, every buyer will go for the freehold.

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Leasehold advisory service are very helpful. Keep expecting them to get cut. Long may they last.

Surveyors also get a lot of business from the extension game.

Freehold flat not necessarily more desireable than leasehold where you have several flats in a building sharing freehold, if you have a difficult neighbour or one that has run out of money it can be really hard to negotiate repairs/live next door to difficult and/or person you feel sorry for as they are broke so it can be helpful to have a freeholder/managing agent who has to deal with that, although many of course are rubbish and overcharge

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it can be helpful to have a freeholder/managing agent who has to deal with that

I dont think theres any automatic connection between having the freehold and managing the block, the two are often separate.

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For commercial property I think there is a trend to much longer leases usually 1000 years

For domestic property you can get away with shorter leases, but lenders generally require an unexpired term of at least 70 years.

Buyers will often look for longer than that because they normally will want to sell on after 5 or 10 years.

The Leasehold Reform, Housing and Urban Development Act 1993 (“the 1993 Act”) allows lessees to extend their lease by 90 years in addition to the unexpired term of their lease at a peppercorn rental by serving a Section 42 Notice (“Notice”) upon their landlord.

Leasehold is a recipe for solicitors to make money, if a property doesnt HAVE to be leasehold i.e. its not a flat in England then you should avoid. If two houses in the same street are for sale one freehold and one with a lease, every buyer will go for the freehold.

Interesting that comment on commercial. I actually thought that commercial leases would usually come with shorter durations than for residential.

That aside though, I refer you to my comments earlier.....re: 'pricing' for a short-ish lease on a house.

To, hypothetically, use your analogy of two identical houses in same street.....IF, and I say IF, one house is for sale freehold at £100K but seller of other house is willing to consider selling leasehold for, say, 20 year duration what would be the reasonable price to apply to the leasehold.

Also, with regards comments on solicitors etc......how much, typically, extra legal cost (above the usual conveyancing fees) is likely to be incurred by a seller in choosing to sell leasehold?

Finally, once upon a time a leaseholder did not have automatic right to extend a lease if they wanted and it was at the discretion of the landlord/seller if they wanted to renew or extend?

With this in mind IF a leasehold seller wanted to ensure that the property returned to them at the end of the lease, and the buyer did not renew/extend the lease, because the seller knows in advance he will want his property back for his own use......presumably if the buyer enters into a separate contract/agreement with the seller to not request to renew/extend the lease then this would suffice? and such a legal contract would override the various rights given to the buyer under the various leasehold legislation?

Edited by anonguest

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it can be helpful to have a freeholder/managing agent who has to deal with that

I dont think theres any automatic connection between having the freehold and managing the block, the two are often separate.

I have lived in flats where the freeholder managed and another where there there was a managing agent, what is relevant is it is a third party who is doing the chasing, rather than you having to do it, not so uncomfortable in a large block perhaps but difficult when you are cheek by jowl in a conversion.

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What you have to remember is that a leasehold can be bought and sold just like a freehold, so the person you sell to probably won't be the person holding it at the end of the term. Also there is a good chance of property law changing over the next 20 years, and that could affect unexpired portions of your lease.

To answer these questions you really need to talk to a legal professional who knows all the current legislation, they often do an initial brief consultation for free.

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