In this article, Leasehold Property Specialist Niki Adkins gives a 'back to basics' overview of leases. Niki outlines what a lease is and explains the key differences between short and long leases.
What is a lease?
A lease is essentially a ‘contract’ between the freeholder and the leaseholder which dictates:
- The length of the lease (i.e. how many years the leaseholder can live there)
- What ‘property’ is included (e.g. flat, garage, garden etc.)
- Who is responsible for what (i.e. maintenance responsibilities)
- What the parties can/can’t do (i.e. restrictions on use, subletting etc)
- Service charge contributions
- Annual ground rent.
You can have a succession of leases, as long as each lease is shorter than the last. In the full article I've provided a diagram which demonstrates the succession of leases.
What’s the difference between a short and long lease?
As well as being different in length, short and long leases differ in their advantages and disadvantages for leaseholders and freeholders.
A lease is a depreciating asset. If a lease gets all the way down to zero days, the leaseholder would essentially move out and have to hand the flat back to the freeholder.
The freeholder could then re-sell that flat with a new long lease for its full market value.
Therefore;
- A short lease benefits the freeholder and is less valuable to the leaseholder, whereas;
- A long lease is better for the leaseholder and less valuable to the freeholder.
When is a lease considered ‘short’?
As a general rule of thumb, if the lease is less than 90 years you should almost certainly try to extend it.
This is because properties with shorter leases can be more difficult to get a mortgage on, as mortgage companies will worry that its value might decline and so won't be good security.
Therefore a lease over 90 years would usually be considered a long lease.
Click here to read the full article.