A leasehold property is generally considered harder to sell than a freehold property because of the lease that pertains to the property. The sale also includes gathering additional information including an LPE1 form from the managing agent that can take time. It can take anywhere between 3-6 months for a leasehold sale to go through.
Considering how hard it is to sell a leasehold property is something that should be considered during the purchase process. With rising issues around ground rent and lease terms in the leasehold world, there are many hidden roadblocks during the sale of a leasehold property.
In this article, I explore the stages involved in selling a leasehold property, and from my own leasehold experience, what it was really like selling it.
What’s Involved In Selling A Leasehold Property
Selling a leasehold property is not too dissimilar to selling a freehold property, but there is additional information you need to gather for the purchasers solicitors which can delay the process.
LPE1 Form & Management Pack
One significant difference between a freehold and leasehold sale is that in order to sell a leasehold property the purchasers solicitors need an LPE1 form and complete management pack.
This can be a sticking point for a number of reasons, some freeholders can refuse to do it (these are usually independent freeholders), they can be ridiculously expensive and they can take weeks to complete depending on who you are dealing with.
The sale cannot go through without it because it contains everything the seller needs to know about the lease including service charges, ground rent and any other terms that the lease pertains to.
From my own experience, I was dealing with one of the biggest freeholders in the country and it cost me £600 for them to complete 2 sentences, returned to me the same day, and the managing agent took 2 weeks to complete the rest of the LPE1 form and management pack, costing me an additional £240, so £840 in total for it. The cost can vary vastly as freeholders are unregulated so can charge what they like, but from what I have read online, my costs were extortionate. There is no bartering to be had at this stage, unfortunately. Generally it can take 2-4 weeks for an LPE1 form and management pack to be completed.
If you want to speed up this process, it’s worthwhile getting it completed as soon as you know you want to sell the property.
The lease is what you own when it comes to owning a leasehold property, and selling it is essentially the transfer of it. The lease outlines everything you need to know about the property from service charges, ground rent, buildings insurance to whether there are any special terms such as those surrounding having pets, and flooring.
Because of this, it is natural to receive a lot of queries in relation to this. The purchasers solicitors can then continue to keep asking these up to the point of exchange. As I experienced. As soon as we had one set of queries satisfied, we would be rebounded with another set, it seemingly felt like it was never going to end. This again is going to be the main thing that adds delays to selling the leasehold property, as some issues identified can take much longer than others to resolve.
From my experience, there was an issue that was identified in my lease saying only wooden flooring could be used in the bathroom or kitchen, yet my open plan kitchen/living room had wooden flooring. Due to the discrepancy about the room terms, this added about SIX weeks of back and forth emails between solicitors, what wasn’t an issue in my eyes was a huge issue for them, they wanted a deed of variation for this which would have cost me thousands of pounds. This was eventually resolved by an indemnity policy costing around £70.
Ground Rent Issues
If you have onerous levels of ground rent for your leasehold property, prepare for some delays. In the last couple of years onerous ground rent levels have been a serious cause of concern for mortgage lenders. Ground rent over £250 (outside of London) is classed as an AST, this means that if the leasehold owner was to default on their ground rent payments, it becomes easier for the freeholder to take possession of the property, this leaves the mortgage lender with nothing. So, of course, the mortgage lenders have a right to be wary, and fussy.
However, it is not just those with ground rent already exceeding this level which is causing an issue. Pay attention to your ground rent terms, does it double every 10 years? Does it rise with the rate of RPI? This still creates in some cases even worse ground rent levels in years to come, and this too is causing a roadblock in the sale of many leasehold properties.
What’s the answer? Mortgage lenders have occasionally been accepting indemnity insurance policies which protect them if the owner was to default on ground rent payments. However, more and more are stamping down on this now due to changes in their financial lenders handbook. Note, this does NOT protect the buyer, so many solicitors will reject this as a route.
Most solicitors are still initially asking for a deed of variation. This cost can run into the region of thousands of pounds, and it does not solve the issue of ground rent. A far better route is a lease extension. This will add 90 years to your existing lease whilst reducing the ground rent to a peppercorn. The cost again can vary vastly and greatly because it just depends on who the freeholder is and what they fancy charging. The process can only be requested if you have owned the property for two years, and it can take some weeks, or months to be completed.
In some cases, this is the only way some leasehold properties will sell in today’s market due to the ongoing issue surrounding ground rent. The new leasehold reform comes into play in 2022, whilst it doesn’t affect existing leases, there is hope that further changes will be made that will help those in this current situation.
A short lease is not something you want to be met with during the sale of a leasehold property, it will make the property much harder to sell, if not unsaleable. The shorter the lease becomes, the more expensive it costs to extend it. This is because when it gets to less than 80 years left, it attracts something called marriage value. This means if you extend, the freeholder is entitled to 50% of value which the extension adds to the property.
If you don’t know how long is left on your lease before selling you should find out as it could cause serious delays during the sale process. Extending a lease will usually add 90 years onto the lease, but it can cost thousands of pounds to do so. Without doing this, your property will become virtually unsaleable once it drops below that 80 year mark.
Selling a leasehold property is considerably harder than selling a freehold property due to the roadblocks that can be encountered along the way. The best thing to do before selling a leasehold property is to prepare and get all of your ducks into a row for everything that could possibly happen.
Go through your lease with a fine tooth comb, check the term remaining on your lease, identify if there is a ground rent issue and start the process for any lease amends if required.
Whilst it is harder to sell leasehold property, it’s not impossible. If you enjoyed reading this, you might also like my post on How To Sell A Flat That Has Ground Rent Over £250.