You are in: Home > Real Estate Law

How does lease duration have an effect on the worth of an apartment?

03rd May 2011
By Leasehold Advice in Real Estate Law
RSS Legal RSS    Views: N/A

Essentially the shorter the time left on a lease, the less a property is worth. An unexpired term of lease of 100 or more years has not much influence on the price. With leases above 100 years, the worth of the home is much the same, whatever the number of years remaining. The length of the lease is much longer than the lifespan of most people so this is not a concern for mortgage lenders specifically.

Go down below about 90 years and the hypothetical worth of your apartment falls ever faster each year, although at first only gradually. Without wanting to terrify flat owners, the unexpired time drops in due course to nothing, when the freeholder can take possession of the flat. The positive side is this is exceptionally unlikely ever to occur. The bad news is that you might need to purchase the lease extension to make sure that it does not.

A hypothetical suburban flat with a lease remaining of a year will be virtually worthless in comparison with a similar property with 100 years. After all, who would wish to buy a flat that they would have to hand over to someone else in approximately a year?


Leasehold professionals agree that an archetypal flat having 80 years left over on its lease would be worth 5% less than one with a lease in excess of 100 years. (The numbers will vary based on a variety of conditions but these can be used as a guide - you should check with a specialist surveyor and you can find them on the web page of the Association of Leasehold Enfranchisement Practitioners, ALEP). 10 years later, with 70 years remaining, it would have lost another 8% of its value so that it will be worth 13% less than a long-lease neighbour. Wait another 10 years until the unexpired term is 60 years and it will have lost 20% of its peak value. Looking at a flat of 200,000 with a long lease in suburban London, this would be worth 40,000 less when the lease has 60 years.

These numbers fail to yet take into account the marketability of the apartment. In the event that you have got a neighbour with an identical flat with a short lease and your lease has been extended, any prospective buyers would evidently rather view the one that does not necessitate the inconvenience and expense of having the lease extended.


You will discover several major milestone years when it comes to the unexpired term:
80 years - as soon as the lease length drops below 80 years a specific aspect, called marriage value, gets incorporated in the professional valuation of an apartment. To grasp how an apartment is valued, read our piece on that, but you should appreciate that marriage value becomes incorporated in how surveyors work out how much lessees pay for a longer lease.
70 years - many mortgage lenders will not make loans on properties with leases this small. Lender guidelines vary on acceptable lease length; some are longer, a few are shorter. Not only will it affect you if flat owners are considering buying such an apartment, but it has a considerable affect in the event that flat owners are selling one. Since so many properties are obtained with mortgages, when scores of your buyers can't get one then the number of people that can purchase your flat falls. Having a smaller market, the price would be dragged lower.
60 years - few solicitors will recommend that their clients buy an apartment with a lease this short. If you are selling, your marketplace reduces further, pulling the value down considerably. If lessees are selling, they may perhaps need to put aside the finances to make bigger the lease in order that you can attract buyers.

A word of caution on the subject of where flat owners get advice a propos lease length. Though there are many exceptional managing agents and estate agents who comprehend leasehold problems, anecdotal experience suggests that a lot do not. Rather than aknowledging a lack of understanding, a substantial number may bear in mind their personal self interest and endeavor to win over buyers and sellers that a short lease may not be a large setback. This is an expert matter and blunders are expensive: lessees should think about getting advice from a qualified leasehold surveyor, solicitor or intermediary if you have any doubts or issues on the subject of residential property leases.

About the author
Andrew Szebeni is part of the management team of the Association of Leasehold Enfranchisement Practitioners. ALEP has upwards of 100 members, each vetted before joining. They consist of solicitors, surveyors, intermediaries, managing agents and other professionals specialising in the topic of leasehold enfranchisement. Have a look at the searchable list of vetted members at http://www.alep.org.uk/membership/ .

This article is free for republishing
Source: http://www.goinglegal.com/how-does-lease-duration-have-an-effect-on-the-worth-of-an-apartment-2203901.html
Bookmark and Share
Republish




Ask a Question about this Article

powered by Yedda