Buying very short lease property.

Threesheds

I am currently renting and pay £850/month. I have come across a flat with a lease of 15 years at a cost of £25000.
With savings and help from Parents I could buy property outright. I am not mortgageable due to being Freelance. 
On the face of it this looks like a saving over time, even adding in the other expenses that go along with ownership.
But what I don't know is what happens at the end of the lease or if I have to move on for other reasons.
Can I just walk away ?

Brie

You could ask to buy an extension to the lease.  That would make it saleable.  I expect that the short lease is why the property is on sale for £25k.

RHemmings

I'm curious about this and looked up a number of sources. All say pretty much the same thing - that if the lease expires, the property reverts to the freeholder. So, not only can the leaseholder just walk away, they have to. Or then buy the property again. 

If the OP is paying £850 a month, then that's £10,200 per year, and even without any rent increases (and, what is happening in the current market?), that would be £153,000 over 15 years. It would take two years and six months to (nominally) break even, just counting the rent and purchase price. Three years including purchase and moving costs? 

However, there will most likely be both ground rent and service charge. Buying in the wrong building which then needs expensive repairs could be expensive. 

It strikes me that a property like this may be a relatively cheap way (financially) into BTL. I.e. buy a property like this and let it out. Meaning that for many people no mortgage will be required. If law changes mean that the leasehold can be extended for a reasonable cost, then take that opportunity. But, if it doesn't become easy to extend or buy the leasehold, then give the property back after 15 years. 

If I was the OP, and I was happy with the property, I might be tempted to buy it, and then start saving £850 a month towards a deposit for another house some time in the future. But, only if I was confident I could stay in that flat for five years or more. 

eddddy

Is it definitely a residential lease for a flat?

A 15 year lease makes it sound more like a commercial property. In that case, it could be a £25k premium with fairly hefty rent to pay on top.


If it's definitely a residential property...

• there might be ground rent and service charges to pay.

• you might be able to extend the lease (or you might not), but you'd need a big chunk of cash to do that

• after the 15 years, you'd almost certainly need to return the property to the freeholder in the condition it was when the lease was granted. That might be many years ago. If the property has got into a bad state, that might be expensive.

user1977

Threesheds said:

But what I don't know is what happens at the end of the lease or if I have to move on for other reasons.

You mean before the lease term ends? No, you're still liable for it. You'd need to find a buyer happy to accept a lease term which would be even shorter by then.

DullGreyGuy

user1977 said:

Threesheds said:

But what I don't know is what happens at the end of the lease or if I have to move on for other reasons.

You mean before the lease term ends? No, you're still liable for it. You'd need to find a buyer happy to accept a lease term which would be even shorter by then.

Or leave it empty paying the charges until the lease expires or rent it out until the lease expires

eddddy

FWIW, the way statutory lease extension costs are calculated should mean that you always make a 'profit' by doing a statutory lease extension.

So if you don't want to extend the lease (or you don't have the money to), you should probably aim to get some of the profit for yourself, by selling to somebody who does have the money, before the lease expires. 

Albermarle

eddddy said:

Is it definitely a residential lease for a flat?

A 15 year lease makes it sound more like a commercial property. In that case, it could be a £25k premium with fairly hefty rent to pay on top.


If it's definitely a residential property...

• there might be ground rent and service charges to pay.

• you might be able to extend the lease (or you might not), but you'd need a big chunk of cash to do that

• after the 15 years, you'd almost certainly need to return the property to the freeholder in the condition it was when the lease was granted. That might be many years ago. If the property has got into a bad state, that might be expensive.

The last point would seem to be an area ripe for argument/dispute. How could you return any normal property to how it was probably a hundred years ago? Rip the central heating out ? Put gas lights back in ? Remove the bathroom maybe ?

eddddy

Albermarle said:

The last point would seem to be an area ripe for argument/dispute. How could you return any normal property to how it was probably a hundred years ago? Rip the central heating out ? Put gas lights back in ? Remove the bathroom maybe ?

It's more the general condition of the flat, that would be of concern.

For example, if the windows or floor joists are rotten, or the wall / ceiling plaster is in poor condition.

Some leases make leaseholders responsible for the roof - so if the roof is rotten, the leaseholder might have to pay for it to be replaced.

And if alterations were done without consent - like removing a wall or putting in a new wall - depending on the wording of the lease, they might have to be undone.


For things like putting in central heating, putting in electricity, replacing a bathroom -

• if the lease allows those things to be done without consent - that's fine.

• if the lease requires consent for those things, and consent was given - that's fine

• if the lease requires consent for those things, but no consent was given - in theory, the leaseholder would need to apply for retrospective consent. (But in practice, I doubt the freeholder would make the leaseholder jump through those hoops.)

NameUnavailable

eddddy said:

Albermarle said:

The last point would seem to be an area ripe for argument/dispute. How could you return any normal property to how it was probably a hundred years ago? Rip the central heating out ? Put gas lights back in ? Remove the bathroom maybe ?

It's more the general condition of the flat, that would be of concern.

For example, if the windows or floor joists are rotten, or the wall / ceiling plaster is in poor condition.

Some leases make leaseholders responsible for the roof - so if the roof is rotten, the leaseholder might have to pay for it to be replaced.

Surely most of that kind of stuff will be covered by the service charge / maintenance - so the freeholder would need to have work carried out which of course could be challenged if not reasonable etc. (yes some leases will state that the roof if entirely the responsibility of one leaseholder but we don't know any details here).

NameUnavailable

Threesheds said:

I am currently renting and pay £850/month. I have come across a flat with a lease of 15 years at a cost of £25000.
With savings and help from Parents I could buy property outright. I am not mortgageable due to being Freelance. 
On the face of it this looks like a saving over time, even adding in the other expenses that go along with ownership.
But what I don't know is what happens at the end of the lease or if I have to move on for other reasons.
Can I just walk away ?

If the service charge and ground rent are reasonable and there's not major works likely then that would seem a no brainer if you're happy to see it as a 15 year rental.

Of course you could always extend the lease at some point, or if you can't afford to do that, in about 10 years start the formal extension process and put the flat up for auction, and someone will buy it!