I’m in my sixties, single and looking to downsize from my three-bedroom semi-detached house after my children leave home.
I’m looking for a place that’s smaller and easier to maintain as I get older. I think that with the money from the sale of my house I could immediately buy a two-bedroom apartment in my area.
I was looking for properties online and saw a ground floor apartment near my kids that looked perfect. The only problem is that it is a leasehold property with 81 years left on the lease.
Rent conundrum: Our reader found an apartment that suits her perfectly, but it only has 81 years left on the lease, which she thinks could make it difficult to sell in the future
I understand that this could make resale difficult as extending the lease can be expensive and a future buyer may not want to go through this.
But if I intend to spend the rest of my life in this house, that wouldn’t be a problem for me. The price is a lot cheaper than other similar houses, which I think is due to the lease issue. This would leave me with some money from the sale of my house to fund my retirement in a few years.
I’ve discussed this with my children and they say they wouldn’t mind selling the house after my death for less than I paid for it, even if it meant a smaller inheritance. Should I do it?
This is Money answers: Your decision to downsize seems sensible. It’s never easy leaving a family home behind, but you’ll get a more practical ground floor apartment near your children – and some extra money to enjoy your retirement when the time comes.
But one thing that many people don’t anticipate when moving from a house to an apartment is the need to deal with the mechanics of a long-term tenancy.
Unlike a freehold home, where the buyer owns the home and the land on which it stands, most homeowners acquire a leasehold interest – meaning they only own the home itself and not the common areas of the building or any land.
To do this, they have to pay the landowner a ground rent in return for being allowed to live on the property for a certain number of years.
How much this fee is and how often it may increase is something you should determine before purchasing this property, as well as any service fees.
The duration of long-term leases varies, but is often between 99 and 125 years – although some last up to 999 years.
Connections: This apartment would allow our reader to live close to her adult children – but will their leasehold status cause them headaches down the road?
Rental agreements can be extended, but this involves costs. It depends on the value of the property, but is usually at least tens of thousands of pounds – and the cost rises significantly if the current lease term falls below 80 years.
This represents additional costs and complications for any potential buyer, meaning the value of the property is affected.
I asked two real estate experts what advice they would give to someone in your situation.
Paula Higgins, executive director of the Homeowners Alliance, responds: In an ideal world, we would all buy a condo and own our homes outright.
But if you’re looking for your first home or, as in your case, looking to downsize, you’re probably looking to buy an apartment and automatically stumble into the world of leasehold.
You’re right, a shorter lease is a problem for the reasons you outlined. They will be limited to selling to cash buyers, as lenders generally do not lend on properties with less than 80 years to maturity.
You could pay to extend the years if you could afford it. Additionally, you must wait up to two years after purchasing your property to be legally entitled to an extension.
There is some hope as the government has proposed a reform to make it cheaper to renew short-term leases. However, if this happens, it will likely take years. However, there is a chance that your children will benefit from these changes.
When the lease term falls below 80 years, it becomes a problem that affects the value of your hard-earned asset. Your children are a credit to you because they are willing to do whatever makes you happy.
The fact is, however, that in an age of wage stagnation, an inheritance is becoming increasingly important in order to offer younger family members future financial security.
However, if you need a nursing home, the inheritance included in the value of your home could definitely be disregarded to fund the care.
And now you need a home that suits you. If there really are no other suitable properties then I can understand why you might want to just get on with it and leave the problem to your children.
But for peace of mind, I would speak to a leasing expert. It may make financial sense for your children to help you renew their lease now to protect their inheritance.
If you’re negotiating the price you’ll pay, get a renewal estimate using our calculator and make sure the discounted price you think you’ll pay is sufficiently discounted.
And don’t forget to take a survey. A lease that has expired leaves you wondering if other things are no longer in circulation as well.
Good sense? According to Paula Higgins, extending the lease on this apartment could be a wise investment
Jeremy Dharmasena, Head of Leasehold Reform and Litigation at Knight Frank, responds: In my opinion, if you were to buy this property, it would be a bad idea not to do anything to extend the lease.
There are 81 years left on the term of this property, and when you reach 80, a so-called “marriage value” comes into effect, which can double the premium payable for a lease extension.
Suppose the apartment was worth £500,000. The premium for extending the lease today would be around £11,000, but for a one-year term it would be around £27,000.
However, it would be the person selling the property who would have to notify the landlord in order to have a legal right to extend the lease.
There is an ownership test, meaning the applicant must have owned the lease for two years before making a claim.
However, the benefit from the termination could then be transferred to you together with the new rental agreement and you could then take over the extension of the rental agreement.
You would still have to pay the lease renewal premium, so the seller should not require you to make any further payment for the property. They may be happy to do this to secure the sale, knowing the lease clock is ticking.
Change? The government promised lease reform after protests like this in 2018 – but nothing is set in stone yet
The shorter the remaining term of the rental agreement, the higher the costs for an extension.
So if you choose not to renew the lease, your children could be left with a property that is very difficult to sell. Your children may not be worried about their inheritance now, but perhaps it will be a concern for them in the future.
However, there is a possibility that the situation will change. A few years ago the government proposed making tenancy reform cheaper, quicker and easier for tenants, saying, among other things, that this would remove the value of marriage.
But that hasn’t happened yet, and it keeps getting pushed into the background.
Should there be a change of government, Labor is also committed to continuing leasehold reform in this spirit.
Some leaseholders who are willing to wait and see what happens, who are willing to take the risk, are now choosing not to renew their leases – they will wait and see if marital value is abolished.
But while the government may eliminate marriage value, there are other parts of the calculation that can be changed. It may not be as simple as saying that marital value will be abolished and the cost of renewing a lease will be halved.
In your case, there is no marriage credit to be paid for the next year anyway.
In my opinion, if you really want this property, you should do everything you can to extend the lease. It’s better to know the devil and you’re in the driver’s seat.