Leasehold sale problems and how to resolve them
Leasehold sales fail for a short list of reasons, and almost all of them are identifiable before you market.
A leasehold sale involves more parties and more documents than a freehold sale, and the additional complexity is where sales stall. The buyer's lender, the buyer's solicitor, the freeholder or managing agent and the leaseholder all have to be satisfied.
The issues that cause delay are predictable, and identifying them early is what prevents a sale collapsing three months in.
The problems that stall a sale
Each of these is common and each has a route through, but the route takes time and is much easier to start before an offer than after one.
- A lease under 80 years, which restricts lending and requires a lease extension
- An absent or unresponsive freeholder, which makes it impossible to obtain the management pack
- A high or sharply rising service charge, which reduces what buyers will pay
- A ground rent that doubles periodically, which some lenders will not accept
- Missing building regulations certificates for alterations made by a previous owner
- Cladding or building safety issues, which can make a property unmortgageable
- A management pack that is incomplete or contains a large planned works programme
The documents that decide the sale
The management pack is the critical document. It comes from the freeholder or managing agent and contains the service charge accounts, the current budget, the buildings insurance details, and information about planned works. Lenders and solicitors require it, and obtaining it can take weeks and cost a fee.
A large planned works programme is the item most likely to derail a sale, because it means the buyer is taking on a known future liability. If you know about works, disclose them and price accordingly — a buyer who discovers them through the management pack late in the process will renegotiate or withdraw.
Resolving the common blockers
A short lease should be extended before marketing, not left for the buyer. An extended lease widens the buyer pool considerably and typically adds more to the price than the extension costs, and doing it yourself means you control the timescale.
An absent freeholder is harder. The routes are an application to the county court for the freeholder's details, or to the First-tier Tribunal, and both take months. Establishing the position early is essential, because a buyer cannot proceed without it and the problem does not resolve itself.
Common questions
- What is the shortest lease a buyer can get a mortgage on?
- It varies by lender, but most require at least 70 years remaining at the end of the mortgage term, or 30 to 40 years at application. Below 80 years, marriage value makes extension more expensive. Below about 70 years, the buyer pool narrows sharply to cash purchasers and the price falls accordingly.
- What if the freeholder will not respond?
- This is a known problem with established routes. You can apply to the county court for the freeholder's name and address, and apply to the First-tier Tribunal for the appointment of a manager where a freeholder is in breach of their obligations. Both take time, so establish the position early rather than at the point a buyer is waiting.