Selling a leasehold flat? What to do before going on the market
Leasehold flat sales are prone to delays in the conveyancing process. The following proactive steps can help reduce delays once you have accepted an offer.
What is Leasehold?
A lease is essentially a long-term rental agreement - typically between 99 and 999 years.
A lease is issued by a freeholder (landlord) for a fixed term. Once the term expires, the leaseholder loses the right to use the property and ownership of the lease will revert to the freeholder.
Most flats in England and Wales are leasehold. However, the past few years have seen an increase in the number of leasehold houses.
Leasehold is more complicated than freehold
There are many issues, unique to leasehold, that can arise when it comes to selling your flat.
Sourcing managing agent information, satisfying lender requirements and investigating onerous lease clauses are but a few of the issues that can add weeks to the conveyancing process.
As a seller, there are several proactive steps you can take to reduce delays after you have accepted an offer:
Step 1 - Confirm your property's tenure
Do you know whether your property is leasehold, freehold or "share of freehold"?
If your property is a flat then it will almost certainly have a leasehold title - even if you also own a share in the freehold.
Over recent years, some property developers have started selling new-build leasehold houses to generate income through ground rent and service charges. It is now estimated that over 1m leasehold houses have been built over the past 5 years.
You can check the tenure of your home online at HM Land Registry. For a small fee, the HM Land Registry will supply copies of registered property titles, including details of a property's tenure.
Step 2 - Instruct a conveyancing solicitor
When selling a property it is a good idea to instruct a solicitor before you find a buyer - ideally as soon as you put your home on the market.
Conveyancing solicitors can make significant progress before a buyer even makes an offer, potentially shaving weeks off the process. Choose a solicitor who offers 'No Move, No Fee' so you don't incur any legal fees if you don't find a buyer.
Step 3 - Complete The Leasehold Information Form (TA7)
Once instructed, your solicitor will send you various forms to complete, including:
- the TA6 Property Information Form,
- the TA10 Fittings and Contents Form, and
- the TA7 Leasehold Information Form (if you are selling a leasehold property).
These forms are lengthy and take time to complete. The TA6, for example, is 20 pages of detailed questions about your property and how you have used it.
The TA7 form asks questions about the general management of the building, service charges, notices, consents, complaints and so on.
Completing and returning these forms will be a decisive time saver when you find a buyer.
The TA7 will also require you to find various documents relating to the lease and to forward these to your solicitor.
What information does the TA7 form require?
The information required on this form and the additional paperwork requested can take a little time to put together.
It is advisable to collate as much information as possible before you have found a buyer. The first thing to do is to collect together all paperwork relating to the flat, in particular:
- A copy of the lease if you have one (or even the original lease if that was previously sent to you.)
- The name and address of the freeholder/landlord or managing agents who collect service charges and any ground rent. (NB If ground rent is paid to one person and service charges to a separate person or company details of both will be required.)
- All records relating to any payments you have made, especially demands for service charges and ground rent.
- Any notices or correspondence from or sent to the freeholder or managing agents. This will include notices of proposed major works to the building even if these have not yet been carried out.
- Whether you (and/or other flat-owners in the building) have taken steps either to buy the freehold (known as leasehold enfranchisement) or to set up a Right-to-Manage (or RTM) company.
Do not worry if you do not have all this information, but try to find as much as you can, so that you can complete the Leasehold Information Form promptly.
Although you should complete the form as comprehensively as possible, the buyer's solicitors will also require information from the freeholder or their managing agents. The normal procedure is for sellers' solicitors to do this once a buyer has been found.
To avoid unnecessary delays it is important to ensure these enquiries are sent to the correct address. This address should be stated on any demands for ground rent and service charges, but if you do not receive such demands it will be necessary to try and find the relevant details.
Identifying the correct party's contact details can take some time, so it is helpful to get this information before marketing the property.
What if there is a Right to Manage (RTM) company?
If a RTM company or some other company controlled by the flat-owners) handles building management, your solicitor will also have to send enquiries to them and will require contact details. This may be the Company Secretary who could be one of the flat owners in the building.
You should try to contact this person to let them know you are planning to sell and to confirm that they will respond to enquiries.
Step 4 - Check how long is left to run on your lease
You will need to check the number of years remaining on your lease (the 'unexpired term').
Your solicitor will confirm how long is left on the lease. However, potential buyers will ask your agent, so you really need to know the answer before you put your property on the market.
How do I calculate the unexpired lease term on my flat?
To find your unexpired lease term, you will need to obtain a copy of your lease or any subsequent extension of the lease.
The ‘Term’ section can usually be found at the beginning of the lease document and will say something like:
'Term: 125 years from 10 September 1999.'
To calculate your unexpired lease term:
Deduct the date the lease was granted from today’s date to get the years elapsed, then deduct this number from the lease term.
Date lease granted: 1 Jan 2000
Today's date: 1 Jan 2020
Years of lease elapsed: 20 years
Lease term: 99 years
Unexpired lease term: 79 years (99 - 20)
If you cannot find a copy of your lease, contact your conveyancing solicitor or download a copy from HM Land Registry.
What should I do if I have a short unexpired lease term?
There is no precise definition of a ‘short lease’. Once a lease drops below 70 years, then many lenders will not offer a mortgage on the property.
However, if you have fewer than 85 years left to run on your lease, you may want to consider your options when selling your home. These options include extending your lease or starting the lease extension process and assigning the right to extend to your buyer.
Step 5 - Check whether there are any restrictions in the lease
Some leases contain restrictions relating to the sale of the property. For example, you may need to obtain the consent of the freeholder before you can sell the property.
Certain restrictions may have a material impact on how the property is marketed. Retirement properties, for example, may contain a minimum age of owner restriction. You will need to inform your agent if any such restrictions exist.
What if I want to sell a shared ownership property?
Shared-ownership leases often require the owner to offer first refusal on the property to the housing association or freeholder. before the property can be sold on the open market.
If there is a right of first refusal, it should be documented in the lease.
Step 6 - Do you have a share in the freehold?
You may own a share of the freehold of the building, or a share in a company that owns the freehold. (e.g. when the freehold has previously been acquired under Leasehold Enfranchisement legislation.)
If you do, your share will need to be transferred to the buyer on completion. If the share is held in a company, this process will involve a simple transfer of a share certificate.
If you, together with the other flat owners, each own shares directly in the freehold title, all owners will need to sign a transfer form before the sale can complete. Delays can occur if, for example, a flat owner lives abroad and cannot easily be contacted.
Your solicitor will handle the legal formalities for the transfer, but it is a good idea to contact the other flat-owners before you put your flat on the market to check that they are available to sign the necessary forms.
Step 7 - Apply for the leasehold information pack
Your solicitor will need to apply to your managing agent or freeholder for a leasehold management pack.
This pack contains important information about how the property has been managed, including service charge and ground rent accounts, notices, disputes and any plans for major works to the building.
With your solicitor instructed, ideally before you find a buyer, you should waste no time in applying for this information. Obtaining management information is a major cause of delays in leasehold sale transactions - especially if you wait until you have found a buyer before applying for this information.
Managing agents usually charge a fee for providing the information pack (typically £100 - £500). However, applying for this pack at the start of the sale process could save you far more in time and wasted moving fees if your sale falls through as a result of delays.
Selling any leasehold property tends to be more complicated than selling a freehold. However, taking a few proactive steps can help prevent the majority of foreseeable delays once you have accepted an offer.
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