An apartment in London for sale for just £90,000 - what's the catch?
An apartment in the famous Eaton Square is being auctioned for only £90,000. However the chance to be neighbours with the likes of Nigella Lawson, for such a small sum of money, sounds like an opportunity that's too good to be true, and on closer inspection, it seems like it is just that...
There are two distinct ways to legally hold a property; you can either own the freehold or the leasehold. If you own the freehold of a property then you own it outright, indefinitely. If you own a leasehold property however, you only own the property as defined within your lease and only for a specific period of time.
In this case, the apartment in Eaton Square is a leasehold property and the catch is that there are only 14 months remaining on the lease. Subject to a tenant's right to hold over under the security of tenure provisions of the Landlord and Tenant Act 1954, once the lease comes to an end, the leasehold owner's interest in the property will fall away and the property will once again, belong solely to the freeholder – in this case, Hugh Grosvenor, who became the seventh Duke of Westminster when his father passed away in August last year.
The purchaser of this apartment will therefore be paying £90,000 to own the property for 14 months, after which, they will have no legal interest in the property. Not only would the leasehold owner have to vacate the property, they would also be unable to sell their interest in the property as this would cease to exist.
One option that is available to leaseholders with only a short term remaining on their lease is to apply to their landlord to extend the lease. This can be done on a voluntary basis if the landlord is in agreement, but if not, a leaseholder can force their landlord to grant a lease extension under section 42 of the Leasehold Reform Housing and Urban Development Act 1993 (the Act).
In order to qualify for a lease extension under the Act, you need to have owned your property on a long lease (over 21 years) for at least two years. If you qualify for a lease extension under the Act then you are entitled to a new lease with an additional 90 years on top of the unexpired term of your current lease and any ground rent payable will be reduced down to a peppercorn (nil). This process can be instigated by the seller and assigned to the buyer upon completion of the purchase in order to circumnavigate the 2 year ownership rule.
Blake Morgan's specialist leasehold extension team recommend applying to extend your lease if the remaining term is less than 90 years. As the years remaining on a lease drop down to this level, the leasehold interest becomes less valuable which can make a property harder to sell. It is also the case that mortgage companies will often not lend on a property that has less than 65 years to run on a lease.
Further details on the Eaton Square property can be seen here.