My dad and mom’ house has 41 years left on the lease, and we will not afford to increase it: What can we do?

I have recently obtained power of attorney for my elderly parents. They don’t have much, but they do own their small two-bedroom maisonette in London. 

The property is leasehold and I have now discovered that they only have 41 years left on the lease. 

My dad was aware of this when he bought it 20 years ago, so this is not a reflection on solicitors or estate agents. However, it is a worry for me as the eventual executor.

As I see it, my options are to try and extend the lease, or to sell it for much less than market value to a cash buyer. Due to the short lease, nobody will get a mortgage on it.

I have spoken to the freeholder and they said it would cost in the region of £75,000 to extend the lease. This is money none of the family are able to raise. 

Renting it out is an option, but I have two siblings so it would be much easier to just sell it and split the money. Other maisonettes on the street have sold for £300,000.

I am a little stuck on what is best to do here. Can you help? D.R, via email

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Harvey Dorset, of This is Money, replies: This is a tricky situation, and you are right to have concerns.

As the leasehold of a property begins to run down, the value of the property will to decrease, and it can make it harder to sell in the future.

It is more expensive to extend a lease that has less than 80 years left due to something called ‘marriage value’. 

When a property’s lease is extended, this will usually increase its market value. Under ‘marriage value,’ the leaseholder must share that increase in potential future profit with the freeholder if the lease was less than 80 years long before the extension. 

In other words, there will be a charge to pay to the freeholder which could be thousands, tens of thousands, or even hundreds of thousands depending on the property’s new value. In your case, it means owing £75,000. 

This is set to be reformed under The Leasehold and Freehold Reform Bill, but no changes have yet to come into effect.

Just a month ago, the Government announced that the sale of new leasehold flats in England and Wales will be banned under a reform to home ownership rules.

This will push the UK towards a commonhold system, where homeowners have greater control over the buildings they live in.

However, the Government has yet to set out any plans for the conversion of current leasehold properties into commonhold arrangements. 

This is Money spoke to two financial advisers to find out what options are available to you in order to deal with your parents’ property.

Aaron Banasik, independent financial adviser at Ascot Lloyd, replies: With leaseholds in the news at present it’s understandable that you’re worried.

Managing property for elderly parents is complex, particularly with lease terms. However, there are options to explore.

Lease extension via a Section 42 Notice

One option is serving a Section 42 notice, a formal request to the freeholder for a lease extension. 

Under the Leasehold Reform, Housing and Urban Development Act 1993, this grants a 90-year extension and reduces ground rent to zero, provided conditions are met.

Since you hold power of attorney for your parents, you may be able to give this notice on their behalf. 

However, this depends on whether the POA document grants you authority over property matters.

As part of the notice, you would propose the premium you would be willing to pay for the lease extension. 

The freeholder does not have to agree to the proposal, but they do have to respond within two months. 

Considerations regarding probate

If the property transfers to you and your siblings without a Section 42 notice, you’d typically face a two-year wait before extending the lease. 

Leaseholders can only make such a notice if they have held the least for at least two years, though this could change under the Government proposals.  

However, personal representatives can serve a Section 42 notice within two years of obtaining a Grant of Probate or Letters of Administration, provided the deceased leaseholder had the right to extend.

Property valuation and financial considerations

In any scenario, it is important to obtain an accurate valuation of the property in different scenarios:

1. As it stands, with only 41 years remaining on the lease

2. With an extended lease (to understand the potential uplift in value).

Given that other maisonettes in your street have recently sold for £300,000, extending the lease could substantially increase the property’s value.

Seeking specialist legal advice

Given the complexities of leasehold law, consulting a solicitor is crucial. 

They can assess your eligibility under the latest leasehold acts, review your POA to confirm whether you can act on your parents’ behalf for the lease extension, and advise on the best course of action, whether that’s extending, selling, or renting.

By taking these steps and seeking professional guidance, you can make a well-informed decision that safeguards your parents’ interests and ensures the best possible outcome for your family.

Karen Noye, financial planning consultant and mortgage expert at Quilter, replies: As a starting point, it would be a good idea to get in touch with the Leasehold Advisory Service. 

In addition to being able to offer Government-funded independent advice, they have a lease extension calculator which can help you estimate the costs of extending the lease. 

This would enable you to check whether the quote you have received is accurate.

As you already know, selling with the current lease will limit potential buyers and that would be reflected in the price. 

To help you determine whether paying for the lease to be extended would be worthwhile, you should look to get a valuation of the potential sale price with the current lease, compared with the price you may be able to achieve if the lease was extended.

In addition, speaking to a professional mortgage adviser would be wise. 

Taking equity release out of the property in order to pay for the extended lease may be an option, so it could be worth exploring what is on offer from specialist lenders with the support of an adviser. 

This can be quite a complex decision-making process, however, so seeking advice to help ensure you are making the best possible decision will be key.

Renting the property out in the meantime could be a way to generate some income. 

Then, once the property is left to you as your parents’ children, you could consider paying for the lease extension. 

It may be possible to remortgage on to a buy-to-let mortgage, carrying out the lease extension simultaneously to meet the mortgage lender’s criteria. 

Letting out a property comes with added costs and considerations, but this could give you more time to weigh up your options and might mean you are able to avoid selling under the value you would get if the lease was extended.