Short is long
Sebastian Deckker
PEOPLE say, 'Length is important.' This was especially true when purchasing leasehold residential property in London. However, with a succession of improvements in landlord and tenant legislation, culminating in the recent Commonhold and Leasehold Reform Act 2002, there has never been a better time to invest in a short lease. The new Act will allow you to extend your lease without requiring you to live in the property to qualify. That means you can rent the property out. It may be daunting for the uninitiated but, given time and money, it can prove extremely profitable — resulting in an affordable way to secure a 'dream home' or pied-a-terre in those desirable, yet often unobtainable, boroughs at a fraction of the price you would expect to pay for a corresponding long lease or freehold. An excellent example is Vale Court in Mallord Street, an attractive purpose-built block, conveniently located for the King's Road, close to the Bluebird, where a newly refurbished flat with a ten-year lease is on the market for £249,000 through the Chelsea estate agents John D. Wood & Co. (020 7352 1484). While the potential for profit is significant, caveat emptor: leaseholders should be aware that they will be responsible for a proportion of the landlord's legal costs as well as their own. Furthermore, if the case ends up, as many do, with the Leasehold Valuation Tribunal, the bills mount up.
The underlying principle remains that the original term of the lease should be in excess of 21 years. In the case of flats, the requirement that a leaseholder must have occupied a property as their sole or main residence for the last three years, or periods of three out of the last ten years, has been abolished. In the future, a leaseholder simply has to own the property for a period of two years before exercising the right to a 90-year lease extension. This will certainly benefit those who occupy the property as a second home or have purchased it for investment. Justin Shingles (020 7235 4900), a specialist who acts only on behalf of tenants, believes that the new Act has already made a significant impact on corporate and non-resident leaseholders alike. Shingles adds, 'The Marriage Value, any added profit hitherto shared with the landlord, has now been set at 50 per cent on all leases with less than 80 years unexpired.' In the case of houses, the Act also enables leaseholders to buy the freehold of their property and further extends certain rights conveyed by the Leasehold Reform Act 1967. Further information can be obtained from the Royal Institution of Chartered Surveyors (RICS) on 020 7222 7000.
Trevor Street is situated in the heart of Knightsbridge. Although the majority of houses are now freehold, Hobart Slater (020 7581 8277) are marketing a 'beautiful family house' for £495,000 for the nine-year lease. Further west along Brompton Road, there is an elegant curve of stucco-fronted houses attributed to the architect George Basevi and now forming part of the Wellcome Trust's South Kensington Estate. Pelham Crescent dates from 1835 and the majority of properties are still leasehold. Russell Simpson (020 7225 0277) have a particularly fine example, with a wonderful first-floor drawing-room opening on to a balcony, and a west-facing garden. The asking price is £3 million for a 35-year lease,
Historically, it has always been difficult for individuals to purchase properties with a lease of less than 50 years. Nevertheless, Richard Young, an independent mortgage specialist (020 7409 1829), believes that there are now few totally unmortgageable propositions. Young comments, 'Leases as short as five years are not impossible to handle. Favoured London postcodes are still preferred by lenders, but valuations will always reflect the value at the end of the mortgage term rather than asking price.'
Eaton Square is considered to be one of London's most prestigious addresses. Richard Dalton, a director of the Grosvenor Estate, suggests, 'Not everyone who wishes to live in Mayfair or Belgravia wants to tie up capital in purchasing a freehold. We provide a choice of tenures for those who want to remain leaseholders on the estate.' Strutt and Parker (020 7235 9959) are marketing a large third-floor flat, laterally converted over two period houses, on the south side of the square for £895,000. The property, which is currently held on a 12-year lease, has direct views over the beautifully manicured gardens to which the residents have access. In neighbouring Eaton Place, John D. Wood & Co. (020 7824 7900) are selling an elegant, raised ground-floor flat with its own private street entrance and garage at £525,000 for the unexpired eight-year lease.
Indications show that there is a strong demand for high-quality short leases for investment, as they often produce yields in excess of 10 per cent, compared with the 4-5 per cent associated with longer leases. In response, WA_ Ellis (020 7581 7654) are able to offer a selection of short leases on the 90-acre Chelsea estate of Earl Cadogan, including one on a 20-year lease on the east side of Cadogan Square for 050,000. This bright third-floor flat has a roof terrace and access to the communal gardens. It would make an ideal base, especially useful for those essential retail-therapy trips to Harvey Nichols and the other glossy emporia of Sloane Street. Just north of Oxford Street in the 'Medical Quarter', James Taylor of Egerton (020 7486 8866) is the agent for a 'beautifully decorated second-floor flat' in New Cavendish Street with an unexpired lease of 6V2 years at £250,000. Taylor, who also acts for the Howard de Walden Estate, comments that `the tide of legislation is constantly growing in favour of the leaseholder'.
One critic of the short lease was Isaac Ware, who suggested in the Complete Body of Architecture (1756) that buildings were not made to last beyond the term of the lease and, indeed, 'some have carried the art of slight building so far, that their houses have fallen down before they were tenanted'. This statement, for the most part, has been disproved. A house in Drayton Gardens, constructed in the mid-19th century, is still standing and currently available through Bective Davidson (020 7589 6677) at 'offers in excess of £1,150,000' for the unexpired 20-year lease. The property is in need of modernisation but has a self-contained basement flat and attractive front and rear gardens.
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