Can a Short Lease Stop You from Selling Your House or Flat?
When selling a leasehold property, the number of years left on the lease can have a significant impact on your ability to sell and the amount you’ll get for your home. If you have a short lease, buyers may not secure a mortgage against the property, and it can be expensive to try to extend it. However, this doesn’t mean it’s impossible to sell. So, how do you go about it?
What is a short lease, and why can it be a problem?
Firstly, let’s consider what counts as a short lease. Generally, once a lease hits 80 years, it would be considered short. At this point, it will become more difficult for potential buyers to find lenders willing to offer them a mortgage, and they’ll likely have to accept a less favourable interest rate if they can secure funding. Buyers can also be put off a short lease property as they’ll have to go through the cost and complication associated with arranging an extension – and they’ll have to own the flat for two years before they can begin the process. As a seller, the shorter the lease gets, the more the property’s value reduces.
Despite this, there are still options available when it comes to selling. For example, short-lease properties can appeal to cash buyers who don’t need a mortgage. In addition, some lenders will grant a mortgage on the basis that the seller will apply for a new lease which will be transferred to the buyer at the same time as the leasehold interest in the flat.
Can I extend my lease?
Once you start to approach the 80-year marker, however, it’s a good idea to look into extending your lease. You can find out how long is remaining by checking the lease itself or the Title Register. Remember, the closer you get to 80 years, the more expensive it will become to extend, so don’t wait until the last moment to do this – you can ask for an extension at any time so long as you’ve owned the property for two years.
Also, once you hit 80 years, you’ll be affected by marriage value when you extend your lease. Roughly speaking, marriage value is equal to the increase in the value of a property once its lease has been extended – and the freeholder is entitled to a 50% share of this increase. Extend your lease before it reaches 80 years, and you can avoid this.
Under the 1993 Leasehold Reform Act, the majority of flat owners are legally entitled to have 90 years added to their lease at a fair market price. This fair market price will depend on several factors, including the value of the property and the time left on the lease. The Lease Advisory Service Lease Extension Calculator provides a rough guide to costs. For a more accurate idea, speak to a solicitor to see if other flats in the street have recently been granted an extension and how much they paid.
How do I extend my lease?
Extending the lease could be as simple as approaching the freeholder and enquiring about extensions. They may be happy to proceed informally, but be wary of doing this without professional advice as it may be used as a way to increase your ground rent or add new clauses to your lease.
The more formal approach is first to have a surveyor conduct your property valuation and send it to your solicitor. Your solicitor will then serve a Section 42 notice on your freeholder advising them of the amount you are willing to pay for the lease extension. Your landlord or freeholder then has two months to respond with a counter-notice that will either accept or reject the offer. If the freeholder does not accept your offer, the counter-notice will state the required lease premium. There will be a further two-month period during which your surveyor and your landlord’s surveyor can negotiate and agree terms. If you cannot reach an agreement, then either you or the freeholder can apply to the First-tier Tribunal to make a decision.
Depending on the responsiveness of your freeholder, the whole process could be completed in as little as two months, but it can take 12 months or more, so again getting the ball rolling sooner rather than later is to be encouraged.
Can I sell my property with a short lease?
If you decide that a lease extension isn’t for you, the good news is that you can still sell your property even with a short lease. The less good news is that you likely won’t get as much money for it as you may have hoped. It may also be the case that estate agents will choose not to get involved in what could be a complex sale, so selling privately or via a specialist company can be an option. This means it’s often not the best course of action. If you decide to go ahead, you must make it clear in the property details that there is a short lease and that this has been reflected in the price.
What about buying the freehold?
Another option is to look at buying the freehold of the property. This is a complex process and involves working with your neighbours to ensure several qualifying criteria are met, but it does mean you no longer have to worry about leases, and it’ll add value to your property when you sell. However, it won’t be the best option if you’re looking for a quick sale. Read our blog How to Convert a Freehold Property to Leasehold to find out more.
The Novello approach
At Novello, our RICS qualified chartered surveyors are here to guide you through the lease extension process, advise on the best time for action, and deliver accurate and timely valuations. Our highly experienced surveyors truly understand the market and will ensure fair value for all parties so that when the time comes to sell, you’re able to get the maximum price for your property.
If you choose to go down the freehold route, we’ll take the stress out of what can be a complex, confusing and lengthy process. At every step, we’ll be driving the process forward, sharing our insight and responding to your queries, so you get the best possible outcome in the shortest possible time.