Selling a house or a flat can be stressful in itself; however, if you have a short lease, trying to sell it will not be easy or even impossible to achieve the full sale price.
If you have a short lease issue, you will need to know how short leases work. We buy any property no matter how short the lease.
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Flats with Short Leases?
If you own a leasehold property, you may have a short lease term left, which will be a problem now or in the future. For example, owning leasehold flats means that you only have the right to occupy the property for a fixed term.
You are probably a leaseholder if you pay annual ground rent and service charges.
The short lease issue only applies to leasehold property, including most flats or apartments and some houses.
If you own your property and it is a freehold, this blog does not apply to you. Also, the short lease issue in Scotland and Northern Ireland does not apply due to legal
differences.
What is considered a Short Lease?
Short leases are usually properties leased with 70 years or less remaining; in some cases, leases with 80 years or less remaining may also be considered short.
Why is a Short Lease Such a Problem?
The purchase price of any property with a short lease will diminish the value depending on the unexpired lease term.
The problem with a lease shorter than 70 years is that lenders are not happy to lend money on houses, apartments, or flats with short leases. Therefore, an Estate agent will struggle to sell properties with a shorter lease.
It is also difficult for an estate agent to try to sell these properties because any potential buyer will not be able to take a mortgage on the property.
This is because lenders will typically need the lease to run for at least 25-30 years beyond the end of the mortgage term.
This means that if you want to sell your property, no one who needs a mortgage will be able to buy it.
Unmortgageable short leases & Mortgage Lender
Suppose you own an unmortgageable, short-lease property that you need to sell. We buy any property in any condition, even with a short lease. Click this link to receive a cash offer.
You’ll need to find out from the original lease what period you have left on your lease. For example, if you do not have a copy of your lease, your current mortgage lender or the solicitor or conveyancer who dealt with the original purchase should be able to help.
When you purchased the property, the lawyers dealing with the purchase would have had a copy of the lease as part of the conveyancing process.
The shorter the lease on the house or flat, the less it’s worth, while the cost of solving the problem rises. For example, banks and building societies don’t want to lend on a short lease property that quickly becomes worth less than the buyer originally paid for, meaning the property can potentially become
unmortgage able.
Ways to check if you have a Short Lease?
You will need to check your lease to find out if you have a short lease. If you do not have a copy of your original lease, you can obtain this from your lender.
They may want further legal costs to provide this information, especially if they have to obtain this from the HM land registry.
Using the government site, you can check if a property is a freehold or a leasehold for free.
You can get further information and find out whom the freeholder is by purchasing a copy of the title register for the property from HM Land Registry.
Once you have the office title registered, you will know how many years unexpired on the lease.
What is the lease extension process?
Some leaseholders enter into what is known as an informal lease extension. Therefore, we would advise you consider all the pitfalls very carefully before considering using an informal lease extension.
Most leaseholders take the formal lease extension process. There are three possible ways to sort out a short lease problem:
- Extend your short lease. Your property will still be leasehold. But prospective buyers will be able to get a mortgage on the newly extended long lease. You’ll then be able to sell it easier.
- Buy your freehold; by doing this, you will be able to sell your property as a freehold. Any potential buyer will be able to get a mortgage.
- Sell your house or flat to a cash buyer like us. This avoids the headache of protracted lease negotiations. It also means you don’t need to find tens of thousands of pounds for the lease extension, surveyors, and lawyer fees. Generally, you will be required to pay the landlord’s legal fees. Check your lease; you will likely have to pay the landlord’s legal costs.
Seek legal advice from a licensed conveyancing solicitor who can take the necessary steps to obtain a lease extension valuation so you can negotiate a new extension. However, you will likely incur valuation costs, so an accurate figure for an extension can be calculated.
Be aware that the rough time it takes to negotiate the lease term extension can vary widely. For example, the rough estimate is between 3 to 9 months.
Lease Extension
Leaseholders of a flat or house have a legal right to extend their lease., known as enfranchisement. Extended lease up to 50 years for a house and 90 years for a flat.
It is essential to note that you need to have owned the flat or house for at least two years to extend a lease. For example, if you have inherited a house or flat from your parents., your parents would have had to have owned it for two years.
You can extend a lease by:
Informal negotiation with the freeholder
The formal process by legally serving the freeholder with a Tenant’s Notice.
You will need a lawyer who is an expert in leasehold extension and a chartered surveyor or valuer to advise you on the cost of extending the lease.
You can also obtain advice from The Leasehold Advisory Service. They are a government-funded body that provides free initial advice to residential leaseholders.
What does Extending a Lease Cost?
You will need to pay the market value to extend a short lease. This considers reducing the value of the freeholder’s interest in the property between the existing lease and the longer lease.
You may have to pay what is commonly known as marriage value if the lease has 80 years of unexpired terms. For example, marriage value is 50% of the adjusted value that the leasehold extension adds to the property.
The Leasehold Advisory Service is an excellent portal to visit; it explains how marriage value is calculated.
This calculator can estimate the likely cost of extending a lease.
Example Case:
A flat or house with a value of £200,000 after lease extension, with a £200 annual ground rent and 85 years remaining on the lease, will cost £5,000 to £7,000 for an extension of 90 years.
However, if you have 65 years remaining on the lease, the cost will be around £23,000-£25,000.
You will need to consider the associated costs of lease extension like landlord’s legal costs, surveyor fees and your lawyer’s legal fees.
How Long does Extending a Lease Take?
If you need to extend your lease, you should instruct a solicitor and valuer. They will serve any necessary notices and wait for a response from the freeholder. You should factor in:
(1) time to negotiate with the freeholder
(2) time for the lease extension process.
If things cannot be agreed upon amicably, you must take your case to a tribunal. This process will take time.
Extending a short lease typically takes between three to 12 months. You should allow for this before deciding to go ahead.
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Buying your Freehold
The law legally entitles you to request the freehold owner to sell you the freehold of your house or flat.
This works similar to the same process of extending a short lease. You can negotiate informally with the freeholder or formally by serving a legal notice. We strongly recommend that you get legal advice from a solicitor or a surveyor who is an expert in lease extensions.
The cost of buying the freehold title is similar to extending a lease, so the Lease Extension Calculator will be helpful.
If you own a flat on a short lease, you can consider joining forces with other flat owners in the block to buy the freehold property jointly. If you want to consider this, you should contact the other leaseholders in the block.
Those who want to buy will need the money to buy it and agree to the deal.
Selling a Flat with a Short Lease
A short lease is a common problem for many leaseholders when attempting to sell a flat or a house.
This means that a potential buyer looking to mortgage the property will struggle to find a mortgage company that will lend.
Note that you may be able to find a cash buyer like us, but the offer price will be slightly less than when you have a new lease.
What to do with a short lease when selling
We advise many sellers with property-related issues that you are not alone, and we have a solution for you.
Extend the lease before the sale
You may wish to stall the sale process whilst you extend the lease. We suggest giving yourself at least six months and extending it to 95 years.
Despite the challenges and financial strain of a lease extension, you are likely to widen the audience of potential buyers and get a better purchase price. However, this does mean a delayed sale and having the finances for the extension.
Suppose you sell a flat or a house you inherited with a short lease. You should note the previous owner would also need to have owned it for two years. Failing that, the executors of the Will can legally serve the notice within two years of the grant of probate.
The freeholder cannot refuse the lease extension request under the Leasehold Reform, Housing and Urban Development Act 1993. However, you will have to obtain a valuation to determine what premium will be payable.
A property solicitor can serve a Section 42 Notice if you succeed, the ground rent will be zero, and the term extended.
Although there’s an element of negotiation, the lease extension specialist’s cost will depend on how many years are left on the lease. The location and overall value of the property are also essential factors.
Note that, in theory, statutory lease extensions can be done informally. A lot will depend on how ‘on board’ and the freeholder is proactive.
You must factor in extra costs to pay in addition to the lease extension for selling the flat.
Sell with a short lease.
Many leaseholders with short leases sell the property to avoid additional expense and hassle.
Potential buyers will only buy at a discount, usually factoring in the lease extension cost and the hassle of undertaking the legal process of the lease extension.
Selling a flat to a Cash Buyer.
Selling your short lease flat or house to a cash buyer like us is an option you can consider, and this option has the following advantages:
- Lawyers to extend the lease
- surveyors to survey and calculate the cost of extension
- Negotiate with the freehold
- Raising funds to finance the lease extension
- No estate agent fees
- Decoration or repairs to make the property ready for sale
Statistics
According to a recent survey conducted by Landlord Advice UK, most lawyers acting for leaseholders advise against lease extensions of around 80 to 85 years.
