Selling a Flat with a Short Lease

The Problem with Short Leases

A short lease is arguably the biggest obstacle you’ll face when selling your flat.

The law sadly works against you and, in most cases, the balance of power shifts back to the freeholder (landlord).

What’s more, you’ll have to pay what’s known as a marriage fee.  Here, the freeholder can legally claim half of the increase in the property’s value as a result of the extended term.

All of this means that any buyer looking to finance the flat will struggle as short lease flats are generally frowned upon by mortgage lenders.

Note that you may be able to find a cash buyer (like Property Solvers), but the offer price will almost always be lower.

Checking How Short the Lease Is

The first stage is to find out how long is left on the lease.  This will usually be on the lease itself, or you can download the Title Register and see when it was initially granted.

You’ll then need to add the number of years specified and deduct the current year.  For instance, if a 150 lease was initially granted in 1990, there are 119 years left (150 + 1990 – 2021).

In our experience, most buyers conveyancers are likely to advise against leases of around 80 to 85 years.

This means that your ability to sell is going to come up to challenges, particularly as there are only a handful of mortgage companies willing to lend to prospective buyers.  Those that do will charge a comparatively higher rate of interest on your monthly payments.

The closer you get to 80 years remaining on the lease, the more expensive it becomes to extend.  Unfortunately, it also means that the value of the flat will drop (and continue to do so until the extension is in place).

If you leave it even longer (75 or 70 years, for example) the costs will continue to increase, the flat will be worth much less money and the chances of finding an open market buyer drop.

To make matters worse, some (but not all) freeholders play hardball and can use the law against you.

What to do with a short lease when selling…

As we often say to sellers with property-related issues, you’re never alone and there is almost always a solution (albeit not an ideal one).

Extend the lease before the sale

It may make sense to stall the sale whilst you extend the lease.  We would suggest giving yourself at least 6 months extending it to at least 95 years.

Despite the challenges and coming and going with the freeholder, you’re likely to widen the pool of potential buyers and achieve the full market value.

It’s worth noting that, as long as you have owned the property for at least 2 years, you have the statutory right to extend the lease should you wish to.  There’s nothing from stopping the freeholder from allowing you to do this.

Note that if you’re selling an inherited flat with a short lease, the previous owner would also need to have owned it for at least 2 years.  Failing that, the executors can serve the notice within 2 years of the grant of probate.

Under the Leasehold Reform, Housing and Urban Development Act 1993, the freeholder cannot refuse.  You will have to obtain a professional valuation to determine what premium will be due.

A specialist property solicitor will need to serve a Section 42 Notice and, if successful, the ground rent would drop to zero and another 90 years would be added to the existing term.

Although there’s an element of negotiation, the cost of the lease extension will come down to how much is left on the lease.  The location and overall value are also important factors.

Note that, in theory, lease extensions can be done informally.  Much will depend on how ‘on board’, proactive and cooperative the freeholder is.

Either way, remember that there will be extra costs to pay (in addition to the conveyancing fees for actually selling the flat).

Extend the lease during the sale

As long as you have a valuation from a leasehold extension specialist surveyor and have served Notice on your landlord, the lease can be assigned to the buyer.

The benefit of the Notice would need to be in place in the time between exchange and completion at the latest.

Much will depend on how pro-active the freeholder is.  But, as long as there’s full cooperation, the entire conveyancing process should be reasonably plain sailing.

Again, as a seller, you should be able to achieve the full market value.   This assumes there is complete clarity regarding the cost of the lease extension (you will need to cover this as a condition of sale).

Or, if the financial responsibility of the lease extension falls on the buyer, the price you get for your property will be lower.  Note that the buyer here can continue with the extension process as if they have owned the flat for 2 years.

Extend the lease after the sale

You may be able to negotiate so that you can pay for the lease extension costs after the sale.  Some sellers, for example, offer to pay in manageable instalments.

This would depend on how amenable the buyer is to accept.  In most cases, you may have to accept a slight discount on the sales price.

You will probably also need to obtain a lease extension survey and serve Notice prior to exchange and completion.

A separate legal agreement will also need to be drawn up that will oblige you to pay the costs.

Speak to your previous conveyancer

Your original conveyancer (when you bought the property) should have advised you on the length of the lease.

For example, if you bought the flat within the last few years and you are close to the 80-year mark, decent conveyancers would advise not to go ahead.

If this has happened to you, you may well be able to sue for professional negligence.

Sell with a short lease

Many leaseholders with short leases simply decide to sell the property up ‘as is’.

Buyers will inevitably wish to purchase at a discount, usually factoring in the cost of the lease extension and hassle of undertaking the legal process themselves.

Note that any buyer will have to wait for 2 years of ownership before being able to extend.

Approach a quick sale company

You may also want to consider a ‘we buy any house’ company who are experienced in buying short lease properties.

Here at Property Solvers, for example, we typically purchase at around 75% of the market value (for cash) and can get things completed in 7 to 28 days.  We also cover all conveyancing fees and there are no estate agency costs (as it’s a direct sale).

Use an auction house

When selling at auction, you’ll often find private buyers who have no issues with short lease properties.

The process is a cross between selling to a quick buying company and using an estate agent.  There is, however, a greater level of security after a successful bid.

Be prepared to receive reserve prices suggestions from auctioneers that factor in the costs of the lease extension.  Auction buyers may also want to factor in the associated risks that come when dealing with freeholders.

Buy the freehold

Not the best solution if you’re looking for an imminent sale, but purchasing the freehold with the other leaseholders is a great way to improve the saleability of your leasehold flat.

This process is known as collective enfranchisement and your property will become a share of freehold.

Buyers tend to prefer this type of tenure as there’s more security.  There will also be no ground rent payments.

You may be able to negotiate this informally, but typically this process is undertaken by a suitably qualified solicitor.