Selling a Property with a Short Lease: Navigating the Market

If you own a flat with a lease that's getting shorter, you might be wondering if selling is still an option. The good news is, yes, you can sell a property with a short lease. However, it's crucial to understand the implications and how it might affect the sale process and the price you can achieve.

What Exactly is a "Short Lease"?

Generally, a lease is considered "short" when it has 80 years or less remaining. Some mortgage lenders might even consider a lease shorter than 85 years as problematic. The Royal Institution of Chartered Surveyors defines a short lease as 70 years or less.

Why does the length of the lease matter? Because a leasehold property is a depreciating asset. As the lease gets shorter, the value of the property typically decreases. Furthermore, it can become more difficult to secure a mortgage on a property with a short lease, which limits the pool of potential buyers.

Challenges of Selling a Property with a Short Lease

Selling a property with a short lease can present several challenges:

• Reduced Property Value: Properties with shorter leases are generally less attractive to buyers, and this is reflected in the price they are willing to pay. The shorter the lease, the more significant the potential discount.
• Mortgage Difficulties: Many mainstream mortgage lenders are hesitant to lend on properties with short leases. They often require a minimum lease term remaining, sometimes needing the lease to extend beyond the mortgage term by a certain number of years (e.g., 25-30 years). This can significantly reduce the number of eligible buyers, potentially limiting your market to cash buyers or investors.
• Increased Lease Extension Costs: Once a lease drops below 80 years, the cost of extending it increases, sometimes dramatically. This is due to something called "marriage value," where the increase in the property's value after the lease extension is split between the leaseholder and the freeholder.
• Longer Sales Process: Finding a buyer willing and able to purchase a property with a short lease might take longer. Buyers might be wary of the future costs and hassle associated with extending the lease.

Your Options When Selling a Property with a Short Lease

Despite the challenges, you have several options when considering selling a property with a short lease:

1. Extend the Lease Before Selling: This is often the most recommended approach to maximise the property's value and broaden your pool of potential buyers. A longer lease makes the property more appealing to mortgage lenders and provides greater security for the buyer.

   • Formal (Statutory) Lease Extension: You may have a legal right to extend the lease by 90 years, and reduce the ground rent to a peppercorn (a nominal amount). This process involves serving a Section 42 notice on the freeholder. It can take several months to complete and involves legal and valuation costs.
   • Informal (Voluntary) Lease Extension: You can also negotiate a lease extension directly with the freeholder. This might be quicker but doesn't offer the same statutory protections as the formal route. It's crucial to ensure any agreement is properly documented legally.

2. Sell with the Short Lease: While challenging, selling with a short lease is possible, especially if you need a quick sale or if the property's price reflects the lease length.

   • Target Cash Buyers or Investors: These buyers might be less reliant on mortgages and could be interested in a property with a lower price point, factoring in the future cost of lease extension.
   • Consider Selling at Auction: Property auctions can attract buyers looking for deals, including those willing to take on properties with short leases.
   • Be Transparent with Estate Agents and Buyers: Clearly communicate the lease length upfront and ensure the asking price reflects this.

3. Start the Lease Extension Process and Transfer it to the Buyer: If you are eligible to start the statutory lease extension process, you can serve the initial notice and then transfer the benefit of this notice to the buyer upon completion of the sale. This allows the buyer to continue the extension process without having to wait.

Key Considerations for Sellers

• Seek Professional Advice: Consult with a knowledgeable estate agent and a solicitor experienced in leasehold property. They can provide tailored advice based on your specific situation and the length of your lease.
• Obtain a Valuation: Get an accurate valuation of your property, taking into account the short lease. This will help you set a realistic asking price.
• Be Prepared for Negotiation: Buyers will likely factor in the cost and hassle of extending the lease when making an offer.
• Understand the Costs Involved: Whether you extend the lease or sell with a short lease, be aware of potential costs such as legal fees, valuation fees, and the premium for the lease extension.

Encouraging Buyers and Achieving a Sale

To make your property more attractive to potential buyers despite the short lease:

• Price Competitively: The asking price should clearly reflect the shorter lease and the potential future costs for the buyer.
• Highlight Potential: If the property has other attractive features (location, condition, amenities), make sure these are prominently showcased.
• Offer Information and Assistance: Provide potential buyers with information about the lease extension process and the estimated costs involved. You might even consider contributing towards these costs as part of the negotiation.
• Consider a "New Lease on Completion": In some cases, the seller can fund the lease extension so that a new, longer lease is in place when the buyer purchases the property.

Conclusion: Selling is Possible, Planning is Key

Selling a property with a short lease is undoubtedly more complex than selling a freehold or a property with a long lease. However, it is achievable with careful planning, realistic pricing, and professional guidance. Understanding your options and being transparent with potential buyers are crucial steps in navigating this process successfully.

Are you considering selling a flat with a short lease in the UK? Contact us today for expert advice and assistance in navigating the complexities of the leasehold market. We can help you understand your options, value your property accurately, and develop a tailored sales strategy to achieve the best possible outcome.

Helpful Links:

• The Leasehold Advisory Service (LEASE): https://www.lease-advice.org/
• HomeOwners Alliance (HOA) - Selling a Flat with a Short Lease: https://hoa.org.uk/advice/buying-and-selling/selling-process/selling-a-leasehold-property-with-a-short-lease/
• GOV.UK - Leasehold Reform: https://www.gov.uk/leasehold-property

By understanding the challenges and opportunities associated with selling a property with a short lease, you can make informed decisions and take the necessary steps to achieve a successful sale.