Selling a flat with a short lease is a difficult process due to the legal complexity and financial implications on you as a seller.
Having a short lease (any lease under 80 years) makes your flat harder to sell and can reduce the market value of your flat.
And while applying to extend your lease can help avoid both of these issues, it is generally a long and costly process.
Have questions as to how it works?
If you’re looking to sell a flat with a short lease, contact Swift Capital at enquiries@swiftcapital.co.uk today to chat through your options and find your best offer.
What Counts As A Short Lease?
In general, any lease under 80 years is considered ‘short’.
This is important because, when your lease has less than 80 years left, it can be expensive to extend and complicated to renew, making it less appealing to potential buyers.
The further under the 80-year threshold you are, the more issues you might have when it comes to selling.
Does Having A Short Lease Affect The Property Value?
Yes. Flats with leases below 80 years are generally valued lower than those with longer leases, sometimes up to 30% less than market value.
This is down to two factors.
Firstly, mortgage lenders don’t tend to lend on flats with such short leases as they view the value of the flat as decreasing.
Secondly, buyers will likely take into consideration the cost of extending the lease post-sale, and so will factor this into their offer.
If you want to know what your best offer would be on your flat with a short lease, contact us at Swift Capital today through enquiries@swiftcapital.co.uk.
Is It Easy To Find A Buyer When Selling A Flat With A Short Lease?
Finding a buyer is possible when selling a flat with a short lease, however, it can be more difficult. As the majority of mortgage lenders don’t lend to buyers making offers on short leases, it dramatically reduces your buyer pool to cash buyers, investors or auction houses.
Sales made on flats with short leases tend to be much lower in value because buyers will have to take on the legal process and associated costs of extending the lease themselves. This added cost and admin is taken into consideration when making an offer, usually resulting in a lower sale price.
Also, your buyer would have to wait until they have owned the flat for 2 years before they are able to extend the lease, which can make it seem less desirable.
If you are looking to sell a property with a short lease, quick sale companies like Swift Capital make the process a lot easier for you. If you’re looking to sell your a property with a short lease, contact us today.
How Easy Is It To Extend A Short Lease?
Extending a short lease (one that is under 80 years) is a complicated and expensive process. It can take anywhere up to 12 months, often longer if there are disputes.
Extending the lease can either be done formally, or, in some cases, it may be possible to ask your freeholder for an informal lease extension. Each extension process has its pros and cons:
Statutory Lease Extension
This is issued by the Leasehold Reform Housing and Urban Development Act 1993 and requires the leaseholder to serve the freeholder with a formal notice of claim (Section 42) for the extension.
However, this can only be served after two years of ownership, and, if all the criteria is met, the application cannot be refused. It also means more legal protection for the leaseholder, and introduces peppercorn rent, a process through which ground rent is essentially brought down to zero.
Going through all the legal motions takes a lot of time, so this would need to be factored into your selling timeline. However once it’s done, the property is more likely to sell for full market value.
Informal Lease Extension
This informal process is between the leaseholder and the freeholder and has much more flexible terms relating to the length of extension and the costs involved. It is also usually a quicker process. There is, however, little to no legal protection involved, and the freeholder is still able to keep or increase ground rent, which could make the flat harder to sell in the long run.
In either case, it is important to get legal advice, as extending a short lease is a legally complex procedure.
How Much Does It Cost To Extend A Short Lease?
The exact amount you pay to extend your short lease can range substantially as it is based on the length of your lease, the amount of ground rent, the location of the flat, the market value, and various other factors.
For example, an estimate of the cost to extend the lease on a flat worth £250,000 with a 70 year lease, is around £15,000. Meanwhile an estimate of the cost to extend for a flat worth £400,000 with a 40-50 year lease is between £28,000-45,000.
Extending a short lease is expensive because, alongside the higher cost of valuation and legal fees (as the process is more legally complex) there is an added cost you have to pay to your freeholder for the extension. This is known as the ‘Marriage Value’.
Marriage Value is 50% of the increase in market value of the flat (as a result of the lease extension). You are legally required to pay this to the freeholder. Although the uplift in market value from a short lease extension is a big positive for the flat’s sale price, it must be shared 50/50 between the leaseholder and the freeholder, reducing the total amount you receive from the sale of the flat.
If I Want To Extend My Short Lease, When Should I Do It?
When extending a short lease, timing really matters. You can start the lease extension process before or during selling. Choosing when to start the extension process opens up different legal considerations and costs, and can shift timelines. This would all need to be negotiated and agreed with the buyer beforehand.
Extending The Lease Before The Sale
If you have owned your flat for longer than two years, you have the statutory right to extend your lease. This would bring your property up to market value before the sale is completed and opens up your buying pool to those borrowing from mortgage lenders. In this case, you would cover all associated costs.
Extending The Lease After The Sale
This is best if you don’t have time to complete the lease extension yourself or you have a buyer that is willing to foot some of the cost.
As long as the lease extension is in progress during the sale and you have served a formal Section 42 notice, you can pass all rights on to the buyer before the sale is completed. Often, if your buyer is borrowing money for the purchase, they will need the extension process to be finalised prior to the completion of the sale.
Overall, the process of extending a short lease is expensive, so it’s important compare the cost of extending the lease with the offer you would receive if you were to sell your flat with the short lease as it is. For a quick valuation, get in contact with Swift Capital today!
What’s The Longest You Can Extend A Short Lease?
The maximum a lease can be extended is 90 years. This is the same for flats with longer leases, although, as outlined above, short leases (those below 80 years) have a much more legally complex and financially demanding process.
How Quickly Can I Sell My Flat If I Don’t Extend My Short Lease?
It can still be a quick process, but it will rely on having a cash buyer, taking it to auction, or (the quickest route) selling to property investors like Swift Capital.
If you are looking to sell a flat with a short lease and you need a quick sell, contact Swift Capital at +44 (0) 207 078 0060 today.