Some houses and flats are built on land leased from someone else, also known as the freeholder. This means, in many cases, you own the house, but not the land it’s built on. Whoever built the property will have paid to use the space, much like if you were leasing a shop or a car.
A short lease flat or property can sometimes be the biggest downfall when selling.
Your entire property will revert to the freeholder should a lease run out.
What is a short lease?
Any lease under 80 years is a short lease. Anything under 90 years may also be considered a short lease – depending on your conveyancer and estate agent.
If you’re looking to buy a home, you might not even consider whether the land it’s built on is leased, but the conveyancer will look at the lease when it comes to having the building surveyed.
What problems can a short lease cause me?
A short lease can significantly reduce the value of your property. It may make it harder to sell. And it may even stop people from being able to get a mortgage to buy your property.
Unfortunately, the problems that come with having a short lease – reselling with that short lease, or possibly extending the lease – decrease the value of your property. That doesn’t mean you can’t sell it at all, but the pool of people willing to buy becomes much smaller, so not only will it sell for less, it may also take you much longer.
Harder to sell
Much the same as the reasoning for a reduced value, conveyancers tend to advise against buying a property with less than 80-85 years on the lease. Some mortgage lenders won’t provide for short leases. If a buyer can get a mortgage, they’d need to consider the cost and process of extending the lease at a later date to resell.
Many lenders aren’t willing to provide a mortgage on a property where the lease is less than 80-85 years as there will be problems when trying to resell, creating less assurance they’ll get their money back.
So, how do you check the length of your lease?
The best way to check the length of your lease would be to check the lease document. If you don’t have that, the leaseholder, your mortgage lender, or the solicitor or conveyancer who assisted with your original sale will be able to help you.
You could also buy the title register for the property from HM Land Registry.
What can I do if I have a short lease flat?
There are a few things you can do if you’re trying to sell a flat that has a short lease. The top two recommendations are:
1. Sell it at an auction
When you sell at auction, people will know about the short lease, but ultimately they’re there to grab a bargain, which means whilst you would be able to sell it, you’d be selling at a reduced rate. It does alleviate the mortgage aspect; most people at an auction would ideally be cash buyers, so a mortgage wouldn’t be necessary.
2. Sell it to a cash buyer
As we discussed earlier, mortgage lenders won’t be as keen to lend when they know you’re going to have trouble selling a flat later on. It means there is less chance of them getting their money back. Selling to a cash buyer means that you can skip the mortgage approval part of the process. It also means there’s less chance of them pulling out later down the line because a mortgage wasn’t approved. Cash buyers are an excellent market to sell short lease properties too.
But, if you’re not comfortable with those options, and you have the cash to do it, you can look at extending the lease yourself. The property would still be a leasehold property, but extending the lease would make it easier for potential buyers to get a mortgage, increasing the interest in your flat.
If you’ve owned the property for two years, you can legally extend the lease, so this shouldn’t be a problem for you, but it would be an added cost you may not have expected.
You can use this lease extension calculator to give a rough estimate of what it could cost to extend your lease.
If a lease falls under 70 years, the cost of extending the lease becomes much more costly than if you’re extending a lease with 85 years+. So it’s in your best interest to explore the option of extending as soon as you can. On top of that, you’ll want to allow enough time to have the property surveyed and negotiate a price that works for both of you.
London short lease flats
Almost all flats in London are leasehold flats, meaning you can own the property, but not the land it stands on. And you need to keep the lease going; otherwise, the property will eventually belong to the person who owns the land.
Short lease flats in London are standard, and whilst they are cheaper and can seem like a steal, it’s essential to know everything in the article above to truly understand if your bargain flat is, in fact, a bargain.
If you have a short lease flat you’re looking to sell, it would be beneficial for you to seek legal advice as soon as you can. This will give you more time to explore your options and potentially extend your lease so you can sell as quickly as you would like to.
About Richard Mews
Richard has 31+ years of property experience, has been Chairman of several regeneration committees and has helped more than 600 homeowners and landlords get easy, stress-free personal solutions for selling their property. Richard’s goal is to give you unbiased help to receive a quick house sale, even if that means not working with him.