Selling a property with a short lease

There are around 4.5 million leasehold properties in the UK. That’s almost 20% of all UK properties. As time goes on, the number of years left on the property lease reduces. At a certain point, the property will be considered a ‘short lease’. This can impact both the property value and its saleability.

This guide will tell you everything you need to know about properties with short leases and help you to consider your options.

Leasehold property – an explanation

When you buy a leasehold property, someone else – the ‘freeholder’ – will continue to own the land the property sits on. For the duration of the lease, you are allowed to use the land. This is common for flats but also applies to a small number of houses.

At the point that the lease runs out, the property will be returned to the freeholder, unless you pay to extend the lease.

Most leasehold properties will initially be given a lease that lasts between 99 years and 999 years. As the number of years on your lease runs down, the value of the property will be impacted. The longer your lease, the more your property will be worth.

If the number of years remaining on your lease starts to get low, you will have the option to pay to extend your lease. The shorter your lease, the more it is likely to cost to extend it. This is because the lease extension cost usually takes into account the difference the extended lease would make to the property’s value. If your property still has a fairly long lease, extending it isn’t likely to increase the value very much and therefore the extension will be more affordable. If your lease is shorter, the extension will make more of a difference to the property value and is therefore likely to cost you more.

What is a short lease?

In the UK, a property is considered to have a short lease if less than 80 years are remaining.

Does a short lease make it harder to sell a property?

A shorter lease can impact the property’s saleability and therefore its value. It can also make a property harder to sell. This is because it’s difficult to get a mortgage on a property with less than 80 years left on the lease.

Can you get a mortgage on short lease properties?

It may be possible to get a mortgage on a property with a lease as short as 40 years, but it will become a lot more challenging once a lease has fewer than 80 years remaining.

How much does a short lease devalue a property?

How much short leases devalue properties will depend on just how short the lease is. If the lease is shorter than 80 years, you can expect it to impact the property value by around 10-20%. Once the lease falls below 50 years, you’ll be looking at a value around 30% lower than the same property with an extended lease.

Once the lease drops lower than 40 years, the property will likely be completely unmortgageable. This will have a bigger impact on its value. What the property will be worth at that point depends on local market conditions and finding a cash buyer.

It is advisable to extend the property lease before it drops below 80 years, if possible.

Short lease property for sale – what’s the best way to sell?

If you’re not able to extend the lease due to financial constraints, selling it will be a bit more challenging.

You have a few different options:

List your property with an estate agent but target investors and cash buyers

If your property has a short lease, it’s going to be more difficult for your buyer to secure a mortgage. Cash buyers are probably more likely to be your target audience.

Property investors will also be a good fit as they are likely to be less fazed by the prospect of a short lease. Investors may have prior experience of lease extension and therefore be more willing to take it on than a residential buyer paying cash.

Your estate agent can specify that the property is ideal for investors and cash buyers, but your property will also need to be priced attractively in order to reflect the reduced target market.

Explore property auction

Property auctions can be a good option for short lease properties. Often attracting investors, property ‘flippers’, and cash buyers, auction buyers are less likely to be put off by the complexity of the short lease (though they will expect to get a bargain to reflect the extra work it will require to get the lease extended).

It is worth noting that only around 70% of properties that go to auction sell and it’s difficult to predict how much the property might sell for. If your property doesn’t find a buyer, the lower guide price required for auction can impact the price you can then achieve through other channels.

In order to maximise your chances of a successful sale, research the auction company carefully and ensure there will be sufficient pre-auction marketing to hit your target market.

Consider a cash buying company

If you’re looking for a quick and guaranteed sale, you may wish to consider a cash property-buying company. A genuine company should be able to buy your property directly from you in just a week or two.

You need to be a bit careful with this method because the industry is unregulated. This means there are some rogue companies out there claiming they can buy your property from you when they simply don’t have the funds to do so. In this scenario, the company will usually try to tie you in with a contract and then try to find a buyer for your property. The problem with this is that you can get stuck in these contracts and end up having to sell your property for far less than you’re happy with.

To safeguard yourself against rogue traders, we advise that you do your due diligence on the Government’s Companies House website. This will give you access to the company’s financial records. If a company is genuinely buying properties directly, they will have an annual turnover of several million pounds.

What can I do about a short lease on property?

If you want to address the short lease before you sell the property, you can look to extend it.

Alternatively, if your leasehold property is a house, you could approach the owner of the freehold about buying it from them. If you own a flat, you may also be able to buy the freehold if at least half of the leaseholders in the building are willing to work together to do so. This would result in you jointly owning the freehold with the other leaseholders you teamed up with. There are responsibilities associated with owning the freehold of a block of flats, so you should research it carefully and seek legal advice if this is something you’re considering.

How to extend a short lease

You have a statutory legal right to extend your lease by 90 years for a flat or 50 years for a house. This request can be made at any time.

Alternatively, you may want to negotiate different terms with the freeholder if they are open to doing so.

Below is a step-by-step guide to extending a short lease.

Step 1

Contact the freeholder and inform them that you want to extend your current lease. If they are resistant to discussing it, you can inform them that you are making the request under statutory law. There used to be a requirement to have owned the property for a minimum of two years before you could apply to extend the lease, but this requirement has recently been removed. You can now apply for a lease extension from day one of ownership.

Step 2

Appoint a solicitor – it’s important to use someone who is experienced in lease extensions.

Step 3

Get the property value by a surveyor. This valuation will be used to help calculate the cost of lease extension.

Step 4

Make the freeholder an offer for the lease extension. You can use a short lease extension calculator to give you an idea of the level of offer that might be appropriate and then negotiate from there. If the freeholder rejects your offer, you can ask them to make you a counteroffer. If you struggle to agree on a price, you can go to a tribunal to get third-party support with reaching an agreement.

Step 5

Once you’ve agreed on the price of the lease extension, you’ll need to pay a deposit. This will be either 10% of the agreed lease extension price or £250, whichever is greater.

Step 6

Once the legal process has taken place, you will need to pay the remaining balance for the lease extension.

How long does it take to extend a short lease?

Lease extension takes an average of 6 months. It can be as quick as 3 months or take as long as 3 years, depending on how long negotiations with the freeholder take and whether mediation is required.

How much does it cost to extend a short lease?

The cost of extending your lease will vary depending on the value of the property and how long you have left on your current lease. You will usually be looking at a cost of tens of thousands of pounds.

How to pay for lease extension

Many people will remortgage their property to be able to pay for the lease extension. This can work well because their property will be worth more with the new lease. If that’s not an option, homeowners may look to get a short-term bridging loan to cover the initial lease extension cost. They can then look to remortgage once the extension is complete.

Lease extensions are not cheap, but having a short lease may cause problems if you want to sell or remortgage your property. Ultimately, it’s important to consider your personal circumstances when deciding the best route for you.

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