When you bought your leasehold property all of those years ago you probably didn’t pay too much attention to the length of the time that was left on the lease, if your solicitor didn’t mention it then it was probably ok.
The trouble is that the years have passed by and that number that you paid little attention to has been dwindling and now you want to sell that number could be a problem, a big one.
For all intents and purposes any period under 80 years on a lease is considered short. Even though you might be thinking that this is a long time there is a good reason for this. 80 years is the cut off point where what is known as ‘marriage value’ (more on this mysterious figure later) at this point the cost of extending the lease will start to jump up significantly.
You might be thinking that you still have decades of carefree living in your leasehold property even if you have less than 80 years left on the lease and that is true if you plan to live there for the rest of your time on this earth.
The issues with the short lease really come into effect if you want to remortgage or sell the property. As the length of time left on the lease gets shorter and shorter the costs of having to extend the lease get bigger and bigger so in effect you are sitting on a depreciating asset and this is a problem in the eyes of mortgage lenders. Lending on a property with a short lease is considered high risk, most mainstream lenders won’t lend on a property with 55 years or less left on the lease at all but even with anything under the 80 year mark it can be difficult.
This is a major issue when it comes to selling a property since you are usually relying on a mortgage buyer to purchase it. If an individual can’t secure a mortgage on the property for any reason, including their not being enough years left on the lease, then you are significantly reducing the number of people who can purchase your flat. This will have an affect on two things;
If you have a short lease one of the options you have available to you is to extend it. If you have owned your flat for 2 years or more then you have the legal right to extend it under the Leasehold Reform, Housing and Urban Development Act 1993, you will have to serve notice to the landlord, known as a section 42 notice, which will start the formal procedure of extending the lease for an additional 90 years.
An alternative to the formal route of a statutory lease extension is to negotiate with the landlord informally and see if you can both come to an agreement that works for both parties. In general though a landlord won’t offer much more than an extension to 99 years on the lease and the costs for this would likely be in their favour.
If you go down the statutory option you are guaranteed a 90 year extension and the ground rent that you pay will go down to a “peppercorn” amount (essentially nothing) for the duration of the lease. The premium that you would have to pay to the freeholder is also governed by Schedule 13 of the Leasehold Reform Act, 1993 so you won’t end up paying more than is necessary if you go down the formal route.
The amount that you will have to pay to extend your lease is not an exact science. It will however depend on certain factors such as;
If there are less than 80 years remaining on the lease then the cost to extend it will be significantly more expensive due to the fact that what is known as “marriage value” will be added to the cost.
For example for a flat with a market value of £250,000 with 84 years left on the lease and a ground rent of £200 per year the lease extension premium could cost around £6,000 to £8,000 but the same flat with 79 years left on the lease could cost between £17,000 to £18,000 to extend – a significant difference!
To get a rough idea of how much the premium might be for your flat you can use the calculator found on the government run website the leasehold advisory service.
Marriage value is the name given to a cost that becomes relevant in extending the lease once it has dropped below the 80 year mark, essentially classifying it as a ‘short lease’.
Marriage value is defined on the government funded Leasehold Advisory Service website as the following;
“Marriage value is the increase in the value of the property following the completion of the lease extension, reflecting the additional market value of the longer lease. In that this potential ‘profit’ only arises from the landlord’s obligation to grant the new lease, the legislation requires that it be shared equally between the parties”
In real terms this means that the value of the property will increase as a result of the lease extension. The freeholder is then entitled to 50% of that increase since that is the amount that they are potentially losing out on by having to grant the extension.
The marriage value is calculated by taking the difference between both parties’ current financial interest in the property and the new interest based on the extended lease. The difference between these 2 figures is the marriage value which is then split 50:50 meaning that the leaseholder will have to pay the freeholder 50% of that figure (confused yet?).
It is also important to bear in mind the other costs that you could incur or are liable for when extending the lease. Since the cost is in part based on the value of the property you will need to seek the professional advice of a certified surveyor. A valuation report of this nature could cost upwards of £500 depending on the value of the property.
It is worth noting that not all surveyors take on this sort of valuation, for more information on where to find a suitable surveyor for your property valuation you can go to the Royal Institute of Chartered Surveyors website.
The lease may be short but unfortunately the timeframes to extend the lease are not. If you decide to go down the formal statutory route of extending the lease then there are statutory timeframes for certain parts of the process that need to be adhered to by both parties.
For example once the section 42 notice has been served the freeholder must respond within 2 months. Then there is a negotiation process that could take up to 6 months. Once the negotiations are complete and both parties are in agreement it will take 1 to 3 months to finalise the new lease and another couple to register the new lease with Land Registry. So in total this whole process could take over 12 months!
| Lease Extension Process | Approximate Timescale |
|---|---|
| Landlord response to section 42 | 2 months |
| Negotiation between you and the Landlord | 6 months |
| Finalising of new lease | 1 – 3 months |
| Registering the new lease with Land Registry | 2 months |
So far we’ve learnt that extending a flat with a short lease is going to be a costly and time consuming process.
If you want to sell your flat on the open market and you want to maximise the number of people that can actually buy it then you might have to bite the bullet and extend the lease but factoring the time to extend the lease and on top of that the time to then sell to a private buyer on the open market it could be well over 12 months before you are actually free of the property.
There is a way to expedite the process slightly because you can start the statutory lease extension process and then transfer the benefit of the notice onto the buyer. This will mean that it is then their job to negotiate the cost of the new lease with the landlord, however many private buyers will not want to take this on themselves, especially without any certainty of knowing what the final cost will actually be and with that in mind they will likely want a hefty discount on the asking price to mitigate that cost.
So if you need a quick sale the open market could be out of the question but there is another option to explore – selling your flat to a house buying company.
Can you afford to wait for your flat to sell?
By far the fastest and most certain way to sell your leasehold property is through a house buying service.
Also known as cash house buyers these ‘quick sale’ companies will buy your house, regardless of condition or even a short lease and can complete on a sale in a matter of weeks, although this might be extended slightly for a leasehold property.
Speed is the obvious main benefit of this service, compared to a traditional sale which can take months, but there are also other benefits;
Of course there is a drawback and that is the sale price. The trade off for a fast sale is having to accept a lower offer. If there are no major issues with the property this price will be around 80% of what your property would sell for on the open market in around 6 months.
So although the proverb “you can’t buy time” turns out to be false, it does come at a cost. However when you factor in the sales and holding costs of a traditional house sale it might not be as costly as you first think.
So, if you need to get moving fast, is the price really too much to pay?
The problem is actually choosing the right company to use. Unlike other areas of property sales, such as estate agents, the quick sale sector isn’t regulated so there are many rogue operators in the market looking to take you for a ride. These bad eggs are not easy to spot, on the face of it they look the same as the reputable companies, they say the same things and even have large marketing budgets to make it seem like they are the real deal.
So if finding the right company is like trying to find a needle in a large pile of needles, how do you go about choosing the best house buying company to use?
You could spend hours of your life doing diligent research on each and every one of the hundreds of companies out there, but do you really have time for that?
Fortunately the Cash house buyer guru has dedicated his life to separating the wheat from the chaff, fanatically investigating dozens of house buying companies and analysing their practices so you can make an informed decision. You can find the list of top rated house buyers by clicking the button below.
If you need to sell your flat with a short lease ironically you could be in for a long wait. If you decide to extend the lease you have a couple of options available to you, either by negotiating an agreement with your landlord or by using the statutory legal process open to you as a leaseholder (provided that you meet the criteria for this). The costs that you will incur will depend on your individual circumstances such as the length of time left on the lease, the amount of ground rent that you pay and potentially the value of the property. The timescale for the extension process could take up to 12 months or more.
If you are looking for a fast sale you have the option of using a house buying service, if this route could work for you read the information provided on this website, and others, to ensure that you find the right company for you. To see our top rated house buying companies you can click on the button below.
Answer a few simple questions to find out what a cash offer from a genuine buyer might look like.
Answer a few straight forward questions
Get a realistic cash offer
No personal information needed
It only takes takes a couple of minutes
Find out if a cash sale is right for you
It is certainly possible to sell a house with a short lease, although how long is left on the lease will determine if it will be possible for a mortgage buyer to purchase the property.
Yes you can sell a flat with a short lease but you might find a limited number of buyers are willing to take it on and depending on the length of time left on the lease potential buyers might not be able to secure a mortgage on the property.
Yes. You can sell a property with a short lease at auction although it is always a gamble and you could achieve far less than your flat is worth.
The leasehold advisory service – https://www.lease-advice.org/topics/?topic=lease-extension
Royal Institute of Chartered Surveyors (RICS) – https://www.rics.org/
Cash House Buyer Guru
