Selling a short lease flat?

Guide to selling a short lease property…

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How do you sell a property with a short lease?

This article is designed to provide information about selling short lease properties (i.e. where a lease is 80 years or less). It also highlights the differences between selling a short lease in London versus the rest of the UK.
Last updated by Mark Grantham on 2nd August 2017

What are leases and why do they exist?

Leases originate from a time when large buildings in city centres were divided into smaller units to cater for the increased demand for living accommodation – these units take the form of flats or apartments, which are held on leases.

From a legal perspective, leases are effectively just contracts granting temporary ownership of a property, they have an end date and there are rules for both the lessee and the lessor. In practice there’s no reason why leases should exist in the way they do; they could be far simpler and fairer on the lessee. In their current form they’re arguably biased towards the lessor (the land owner) as an opportunity to make money. The law on leases hasn’t changed much over time, even new build flats (and sometimes even houses) are sold as leases with the same legal format as those leases granted over a hundred years ago. But things are changing, there is growing pressure from consumers for developers to offer a fairer deal on leases and changes to the law now make it easier for lessees to buy into the freehold and to manage the property themselves.

How is a leasehold different from freehold ownership?

Owning the lease of a flat is different from owning a freehold; the lessee has obligations to pay the lessor (also known as a landlord or freeholder) a ground rent and service charge for maintenance of the common parts of the building. There may also be restrictions on what the lessee can do at the property – for example some leases prevent the lessee from being able to sublet (rent) the property, or there may be limitations on keeping pets. These rules are typically in place for the benefit of other lessees in the same building. And as mentioned above, leases are just a temporary form of ownership – they’re issued with a limited term of 99 or 125 years. Although more recently some leases are issued on 999 years leases, which are referred to as virtual freeholds. As time goes by the term of the lease diminishes – if you bought a flat with a 99 year lease 30 years ago, there would now be 69 years remaining – and this is important, because short leases are worth less than longer leases.

Selling a flat with a short lease

Most flats in England and Wales are owned on a lease basis. Leases typically begin with either a 99 or 125 year term, although some are 999 years – known as a virtual freehold. As time goes by the term of the lease decreases, when the lease term has 80 years unexpired it will become difficult to sell compared to leases with longer terms.

Short lease flats are generally not liked by mortgage lenders because they don’t provide them with enough security.

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Extending a short lease

The value of a flat decreases as the lease term decreases below 80 years. If the lease for your flat is 80 years or less and you’re considering selling then you should consider exercising your right to extend your lease if you want to achieve a good sale price. You have the right to extend your lease if you’ve owned your flat for at least 2 years.

How to sell a short lease flat

When selling a flat with a short lease, rather than paying to extend the lease before the sale, it’s more common to assign the right to extend the lease to the new buyer. There are two ways to do this:

Option A – This quick and low-cost route is often the preferred method when selling at auction. The current owner of the lease agrees to serve a Section 42 Notice to the landlord/freeholder to acquire a lease extension and to assign the benefit of the Notice to the buyer upon completion. As long as there aren’t too many complications an experienced solicitor will charge about £500 for serving notice to the freeholder – that’s a small price to pay, as the benefit will greatly assist the saleability. The new buyer will be able to commence the lease extension process immediately, rather than waiting to own the property for 2 years.

Option B – Some buyers, particularly those purchasing with a mortgage may find option A too uncertain because the lease extension premium (the cost to extend the lease) has not been agreed by the landlord. This longer and more expensive route involves the seller obtaining a professional valuation to determine the premium payable to the freeholder for a lease extension of 90 years added to the current unexpired term.

Getting further advice

It’s worth obtaining further independent advice to see what route is best suited to your circumstances. There is a free service available to lessees (lease owners) that’s worth contacting, they offer good telephone support: The Leasehold Advisory Service. Another useful organisation who can help when it comes to leasehold enfranchisement or leasehold disputes are the Association of Leasehold Enfranchisement Practitioners (ALEP).

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ℹ Selling your short lease flat?

With some simple, low-cost preparation it’s possible to sell your short lease flat for considerably more!

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