If you have a house or a flat in London with a short lease, selling it could be challenging. Read on to find out what you need to know about short leases and ways you can still sell your London property with one.
What is a short lease?
Leases with 90 years or fewer remaining are considered short leases for the following reasons:
90 years remaining
There are risks associated with this shorter lease as the prospective buyer will need to extend the it soon after purchase. This could affect the price of your property on the market.
83 – 85 years remaining
Most mortgage lenders are not willing to lend the lease if there is 85 years or less remaining. Therefore, many potential buyers would not be able to get a mortgage on the property. At this stage, you may be limited to cash buyers or investors. These types of buyers are likely to drive a hard bargain due to the circumstances.
80 – 82 years remaining
At this point, the buyer would not have the statutory right to extend the lease until they had been the registered owner for two years, by which time the cost of extending the lease will be more expensive. So, if the lease on your London property has less than 82 years remaining at the point it will be sold, it’s likely to be a challenge to sell or it will likely be negotiated to a reduced purchase price.
79 years or less remaining
It is strongly recommended that leaseholders extend their lease before the remaining lease term decreases to less than 80 years, whether they are intending to sell or not. This is because it becomes significantly more expensive to extend a lease at this point. If you do end up selling, this factor will be of substantial concern to buyers too, or used against you to negotiate down the purchase price.
Can I still sell on a short lease if I don’t extend?
Yes, you can. But as previously indicated, short lease properties are typically sold at a significant discount from market value, and might be more challenging to sell too. When selling your property with a short lease, there are two key factors to consider:
1. It’s highly likely that you can only sell to a cash buyer, due to lenders declining to lend on short leases.
2. Any prospective buyer will factor in the cost of the lease extension when considering their offer.
What are my lease extension options?
- Extend the lease informally whilst marketing the property:
The leasehold owner will probably have the option of extending the lease via the non-statutory process (informally), unless the freeholder is a local authority. This process can be completed faster (usually within 2-3 months) than the statutory process (8-12 months).
Whilst the lease is being extended, the property can be marketed with a long lease.
If a leasehold owner doesn’t have the funds to extend the lease, they can put their property on the market and the purchase deposit can be utilised to provide the funding for the extension costs. This means, the lease extension would complete on the same day as and immediately before sale completion.
- Serve and assign the benefit of a Section 42 Notice:
In situations where it’s necessary to extend the lease via the statutory process, a vendor can commence this process by having a lease extension solicitor serve a Section 42 Notice. This assigns the benefit of a lease extension to the buyer, meaning they do not have to wait two years following the purchase before being able to extend the lease themselves.
Short Lease Selling Solutions
There are 3 Solutions for Selling a Property with a Short Lease:
Ultimately, there are three possible solutions to your short lease problem:
1. Extend your short lease:
Your property will still be leasehold; however, buyers will be able to get a mortgage on the newly extended long lease. You’ll then be able to sell it.
Visit the Lease Advisory Service Lease Extension Calculator for a guide to costs depending upon the length of the lease and legal costs.
2. Buy your freehold:
Your London property will then become freehold. This means you will be able to sell your property freehold and buyers will be able to get a mortgage.
3. Sell to a cash buyer:
If you can find a cash buyer for your property they won’t need a mortgage. Therefore, you don’t need to extend the lease. However, this could be used against you to negotiate the cost of sale, depending on the years on your lease remaining.
Struggling to sell London Real Estate? Rickman Properties can help!
For enquiries about selling your property in the Royal Borough of Kensington and Chelsea, please contact us on 020 7937 9777 or email us at info@rickmanproperties.com
