As a leaseholder it is important to understand how a short lease can affect you, particularly when buying or selling a flat.
In this article, Leasehold Expert, Kerry Martin discussed what a short lease is, the risks involved and how it can affect the value of your property.
For the purposes of this article, we are talking about leases of flats which are owned (not rented).
What is a short lease?
A short lease is one that needs a lease extension.
In most circumstances, mortgage lenders and buyers want leases of more than 90 or 95 years. So a lease of less than 95 years could be considered a ‘short lease’.
What are the risks of a short lease?
As mentioned, buyers and mortgage lenders don’t like short leases, so there is a risk that a short lease is unsaleable or un-mortgageable.
Does a short lease devalue a property?
Yes, a short lease can devalue a property similar to how a car depreciates over time. The shorter it gets, the less valuable it becomes. A further issue is that the shorter a lease becomes, the more expensive a lease extension can be.
Can you buy a flat with a short lease?
Yes you can buy a flat with a short lease but obtaining a mortgage on a short lease can be difficult. Each lender has different lending criteria, so it will depend on the lender you are borrowing from.
Can you get a mortgage on a property with a short lease?
The shorter a lease becomes, the less likely a lender is to lend you money against it.
What is marriage value?
Marriage value is a form of compensation that a freeholder (currently) becomes entitled to once a lease drops below 80 years. As a result, the premium payable for a lease extension increases quite dramatically once a lease drops below 80 years.
However, proposed reform legislation has been anticipated for over 5 years which will remove the payment of marriage value in transactions like lease extensions. We don’t currently have a timetable for these reforms or the finer detail as to what the lease extension calculation will look like when they do eventually take place.
Is it worth buying a flat with a short lease?
Whether buying a flat with a short lease is worth it depends entirely on the flat’s sale price, how much a lease extension will cost and how much you will be able to sell it for once you have extended the lease. Specialist valuation advice is crucial if you are considering buying a flat with a short lease and we can put you in touch with such a specialist local to the property.
Can I buy a flat and extend the lease at the same time?
You can buy a flat and extend the lease at the same time, if the freeholder is willing to extend the lease.
Alternatively, if the freeholder is not willing to extend the lease without being forced to, you can ask the seller to start the ‘statutory lease extension’ process and to assign the process to you on completion of your purchase. This is the more secure way of doing things.
However, recent changes to the law have enabled purchasers of flats to force the freeholder to extend the lease once registration of their purchase has been completed at the Land Registry.
Whereas previously, buyers used to have to wait until they’d owned the flat for two years. The risk in waiting for the Land Registry to complete registration is that (in our recent experience) the Land Registry can take months to finalise registration. If the lease drops below 80 years whilst you’re waiting, the premium payable will jump up.
Our advice is therefore to either arrange a lease extension at the same time as your purchase (if the freeholder is willing) or to arrange for the seller to start the ‘statutory’ process and assign it to you on completion, so that you don’t need to wait.
You can speak to one of our specialists about a Lease Extension on 01202 499255.
How much does it cost to extend a short lease?
How much it costs to extend a short lease will depend on a number of things, including,
- The length of the lease,
- What ground rent is payable during the length of the lease and,
- How much the flat is worth.
As lawyers, we cannot advise as to the likely price payable, but we can provide estimates of the fees and expenses involved. We can also put you in contact with one of our many specialist valuers with whom we work on a daily basis so that they can advise you as to the price.
The general rule of thumb, however, is that the shorter the lease, the more expensive the lease extension.
Leasehold Specialists
Our residential leasehold experts have a wealth of experience handling a wide variety of leasehold cases. If you have any questions after reading this article, call us on 01202 499255 or fill in the form, and one of our approachable team will be in touch to arrange your free meeting.
We offer all new clients a free initial chat with one of our bright lease extension experts.
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