Selling a flat with a short lease

Linz Darlington | December 2023

If you are trying to sell a flat with a short lease, you may run into problems. It isn’t just that a flat with a short lease is worth less than one with a long lease – it can also make it harder to find a willing buyer.

All is not lost. This article explains why it is hard to sell a flat with a short lease and the options for shifting it.

Why is it hard to sell a flat with a short lease?

The shorter your lease gets, the more expensive a lease extension is. Any buyer of a flat with fewer than about 100 years remaining on the lease will consider the cost of having to extend the lease when they decide how much to offer.

They are likely to discount the purchase price by more than the cost of doing the lease extension (plus fees), because they’ll be taking on the cost and hassle of the process.

We’ve outlined the impact of lease length on buyer appetite below:

100 years – buyers might start to be put off by the length of the lease on your flat.  If they really like your flat, they might be happy with a reduction on the sale price to reflect the cost of extending the lease.

90 years – a buyer’s conveyancer is likely to advise them to require you to extend the lease before they purchase it. First time buyers in particular might be put off, because they’ll likely be putting most of their savings towards their deposit, and won’t have any money to hold back for a future lease extension.

85 years – some (but not all) mortgage companies might be less willing to lend on a flat once the lease is down to 85 years and this is a turn off for buyers dreaming of the best available rate and wanting the confidence that they’ll achieve an easy exit when they come to sell.

82 years – buyers of your flat are unlikely to be willing to buy your flat without a lease extension. They’d need to be the registered owner of the flat for two years before they can extend the lease in their own right, by which point it will have got much more expensive (see below).

80 years – after this point it suddenly gets much more expensive to extend a lease, because a charge called “Marriage Value” is added to the lease extension premium. As a result, buyers either won’t want to buy your flat or will want a significant discount to do so.

70 years – most mortgage lenders won’t lend at this point, which means you’ll be looking for an investor with cash. By definition, this type of buyer will be looking for a real bargain.

What are my options for selling my flat?

While a short lease is likely to make a sale trickier, you still have some options. These are as follows:

Option 1: Complete a Statutory Lease Extension

The best option if you want to sell a flat which has a shorter lease is always to extend it before you sell.

A good time to put the flat on the market is once the premium is agreed. This means that by the time the lease extension is wrapping up, you’ll hopefully have a buyer and be getting stuck in with the conveyancing process.

The benefit of this approach is that you’ll be able to market the flat with a nice long lease. Your flat will be attractive to all types of buyers, and you’ll get full market value for it.

The disadvantage of this approach is that it is likely to take up to a year to do a statutory lease extension, so if you want to sell right now then this is unlikely to be a good fit with your plans.

Equally, it requires you having (or being able to borrow) the necessary cash to pay the lease extension premium and fees. If you’re short of cash and relying on the sale price of the property to fund the lease extension cost, this can leave you in a “chicken and egg” situation.

Option 2: Do a lease extension “on completion” of the sale of your property

Sometimes we have clients who want to start a lease extension and then sell the property at the same time.

The benefit of this approach is that it solves a key drawback of option 1 – it essentially allows you use the money you get from selling the flat to extend the lease. The conveyancers working on the transaction will organise the process and make the necessary agreements so when the sale completes, some of the money is ring-fenced for the lease extension.

However, this creates its own disadvantages.

The first is that once a statutory lease extension is in progress it takes however long it takes to agree a fair price and complete the deal, but equally it is very hard to slow the process down. This makes it quite optimistic to think you’ll have a buyer ready to complete the purchase at exactly the time the money is due for the lease extension. 

Equally, if your freeholder knows you want to sell, they might stall negotiations on the basis that they think you’ll give in and settle for a higher figure than you might otherwise.

This is one of the reasons we also recommend avoiding informal lease extensions, even as part of a sale process. If your freeholder knows you are wanting to sell, they’re likely to charge you a higher price and give you less favourable terms.

Option 3: Start the process and assign it to your buyer

Another option is that you can start the lease extension process by serving a Section 42 Notice, and then pass it on to your buyer.

Generally, we find this is less attractive to purchasers (and particularly their conveyancers) than buying a flat with a long lease. They want to buy a completed product, not a work in progress.

That said, if the buyer is completely sold on your flat and want an assigned lease extension, then it’s something we can help with.

Usually the process for assigning a lease extension from seller to buyer is as follows:

  • The seller will instruct us to complete our normal “Stage 1” work, including reviewing the title and completing a valuation – so all parties have a really good idea of how much the lease extension is going to cost.
  • The buyer and seller decide who is paying for the lease extension. In some cases, the buyer will be happy to fund the lease extension post completion, and you might agree a reduced selling price accordingly. In others you won’t be able to do this, because the buyer hasn’t got the ready funds to complete the lease extension. In this case, you need to agree that a portion of the sale proceeds will be held as a “retention” by the solicitors to pay for the lease extension.
  • As part of Stage 2 we will draft the Section 42 Notice and check that both sets of conveyancers are happy with this. We won’t serve it yet.  We would also prepare some additional legal documents. The first is a “Deed of Assignment”. This is the thing that assigns the notice, once served, to the buyer. The second is some additional clauses for the conveyancing solicitors to add into the contract that commits both buyer and seller to do what they need to do for the lease extension. All three of these documents need to be done with exquisite care, so there is no question that a notice has been validly served and validly assigned. Unless your conveyancing solicitor specialises in statutory lease extensions too, you should instruct specialists to do this bit for you.
  • Once the property has exchanged, the notice will be served. The assignment of the notice will be effective from completion / registration of the sales transaction.
  • Once completion happens, we will continue the lease extension process. Generally, from this point onwards, most of the work is done reporting to the new owner.

The advantage assigning a lease extension process from seller is that it allows the sale to go through without the lease extension being completed first.

The disadvantage of assigning a section 42 notice is that is adds a lot more complexity to the sales process, which is usually slow and complex enough as it is.

Option 4: Sell it at a heavy discount / at Auction

You can sell nearly anything – at the right price! If your lease is short, but you want to have nothing to do with a lease extension, you will always be able to sell it – it just depends at what discount.

Particularly If your lease is below 80 years, you’re likely to be limited to buyers who are interested buying the flat, extending the lease and making a profit in doing so. This means that they’ll be wanting a sufficiently large discount to accommodate the cost, risk, and hassle of the transaction.

A good place to sell a flat with a short lease is at auction. Unlike via your local estate agent, you’re going to have a wider pool of potential investors.

The advantage is that this gets the flat off your hands.

The disadvantage is that you’re likely to take a big hit on the value of the property.

A word of warning: beware ‘false friends’

An informed buyer is likely to make a lower offer on your property than an uninformed one. If they are aware of the costs involved in the lease extension process, they will factor this into how much they’ll offer for your flat.

It's tempting to bung your flat on the market and cross your fingers and wait for an uninformed buyer to make an offer on your property.

Even if you get an offer, you’re likely to find yourself back at square one when the transaction reaches the conveyancing stage. Any solicitor worth their salt will advise their client about the impact of the lease length on the value of the property and recommend they pull out before exchange.

Of course, you could make a gamble on the chance of an uninformed buyer working with an inattentive solicitor. But do you really want to introduce more uncertainty into selling your flat?

In conclusion

If you are hoping to sell with a lease that is less than 100 years, it is worth extending it before you sell it. You ideally need to start the process about 9 months to a year before you want to market it.

If you’re not able to do this, then the other options are available to you – but they do all have their draw backs.

Start your lease extension today

Article author photo

Linz is the CEO and co-founder of Homehold. He’s always looking at how we can improve our service and better support you through the lease extension process. If you have any questions about your lease he’d be delighted to help.

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