A property with a short lease is worth less than a similar home with a long lease. This is because it will have to be given back to the freeholder sooner and because any buyer knows that they’ll have to pay to extend the lease in the future.
A short lease is also more expensive to extend.
In spite of this, it is possible to sell a flat with a short lease. This article looks at what you can expect and some strategies you can put in place to maximise its value and make the process as smooth as possible.
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.
This doesn’t mean you should cross your fingers and wait for an uninformed buyer to make an offer on your property. 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 the house-selling process?
The best option
The best option is always to be proactive and extend your lease. Whilst the process will be expensive, you should see the cost as an investment. As a prospective seller you will be in line to recover the money quickly. As soon as the sale goes through it will be back in your pocket! The extended lease will also transform your house into an attractive prospect, putting it at the top of buyers’ shopping lists.
The main downside of this approach is that the lease extension process can take up to a year. This can be an impediment if you’re in a hurry to move. We look at an alternative strategy below. First, here’s what not to do…
The worst option
If you’re in a hurry to sell, an informal offer from your freeholder to extend your lease can often look like a tantalising option. At first glance it seems like a quick way to make your lease an attractive length and save a few quid on the hassle of a formal lease extension.
However, we would categorically advise against taking this route. Here’s why:
- An informal lease extension is never a good deal. You’ll pay over the odds for a short extension. Then, in a decade or two, your buyer will have to go through the process again. It's a bad deal for you and a wary buyer will know it’s a bad deal for them too.
- You’re not protected. Freeholders see informal lease extensions as an opportunity to 'modernise' your lease. In practise, this can mean slipping in new rules that will restrict your rights as the leaseholder. Taking the informal route will mean you won’t have a solicitor on your side to flush out these changes. Instead, they are likely to surface during the sale and… then you’ll be back to square one.
- You’re not in control. Unlike a formal lease extension, the informal route doesn’t have a clear timeline to bring the process to conclusion. Your freeholder could pull out, change the deal, or worst – if they know you want to sell – drag out the process to put pressure on you to pay more.
At the very worst an informal lease extension can make it impossible to sell your flat.
An alternative strategy
If you’re in a hurry to sell your property…
Leasehold law says you can’t extend your lease until you have owned the property for two years. But you can start the process and then assign the lease extension process to your buyer.
To do this you will need to have started the formal process before you transfer the lease to the new owner (this takes places during the exchange phase of the transaction).
For some buyers this can be an attractive option: they can crack on and the extend the lease without waiting two years. They also might find it easier to finance the process by either holding back some cash from their deposit or finding a mortgage that will cover the lease extension.
Even the simplest house sale is a hassle so the more obstacles you can remove for your buyer the better. The more open, well-informed and well-prepared you can be about the lease extension process, the more likely your prospective buyer will be to overlook the inconvenience of extending the lease. Help them to focus on how it might increase the value of the property for them in the future instead.
Get some help
Getting some help with your lease extension process will remove the stress, give you certainty about the outcomes of the process and get you the best deal on the cost. If you’re keen to get the process sorted before you move, or want to make sure you’re in line to assign the process to a buyer, we’d recommend finding someone to support you.
We are happy to oversee the process and 'move' at no extra charge to the owner to see it through.
So to wrap up. You can sell a flat with a short lease, but you need to be aware of the options.
- don’t wish on a wing and a prayer for an uninformed buyer.
- definitely don’t go down the informal extension route.
- do be proactive and get the lease extension process underway.
- do consider setting yourself up to hand it over to your buyer if you want to move fast.