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Selling a Short Lease Flat?
Sometimes it can be more cost-effective to sell a property with a short lease, rather than paying to extend the lease before selling. Short lease properties often achieve higher than expected sale prices at public auction.
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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 6th March 2020
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.
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:
Selling a Short Lease Flat: 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.
Selling a Short Lease Flat: 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.
Need help selling a short lease flat? Call 0800 862 0206 or send us an enquiry online.
Selling a short lease flat?
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