How Much Does a Short Lease Devalue a Property?
Estimated reading time 10 minutes
If you own a house or flat with a short lease it is important to understand what the implications are on the value of your property. Let’s first look at how a “leasehold” property differs from a “Freehold” property
An owner of a leasehold property has the right to occupy the flat or house for the fixed number of years remaining on the lease. When the lease term reaches zero the freeholder of the property may take possession of the property. This differs from a property freehold owner who has outright ownership of the flat or house and as such the ownership is indefinite and not subject to a time limit.
In London flats are generally sold on a leasehold basis and most houses are on a freehold basis. If you don’t know what ownership you have you can check on the legal documents from when you bought it or you can find out through the Land registry portal.
What restrictions might you face as a Leasehold property owner?
As you don’t own the property outright you will have to abide by the rules and conditions that are outlined in your lease. These restrictions are designed to protect the value of the property and they ensure everyone follows the same rules.
Here are some examples of lease restrictions
- Alterations and Modifications: The lease may limit the types of changes that can be made to the property. The restrictions may include limitations on structural changes, and can extend to provisions related to renovations flooring.
- Following the Law: Lease restrictions ensure that tenants comply with laws and regulations set by the government or local authorities. This can include rules about noise, waste disposal, or obtaining permits for certain activities.
- Respecting the Community: Lease restrictions address concerns that the landlord or community may have. They may limit activities that could disturb neighbours, like excessive noise or disruptive behaviour. These rules help maintain a peaceful and respectful living environment for everyone.
- Preserving Property Value: By having restrictions in place, the property’s value can be preserved. These rules can prevent actions that might negatively impact the property’s worth, such as unauthorized subletting or neglecting maintenance responsibilities.
- Ensuring Safety and Security: Lease restrictions may include measures to ensure the safety and security of leaseholders and the property. This can involve rules about installing security systems, locking doors, or following fire safety protocols.
What are the costs associated with selling a leaseholder property?
When you are selling a leasehold flat or house there are a number of costs that you will have to pay that you otherwise would not if your flat or house was a freehold property. Our guide “How Much Are Solicitor’s Fees for selling a House?” provides you with the typical fees associated will selling a house with a specific breakdown of the additional charges.
Lease Extension or Renewal Costs: If the lease on the property has a relatively short remaining term, typically 70 years or fewer, it may be necessary to extend or renew the lease before selling as prospective buyers won’t be able to get a mortgage against the property as banks and building societies typically will not lend on flats with short leases. When extending or renewing the lease you will need to employ the services of a solicitor or conveyancer, you will also need to pay a specialist surveyor to calculate your offer to freeholder and you will also have to pay the freeholders “reasonable costs” for the lease extension. Ideally you do not want to let the unexpired term of your lease fall to less than 80 years as once it does the costs to extend the lease grow exponentially.
Ground Rent and Service Charges: Leasehold properties often require the payment of ground rent and service charges to the freeholder or management company. When selling, a leasehold flat you will need to settle any outstanding ground rent or service charge payments.
Pre-Sale Property Management Requirements: Some leasehold properties may have specific requirements or restrictions imposed by the management company or residents’ association. Therefore, you may need to obtaining clearance certificates, sign off showing that the property maintenance obligations, or meeting specific criteria have been adhered to before the sale can proceed. These requirements may involve costs, such as obtaining the necessary documentation or undertaking repairs or improvements to meet compliance standards.
Leasehold Information Pack or Management Pack: When selling a leasehold property, it is often necessary to provide potential buyers with a leasehold information pack or management pack. These packs contain relevant information about the property, including details of the lease, service charges, ground rent, future planned maintenance works, the last 3 years of annual accounts for the management company, external wall fire review for blocks of flats over 18 meters, asbestos survey, building insurance, notice fees, deed of covenant fees and other freeholder fees as well as notice of any disputes and enfranchisement.
Can I sell a short lease flat without extending my lease?
The simple answer is yes you can sell a flat with a short lease without extending it. However, there are a few important considerations to keep in mind before making that decision.
Firstly, you need to know that the number of people that will want to buy your flat for sale with a short lease will be fewer as they will see this as something that will cost them money in the future. This will have an impact on the price you will be able to ask for your property and the short lease will devalue your property.
Secondly, any buyers that rely on mortgage financing will face significant challenges in securing a loan as banks and building societies do not look favourably on properties with short leases. This is another reason why the value of your property devalues with a short lease.
Finally, because of these factors potential buyers are likely to want to offer a lower price for a property with a short lease. As the seller of a property with a short lease you will need to adjust your expectations regarding the sale price and be prepared for negotiations.
What options do I have for selling a property with a short lease?
- You can extend your short lease as all owners of short lease properties have the legal right to extend the lease 50 years for a house, 90 years for a flat (provided you have owned the property for two years). This process is not cheap, there is a real financial cost to extending a lease as you will have to pay surveyor fees, legal fees, valuation costs, a premium payment to the freeholder and their legal expenses. The whole process of extending a short lease typically takes 3 to 12 months to extend the lease. However, once your lease has been extended the property will be more attractive to potential buyers and you should be able to secure a higher price than you would have done without the extension.
- As leases on houses can only be extended by 50 years it is normally better to buy the freehold of the property instead. When you want to buy the freehold, you can either negotiate informally with the freeholder or by formally serving a legal notice. The process for buying the freehold also takes anywhere from 3 to 12 months. A freehold house will be more desirable and therefore be valued more highly than a short lease house.
- You can sell your short lease property through an estate agent but they are likely to struggle to find a suitable buyer as the majority of their buyers will require funding and if the bank or building society refuses to lend on your property, they will not be able to purchase it. They may find an investor to buy the property but they will want a significant reduction in price due to the costs that they will have to incur to purchase the freehold or to extend the lease and as such will be hardball negotiators. With any sale through an estate agent you will also incur the costs of the estate agent fees.
- An Auction company could provide you with an alternative selling method for your short lease property. We do strongly advise you to carefully evaluate the terms, costs, market conditions and bidding dynamics before deciding if an auction is the right option for you, your specific property and circumstances. Remember with an auction you do not know what price your property will actually sell for nor is there a guaranteed sale.
- Contact a reputable cash house buyer, they don’t require a mortgage to buy your short lease property. They will make you a free cash offer and assure you a fast property sale. You will save yourself time as their will be no viewings, you won’t have to wait until the next auction before hopefully selling your property, nor will you have to spend time negotiating the buying of the freehold or the extension of the lease. You won’t have to pay estate agent fees, auction entries or legal fees. Instead, you will guarantee yourself a quick sale, for a realistic price avoiding any unnecessary delays, saving yourself time and money.
Gaffsy says … It is important to keep in mind that in the current economic environment with property prices falling, time is of the essence when selling your home. UK Housing Watch predicts a continued decline in property prices. It is crucial therefore to be aware that the value of your property may decrease while you are negotiating the lease, buying the freehold or finding a buyer and that acting promptly can help minimise potential losses.
Why choose Gaffsy?
At Gaffsy, we understand the stress and challenges typically associated with traditional property transactions. Our many years of experience and unwavering commitment to providing a service based on trust, honesty, and transparency, enable us to provide
you with a convenient and guaranteed property sale, making the experience of selling your short lease property as stress and hassle-free as possible.
We go the extra mile to ensure a smooth and seamless process, allowing you to sell your short lease flat with ease and peace of mind. Gaffsy is a genuine cash buyer which means we can guarantee that you will sell my flat fast by utilising our available cash funds and as we do not require funding to make any purchases which removes funding uncertainty and lending concerns. When Gaffsy is your buyer, you do not have to worry about time delays, property chains or sales falling through we can purchase your property very quickly or give you the time you need depending on your needs and schedule.
The team is ready to provide you with a no-obligation cash offer for your short lease property today and is available at the end of the phone to answer any questions you may have.