Leasehold
Apr 26, 2024

Sell a Flat on a Short Lease

When people are looking to sell their property, they often want to extend the lease. This is common for those...

When people are looking to sell their property, they often want to extend the lease. This is common for those who own properties. It all comes down to how long the lease is versus the value of the property. If you have less time remaining on your lease, then your property will be valued lower.

Example

If a 75-year lease might be valued at 90% of a 100 year lease, whereas a 65-year lease could be valued at only around 80%.

This is why it makes sense to extend the lease as soon as possible. It can maintain or even raise the market value of a property.

Cash Buyers and Mortgageability

When selling your property with a short lease there are some things you need to consider before getting an offer.

The length of your lease has an effect on mortgageability. So when you have a short-term left, you limit how many banks are willing to lend money on it. The result is not very good since this will lead to fewer types of buyers making offers. Then the price will go down because fewer people want it.

Once the term goes below 50 years it may only attract cash buyers which will bring property values even lower.

Formal Lease Extension

There are two ways that sellers usually approach extending leases:

  • Start the extension process themselves
  • Serve formal s.42 notice
  • Assign benefit of extended lease to future buyer

They do this because they know that selling at a lower price point brings in more potential customers.

Informal Lease Extension

Not every extension has to follow these routes! Often times freeholders enjoy negotiating terms with clients and reaching agreements this way instead. It’s much faster too! A few weeks is all that might be required for the informal route versus several months for the information route (that’s if nothing goes wrong).

Negotiation and Valuation

Don’t take the first deal that you see. It’s always best to negotiate. Most times initial offers will be over-priced and many of these offers include onerous ground rents which could devalue the property and won’t even be approved by lenders.

Definitely check with your surveyor to confirm what a reasonable cost for an extension would be, which we could happily organise for you.

To sum it all up

Mortgageability, demand, and negotiation are all key factors in deciding whether or not someone should extend their lease. A seller must be informed about the market, know how to make deals, and know which paths to choose based on their circumstances.