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Buying or selling a flat with a short lease?

Posted 05/01/2017

So you have decided to sell your property, or have found the flat you have always wanted but there is a short lease term.... 

Leases with under 85 years still remaining are likely to be more difficult to sell, as many mortgage lenders will not lend on such a short lease. Leases with 85-90 years remaining may also be difficult to mortgage with some lenders.  This is because the value of leasehold properties decreases as the lease gets shorter and because at the 80 year mark, Marriage Fees are payable on top of all of the other costs involved in extending a lease. Letting the lease fall below 80 years remaining can have a material negative affect on the value of the property.

At the 80 year threshold the Freeholder becomes entitled to half of the increase in the value of the property that arises as a result of the lease being extended. The term arrives from the total value of the property + the longer lease, when married together, exceed the total value of the separate parts. The Marriage Fee will form part of the 'Premium' that is paid to the Freeholder for the extension of the lease term. The 'Premium' must be calculated by a specialist lease extension valuer. Holmes & Hills works with lease extension valuers across England and Wales.

So, what are the options when looking to sell a property with a short lease? 

There are 2 options, but being organised and perhaps looking into extending 6 months before you hope to sell, will allow you to consider all of the options: 

  1. Make a formal application to the Freeholder under the Leasehold Reform Housing and Urban Development Act 1993. This will reduce the ground rent to £0 and add 90 years to the existing term. This involves serving a S42. Notice, however there is quite a lot of preparation that must be done before to ensure it is done correctly. A faulty notice can cause significant delays and should be prepared and served by a Property Law specialist. 
  2. Make an informal application to the landlord. This is a much quicker method and you should request no less than 125 years. There are no notices, no statutory time periods but the premium will be a matter of negotiation rather than a prescribed formula. If for any reason the landlord is failing to reply, being slow or otherwise inflexible revert to option 1 to avoid wasting any more time.

Whether you are buying or selling a property with a short lease it is most important that you seek specialist, prompt advice from a lawyer. If you are selling consider your options well in advance of a sale.

So, what are the options when looking to purchase a property with a short lease?

Before making a formal offer, you can: 

  1. Ask if the Seller is willing to undertake the lease extension simultaneous with the sale to you. The seller will retain all of the risk and the associated costs. This may result in a higher asking price though. It is the most risk free option, but could cause delays to your purchase.
  2. You can request the Seller make an application to the landlord by serving a formal Notice. The Seller can then transfer, or assign, the benefit of the lease extension to you so that you deal directly with the Freehold and your purchase is not delayed. It would be very important that all costs were known so that they could be factored into the purchase price negotiations or the risk is that you could have to provide any shortfall. 
  3. You can proceed to purchase the property with the lease as it is. You could agree a reduced price to reflect the short term, but you would not be able to extend the lease under the formal rules until you had owned the property for 2 years. You can always make an informal request though at any time. There is no guarantee it would be agreed of course and the short term may not be acceptable to mortgage lenders so you would need to look at the lender requirements first.

Get free initial advice on lease extensions

Call Holmes & Hills Solicitors on 01206 593990 and speak with Callie Tuplin, specialist lease extension solicitor.

Callie will give you initial guidance on the procedure, time scales and costs involve in extending a lease. Callie will also answer any questions you may have so that you can make an informed decision on the sale, purchase and lease extension.

 


Posted 05/01/2017 by:
Callie Tuplin
Senior Lease Extension and Enfranchisement Solicitor



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