Lease extension solicitor, Callie Tuplin, offers some guidance for leaseholders selling a flat with a short lease.
So you have decided to sell your property, but the remaining lease term is putting off buyers, or an estate agent has told you that your short lease is going to be an issue and is something you need to think about. The earlier you get advice on your options from a specialist lease extension solicitor, the better. Holmes & Hills Solicitors provides free initial guidance to leaseholders who are thinking about selling their apartment with a short lease, so there is no reason not to call and obtain important and helpful information.
Call 01206593990 and ask to speak to one of our lease extension specialists.
Absolutely you can and Holmes & Hills helps leaseholders all over the country sell their short lease property, without unnecessary delay and with minimal stress. However you have several options available to you in order to do so and you should not make a decision without getting expert advice and guidance from a specialist lease extension solicitor and also an estate agent.
An estate agent will value your property and tell you what impact the short lease might have on your valuation and what you might be able to sell your flat for if you did not address the short lease in some way. The estate agent will also give you an indication of how difficult your apartment will be to sell due to the shorter lease and the availability of other, similar properties on the market currently which might have longer leases and be more appealing to buyers.
When you call Holmes & Hills for free initial guidance, the lease extension specialist that you speak with will discuss your options with you (see below), answer any questions that you may have in relation to these options and tell you how much each of the different options will cost, in terms of professional fees. Holmes & Hills' specialist lease extension solicitors will also discuss with you the pros and cons of each option.
Many estate agents will tell you that attempting to sell a flat with a lease of 90 years or less is going to be difficult. This is because many buyers recognise that a lease with this number of years remaining may be something to be concerned about. Even if your buyer is not personally aware that the short lease is an issue; when their residential conveyancing lawyer reviews the lease and reports to them, the lawyer is likely to highlight the risks associated with the shorter lease and that the buyer will need to extend the lease in the near future.
Selling a flat with a short lease becomes even more difficult where the remaining lease term is less than 85 years. This is due to many mortgage lenders not being willing to lend on leasehold properties that have a lease of 85 years remaining or less. This means that many potential buyers would not be able to get a mortgage on the property, leading to there being a significantly smaller pool of potential buyers. You may be limited to cash buyers or investors and these types of buyers may also be more likely to drive a hard bargain in terms of the sale price, using the short lease as a bargaining tool against you.
The closer the remaining lease term gets to 80 years remaining, the harder the flat will become to sell. This is particularly the case where there is only 80 - 82 years remaining, or where there would be less than 82 years remaining at the point your sale would complete. This is because the buyer would not have the statutory right to extend the lease until they had been the registered owner for two years. By this time the lease would have reduced to less than 80 years remaining. Where the remaining term of a lease falls below 80 years, it becomes significantly more expensive to extend the lease. Your buyer will be made aware of this by their conveyancing lawyer.
Therefore, if the lease on your flat has less than 82 years remaining at the point it will be sold, it is likely to be difficult to sell, or any buyer is likely to negotiate hard to reduce the purchase price, knowing that they will need to wait two years before extending, by which time the cost of extending the lease will be significantly higher.
Where the short lease on your apartment has 79 years remaining or less, this will be of material concern to buyers. Or a potential buyer will use this fact to negotiate down the purchase price. This is because it becomes significantly more expensive to extend a lease once the remaining term falls below 80 years and your buyer will be made aware of this by their conveyancing lawyer, if they are not aware already. It is strongly recommended that leaseholders extend their lease before the remaining lease term decreases to less than 80 years, whether they are intending to sell the flat or not.
Call 01206593990 and get free initial advice from a specialist firm of lease extension solicitors. Or complete the form below.
Selling your short lease apartment, without dealing with the short lease in some respect, is likely to mean you will have to sell your apartment for less than it would be worth with a longer lease. This might be because fewer people are interested in buying it, due to risk, uncertainty and mortgage issues, or because you are limited to selling to cash buyers and investors. An estate agent will be able to tell you what impact the short lease will have on the sale price of the property if it is not dealt with in some form prior to, or as part of selling.
Due to the impact the short lease is likely to have on the sale price that will be achieved, the vast majority of leaseholders that contact Holmes & Hills Solicitors for advice decide to pursue one of options 2) - 4).
This option is often the most beneficial to leaseholders who are selling with a short lease because it is the quickest solution and allows your flat to be marketed by an estate agent as having a longer lease. This is possible because your lease will be extended, via the informal (non-statutory) process, before your sale completes. Your Sale Contract will be conditional on the lease having been extended prior to completion of the sale and so your buyer will only buy the property once it has its longer lease in place.
If your freeholder is a local authority or housing association, it may be that extending your lease via the informal (non-statutory) process is not an option. In which case, Options 4) and 3) should be considered.
Due to the fact the flat is sold with a longer lease, the buyer is not able to negotiate a discount on the sale price due to there being a short lease. You can sell your flat at its full market value as advised by your estate agent.
Extending a lease via the informal (non-statutory) process can take 1-3 months from beginning to end, depending on how responsive and reasonable your freeholder or management company is. However, the informal lease extension process can take place whilst the conveyancing is being undertaken. The lease extension and the sale can be dealt with at the same time and therefore the lease extension does not need to delay your sale.
It is important that early advice is sought from a specialist lease extension solicitor if this option is to be considered, due to this process being a negotiation with your freeholder. It is recommended that you do not inform your freeholder that you are intending to sell your property, as this may weaken your negotiating position - a freeholder may form the opinion that your options are limited because you will be on a tighter timescale.
It is also recommended that your initial approach to your freeholder, to request an informal offer, is made by a lease extension solicitor on your behalf. Freeholders have been known to seek to take advantage of the fact that they are regularly dealing with lease extensions and are well informed, often with solicitors advising them regularly on such matters. This compares to leaseholders who are not as experienced or as well informed in respect of lease extensions and who may not be getting legal advice from a lease extension specialist. The legislation surrounding lease extensions is complex and is a specialist area of law.
If your approach to your freeholder requesting an informal offer is made by a solicitor on your behalf, your freeholder will know that you are receiving advice and might therefore be deterred from making an unreasonable offer.
Freeholders are often keen for a leaseholder to extend their lease informally because they can maintain or increase ground rent provisions. They can also extend the lease by a shorter length of time, compared to if the lease is extended via the formal (statutory) process. Both of these factors act to maintain the long-term value of the freehold which is often the main concern of freehold owners.
A freeholder will be aware that if you are being advised by a solicitor and they make an unreasonable informal offer, you are likely to be advised by your solicitor to proceed via the statutory process. This is likely to be against the wishes of the freeholder and so they are likely to seek to avoid this.
Where extending a lease via the informal (non-statutory process) with a view to making the property more saleable, it is important that ground rent and ground rent review clauses proposed in the new lease are carefully considered. A lease extension specialist will need to advise you on whether the ground rent and ground rent review clauses proposed by your freeholder are onerous. If they are, this would impact the saleability of you property in the same way as your short lease.
As well as any proposed ground rent and ground rent review clauses being onerous and putting-off buyers, or being a red flag for your buyer's conveyancing lawyer, a freeholder can also propose other new or amended clauses in the draft lease which might be considered onerous. As a matter of course, Holmes & Hills carefully reviews the draft lease that is proposed by the freeholder. Your Holmes & Hills lease extension specialist will identify any potentially onerous clauses, discuss these with you and attempt to re-negotiate and/or re-draft these.
When a leaseholder has a flat with a short lease and is wishing to sell but cannot afford to pay the 'Premium' or other costs associated with extending the lease, it can be organised such that the purchase deposit monies from your buyer fund the lease extension Premium that is paid to the freeholder. Therefore, lack of funds need not necessarily stifle a sale. This is only possible where a buyer has already been found and where their cash deposit is sufficient to fund the Premium as well as any deposit you may need to pay in relation to an onward purchase, if you are selling and buying.
This means extending your lease before selling, under the Leasehold Reform, Housing and Urban Development Act 1993. Leaseholders who have owned their flat for two years have the right to serve a notice on their landlord (known as a Section 42 Notice) to extend their lease. Under this procedure your lease would be extended by 90 years and upon completion of the new lease, the ground rent is reduced to a peppercorn (nil). Completing the statutory process can take 8-12 months and so would likely delay your sale.
The whole process is stipulated by timeframes and it is essential that they are all adhered to. This is just one of the reasons you require a specialist lease extension solicitor to advise. Missing a deadline can bring the process to a halt and delay you being able to commence the process again.
Due to the longer time-frames involved in a statutory lease extension, this option is often only employed where the freeholder does not accept informal (non-statutory) lease extensions or where the informal offer made by the freeholder is onerous, and where a buyer cannot be found to accept the benefit of the assignment of the Notice (see option 4) for more details.
This option requires a good estate agent (who can sell the property and the concept of the benefit of the assignment of the lease extension claim notice to a potential buyer), as well as a confident buyer.
This route involves commencing the statutory process by assigning the benefit and liabilities of the Section 42 Notice to a buyer as a condition of sale. This provides for completing on the sale sooner than would be the case if the lease extension had to be completed first. Usually the buyer would negotiate down the purchase price by the value of the premium proposed in the Section 42 Notice, or a figure around that number. The benefit to the buyer is that they do not need to wait two years before extending the lease.
It is extremely important that your lease extension solicitor advises on the Sale Contract as this will need to provide for the assignment and protect your interests by ensuring you are not liable for costs arising from the Claim Notice and commencement of the statutory process.
With this option, because you will not be completing the lease extension, you will not need to pay the Premium to the Freeholder; this being paid by the buyer at the point they complete the process (following their purchasing of the flat).
There are some complexities to this option, including the uncertainty surrounding the eventual Premium to actually be paid by the buyers to the Freeholder and associated costs. The premium proposed in the Section 42 Notice that is served is not the final amount that will be paid by the buyer, however a solution can be put in place to remove any uncertainty and risk for the buyer. This is though best discussed over the telephone.
Call 01206593990 and speak with a lease extension specialist today.
In the event you extend and complete the extension, but are marketing the property whilst doing so, or commence a formal extension and assign the benefit to a buyer, it would be very beneficial to have both your lease extension solicitor and your conveyancing lawyer at the same company, as the two would need to work closely together in order to protect your interests. It also makes your communication easier and reduces the risk of a transaction falling through as your buyer and their conveyancing lawyer will receive full and complete responses to questions and enquiries raised which cover both conveyancing and the lease/lease extension.
Holmes & Hills provides this combined service to a very many clients and where we are dealing with both matters we are able to quote a discounted legal fee for the conveyancing.
As specialists in dealing with lease extensions and short leases, Holmes & Hills Solicitors advises and services leaseholders across the country, helping them sell their short lease flats.
You will be able to deal with your lease extension solicitor via email and the telephone. Documentation will be exchanged via email and original documents relating to the property will be downloaded by your lease extension solicitor and conveyancing solicitor form the Land Registry. The only documents requiring a signature are the new lease (where the lease is being extended as part of the sale) and the Deed of Transfer. These would be sent to you with a freepost envelope to return them to us.
Call 01206593990 and speak to a lease extension specialist today. Alternatively, complete the form below and someone will come back to you.