Leases with less than 85 years still remaining are a warning sign to would be buyers and sellers.
The primary reason being that as a lease gets shorter; the value of the lease decreases and it becomes more expensive to extend the lease. This is why it is often a good idea to increase the term of the lease. Sometimes it is difficult to sell a property with a short lease because mortgage lenders may be reluctant to lend money on such properties.
So, what are the possible options when looking to purchase a property with a short lease term remaining?
These could include:
- Asking if the seller is willing to undertake the lease extension simultaneous with the sale of the property to you. This is a common option, however, may result in a higher asking price and could cause delays to your purchase.
- You could request the seller make an application to the landlord by serving a formal notice and for them to then transfer the benefit of the notice to you so that you deal directly with the landlord. It would be important that all costs were known so that they could be factored into the purchase price negotiations if this option were pursued.
- You could proceed to purchase the property with the lease term as it is. You could agree a reduced price to reflect the short term remaining of the lease, but you would not be able to extend the lease under the formal rules until you had owned the property for a minimum of 2 years.
It is important to note that one can always make an informal request to extend a lease at any time. Please note that there is no guarantee it would be agreed of course and the short term may not be acceptable to mortgage lenders.
What are the options when looking to sell a property with a short lease?
It is important to be organised and perhaps consider extending the lease several months in advance of beginning the sales process to allow you to consider all of the options.
The possible options may include:
- Making a formal application to the landlord under the legislation (Leasehold Reform Housing and Urban Development Act 1993). A successful application will reduce the ground rent to £0 and add 90 years to the existing term. This involves serving a notice (section 42 notice); however, there is a considerable amount of preparation required to ensure it is done correctly. A faulty notice can cause significant delays and therefore the notice should be prepared and served by a property law specialist.
- Making an informal application to the landlord. This could be a much quicker method and there are no notices, no statutory time periods to follow, however, the premium you pay will be a matter of negotiation rather than a prescribed formula. If for any reason the landlord is failing to reply, delaying 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 crucial that you seek prompt and specialist advice. Here at Mackrell Turner Garrett, we regularly act for buyers, sellers and landlords in relation to lease extensions, both agreed and not agreed. We are always pleased to assist any buyer, seller or landlord in a lease extension matter. Please telephone us on 020 7240 0521 and ask for a member of the Property Team should you have any questions or require any assistance.