In this blog I’m going to explain what a leasehold property is, what’s might be considered a short lease and how having a short lease effects the value of your property and its saleability.

First of all what exactly is a leasehold property?

Well that’s a property (usually a flat but not always) which has had a lease granted by the freeholder for a fixed number of years in exchange for payment,  so a property may have been granted a 125 year lease when it was built but that clocks been running down since.

What happens if the lease gets to zero?

Well then the property reverts back to the freeholder!

But if you’re the leaseholder you can extend the lease infact you have the legal right to do so under the Leasehold Reform Housing and Urban Development Act 1993

Under this act you have the right to get an extra 90 years on top of whatever term remains on your lease.

There are a couple of requirements for this, you do have to have owned the property for 2 years and the original lease had to have been granted for at least 21 years.

Great news a longer lease will significantly increase the value of your property! However in exchange for extending the lease the freeholder is entitled to a payment as well “the premium”.

The premium that is paid to the freeholder is dependent on a few factors such as length of term , ground rent and service charge and its calculated using a formula set out in the Leasehold Reform Housing & Urban Development Act 1993.

What is considered a short lease?

Well generally a short lease is anything below 80 years and that’s because below 80 years the rules for negotiating the lease do change as well at this point the calculation for the premium paid to the freeholder is calculated with something referred to as the “marriage value”. This is half the difference between the market value of the property with the new lease and themarket value of the property with the old lease as an example:-

If your property is worth £55,000 with a 55 year lease and then valued at £95,000 with a 145 year lease,the marriage value is £40,000 (£95k-£60k) and the Landlord is entitled to half of that amount (a payment of £20k). A lease extension process typically takes from three to 12 months, but it can be made quicker by efficient valuers, and using a good local solicitor you should also bear in mind you will need to pay the legal costs for the new lease (often around £1200).

As well as the official serving of notice a section 42 notice on your freeholder and requesting your rights to a 90 year extension under the legislation you are free to negotiate with them as well this route providing your freeholder is proactive usually in my experience results in the freeholder offering up a few options, often  a “good” lease with reasonable ground rent and service charge in exchange for a high upfront premium and a cheap option with low or sometimes even zero upfront premium but with a high ground rent and service charge… please do think carefully and take proper legal advice as although a low upfront cost might seem very appealing the increase in ground rent and service charge (and often their ability to increase these charges regularly throughout the lease term) will certainly make the property less appealing particularly to investors as they will have to pay these costs reducing their rental yield and therefore the amount there willing to pay foryour property.

Understandable then that the value of the property drops asthe lease term reduces especially when you consider that the ability to get a mortgage on a property with a short lease reduces dramatically as well , it’s not impossible to get a mortgage on a short lease property as there are some specialist products, but you should speak to a good local broker experienced in dealing with this and also bear inmind that the rates that you might be offered will be higher and the terms less favourable, often a lower LTV (loan to value) so a higher deposit and or a shorter term so higher monthly cost.

Of course there are some people who may not want to extend alease instead running the lease down typically these might be:

Landlords who are only looking at the rental income for the next few decades and are not concerned about the lease reverting back to the freeholder once the lease expires.

Those who have no children or others that they wish to inherit their property, or retirees who are confident that the lease will out last them in their final years and don’t want to lay out big sums of money unnecessarily.

There’s certainly anargument for letting the lease run if you fit the criteria above, but if not then for the majority of people you’d be far better off extending the lease sooner rather than later or not at all and defiantly before the 80 year mark if you can.

So if you have a short lease property and need to sell what are your options?

Well first of all I’d recommend instructing a good local solicitor to extend the lease for you, as I’ve mentioned this will take sometime and cost a fair bit of money but once it’s done you will be able to achieve full market value for your property.

If buying an extension is not an option for you or you simply don’t have the time it’s certainly still possible to sell your property with the existing short lease but the value will as we have discussed be lower because the buyer is going to have wait 2 years before he can apply to extend the lease, and they may struggle to get a mortgage (if at all) and certainly won’t get favourable terms if they can.

With a short lease the buyers capable of buying your property are greatly reduced, ideally your looking for a cash buyer who doesn’t mind the short lease and has experience buying these type of properties. A professional property buyer like us here at Jeffries property buyers .

Because we don’t need to get a mortgage and we understand this part of the market, the values the costs and the potential problems with extending a lease we can quickly and accurately provide you with a cash offeron your property regardless of how short your lease may be. We can complete thedeal as fast as 2 weeks ( or as slow as you need ) with us the process is simple  just one call, one viewing and one offer.

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