Buying a flat with a short lease and how to extend lease

What is the problem with a short lease?

• Can't get a mortgage

  - Generally speaking, mortgage lenders won't lend on a property that will have less than 30 to 40 years left to run after the mortgage term expires. For example, if you are getting a 35 year mortgage then you'll need to have a lease with a minimum of 75 years.

• Can't afford the lease extension costs

  - extending a short lease could cost thousands of pounds (click to read the lease extension costs)

• Seller won't agree to extend the lease

  - the buyer has no legal right to extend the lease of a property until they own it. In order to extend the lease the seller needs to agree to do so with the freeholder.

• Freeholder is absent

  - an absent freeholder can delay a transaction, although you can still extend your lease by the seller obtaining a vesting order.

• Can't afford the delay to completion

  - the lease extension process will add 2 months or more onto the conveyancing process.

What is considered to be a short lease?

Buying a flat with a short lease under shared ownership?

What should you do when buying a flat with a short lease?

1

Agree extension with the seller

as the seller is required to extend the lease for the buyer, you should get them to agree to extend the lease.

2

Get a lease extension valuation

there is a premium payable to the freeholder to extend the lease and you need a RICS surveyor to confirm the cost.

3

Confirm who is paying for the lease extension costs

the premium, survey and legal costs will cost thousands of pounds, so you need to confirm who is paying them. If the buyer is paying full market price, then the seller should pay for the costs however if the buyer is buying the property at a discount because of the short lease, then the buyer should cover the costs.

4

Formal or Informal

the formal route is the normal route as it adds 90 years onto the current lease term for zero ground rent, however in rare occasions the freeholder may agree to an informal lease extension of any number of years. Click to read about the informal lease extension process.

What to do when buying a leasehold property with a short lease

1
Lease Extension on Completion

• The mortgage lender will make their decision to lend based on the extended lease term.
• You can agree with the seller that they cover the costs of the lease extension including the premium, solicitor's fees, surveyor fees and freeholder's fees (only normally achievable if your offer is for the current market value of the property with an extended lease, but not if the property is being sold as a short lease).
• The longer lease is registered on completion meaning less overall work for solicitors to do.
• You can use this as a bargaining tool to ensure everything gets completed at the same time which means that the seller is also going to push for the process to be as speedy as possible.
• You also have the option to pay the seller for the lease extension if you are paying below market price for the property.

• You are not in control of the process - only the seller can deal with the freeholder in extending the lease.
• Although the final lease and terms are agreed by your solicitor, only the seller is able to chase the freeholder: you are left waiting for others to carry out the tasks needed to complete the process. 
• By completing the lease extension process on the day of completion you are going to extend the time it takes to complete the conveyancing from 2 to 6 months; sometimes even longer if the freeholder does not respond quickly.

2
Seller serves Section 42 notice and buyer extends the lease after completion

• You are in control of the final stage of the process of extending the lease.
• You can agree that the seller covers the costs of serving the Section 42 notice (only normally achievable if your offer is for the current market value of the property with an extended lease, not with a short lease).
• You can complete the purchase quicker.
• You pay the cost of the lease extension premium based on the date of the serving of the Section 42 notice.
• The lease extension premium is valued based on the property's value at the time of the seller serving the section 42 notice.

• Your mortgage lender may not agree to lend you the mortgage money (you should check with them about this).
• The longer lease isn't registered on completion and you will incur additional work with solicitors.
• You run the risk of drawn out negotiations with the freeholder relating to the lease and costs to extend.
• You pay all of the costs to extend the lease including solicitor fees and all the freeholder's fees.

3
Buyer extends the lease after completion

• You are in control of the final stage of extending the lease extension process.
• You can negotiate with the seller that they cover the costs of the Section 42 notice (only normally achievable if your offer is for the current market value of the property with an extended lease, not with a short lease).
• Your mortgage lender may not agree to lend you the mortgage money (check with your mortgage lender to find out if they will agree to this).

• The longer lease isn't registered on completion and you will have to pay for your solicitor carrying out additional work.
• You run the risk of drawn out negotiations with the freeholder with regards to the lease and costs to extend.
• The cost used to calculate the lease extension premium could be more if the property price has increased.
• You pay all of the costs to extend the lease including solicitor fees, surveyor fees and the freeholder's fees.

The estate agent told me I had a 89 year lease, I now find out it is only 69 years - what do I do?

Some buyers hunt around for short lease flats for sale as they see them as an opportunity to pick up a bargain, however for a buyer who never knew they had a short lease it can be distressing to find out. 

By the time you find out the actual lease term of your property you most likely have already paid for your solicitor, mortgage valuation and property searches. If you paid for the full market value of this property on the basis it has a long lease, and now you find out you have a short lease, then you'll need to either:

• Negotiate down the sale price; or
• Agree the seller pays for the lease extension

Remember, if you are paying full market price for the property then you should have a long lease. As soon as you get a short lease then the property price goes down in value.

Here is an example email you can send to your estate agent if they have sold you a property that you find out has got a shorter lease than was advertised to you.

Hi AGENT NAME,

Re: PROPERTY ADDRESS

I’m not sure whether you’ve had time to review our previous email yet but I thought I’d give you a further update our end.

Things are progressing well for us with the conveyancing. My searches are back, mortgages is in-hand and enquiries are being finalised. This final point however has flagged up an issue with the lease term that we need your help with.

My solicitor has spotted that the lease term left to run is not the X years that I was told when I put my offer in, it is in fact X years.

I'm sure you'll appreciate that when paying the current asking price of the property, I need to ensure that the property doesn’t have a short lease.

The challenge for us all is that any buyer looking to buy this property will have an issue over the short lease and for some mortgage lenders they may not lend based on the remaining lease term.

We are very disappointed to have been informed that the lease term was X years by AGENT NAME when I put my offer. We put in an offer for the full market value of the property based on the lease being X years. On your statement I was buying a leasehold with X years I paid for a number of costs and if this matter doesn’t proceed, because of your error in the way the property was sold to us by AGENT NAME, we have been put at a financial loss to the sum of £X.

We are still very keen to buy the property and will be looking to exchange over the next few weeks, however we need to address the short lease by either:

the seller agreeing to extend the lease before we complete (not our preferred choice as we’ll need to wait for the legal work with the freeholder); or

we agree a price reduction to the extent of the costs to extend the lease in 2 years’ time when we will be eligible to extend the lease under the leasehold reform act. We will need to get the lease valuation from a surveyor to understand how much the cost will be to extend and this would need to be covered by the seller along with the extension premium and costs to pay for the freeholder to do this (You’ll appreciate that we are paying full market price for a property that is going down in value with each year that goes by).

We hope that this matter can be addressed with the seller as we have gotten so far through the process and are close to being ready to exchange. Sadly as all buyers are going to come up against this challenge with the short lease we see our solutions above as the best opportunity for this seller to overcome this short lease hurdle.

We look forward to hearing back from you before the end of this week so that we can all prepare to move forward quickly.

Kind regards,

Selling a flat with a short lease