Buying a Short Lease Property
A short lease is generally defined as having 80 years or less remaining on its term. While these properties might seem appealing due to price, they come with unique challenges that mean a short lease property may not be right for everyone, particularly regarding mortgage difficulties and future saleability.
However, buying a property with a short lease doesn't have to be impossible. Recent reforms, like the abolition of the two-year ownership rule, mean you now have greater flexibility to address the lease length immediately after purchase.
This guide is designed to help you understand these challenges and the actions you can take. We'll explain your options for extending the lease when buying – whether that's arranging for the seller to start the process, completing the extension on completion of your purchase, or doing it yourself immediately afterwards.
What is considered a 'Short Lease Property'?
In England & Wales, a leasehold property is considered to have a short lease when there are 80 years or less remaining on the lease term.
Marriage Value
The reason the 80-year threshold is so important is primarily due to 'marriage value'. Under the statutory lease extension process, when a lease falls below 80 years, an additional sum called marriage value becomes payable to the freeholder.
This is essentially the increase in the property's value that is 'unlocked' by merging the freehold and leasehold interests via a longer lease. The shorter the remaining lease drops below 80 years, the higher the marriage value, making the cost of extending the lease significantly more expensive.
Many mortgage lenders begin to show reluctance or have specific criteria for leases approaching this point (e.g., below 85 or 90 years).
Reversion
Reversion is the legal term for the point at which the lease expires, and ownership of the property, including any buildings on it, legally reverts back to the freeholder.
Without a lease extension, your right to occupy the property ends when the lease term reaches zero. This is the ultimate consequence of having a short lease and highlights the critical need to address the lease length before it expires.
Therefore, if you are buying a property with a short lease or one with a term between 80 and 85 years, you should factor in the high probability and increasing cost of needing to extend the lease in the near future to maintain the property's marketability and value.
- Fixed Fees.
- Leasehold Specialist Solicitors.
- RICS Surveyor Negotiations.
- Complicated jargon made simple.
- Preparation and serving of Section 42 Notice.
The Leasehold and Freehold Reform Act 2024 was passed on the 24th May 2024, but is not yet in effect and the date for this is not yet clear. We will update our content as and when the finalised legislation is published. Read more - Expected changes
Is it worth buying a property with a Short Lease?
As you might expect, there are some challenges. Properties with a short lease can be harder to get a mortgage for, and tougher to sell later on.
Because the lease is running down, the property's value can fall quite quickly. This could make it hard to sell if you needed to move in a hurry, and might mean your money is tied up.
But here's the key: buying a short lease property can absolutely be worth it IF you have a clear plan and the money needed to extend the lease.
Often, properties with short leases are cheaper to buy than similar places with longer leases. This could be your chance to get a foot on the property ladder or buy in a location you might not otherwise afford.
The way you make it 'worth it' is by extending the lease. This adds extra years (usually 90 years for flats and 50 for houses under the current rules) and brings the property's value back up, making it easier to sell or remortgage in the future.
Having a clear plan means knowing the likely lease extension costs (what you'll pay for the lease itself, plus legal and surveyor fees), having the money ready, and knowing the best way to go about extending the lease while you're buying – such as getting the seller to start it, doing it at the same time as your purchase, or doing it yourself soon after you complete.
Disadvantages of a Short Lease Property
High Lease Extension Costs
- Extending a short lease can be expensive. The cost, known as the premium, increases significantly as the lease term drops below 80 years due to the payable 'marriage value'.
- This is the increase in the property's value once the lease is extended. The shorter the lease, the higher the marriage value and thus the premium.
- You will also have to pay your own legal and valuation fees, as well as the freeholder's reasonable costs.
- These lease extension costs can easily run into tens of thousands of pounds for very short leases, potentially making the overall purchase and extension unaffordable.
Ground Rent Increases
- When you buy a leasehold property, you inherit the seller's obligation to pay the annual ground rent to the freeholder.
- While some older leases have low, fixed ground rents, newer leases (and sometimes older ones with review clauses) can have ground rents that are very high or contain clauses for aggressive, unpredictable increases.
- These ground rent terms can make it difficult to get a mortgage and significantly reduce the property's appeal and value, in addition to the impact of the short term itself.
- A statutory lease extension for a flat reduces the ground rent to a peppercorn (effectively zero) for the duration of the extended term, you are still bound by the existing ground rent terms until the extension is complete.
- Expert panel of conveyancing solicitors, with local knowledge.
- Specialists in lease extensions.
- Fixed, competitive legal fees.
- We guide you through every step of the way.
What happens if I'm buying a short lease property but the Freeholder is absent?
If the freeholder is missing, cannot be found, or is unresponsive, you cannot simply serve the Section 42 Notice. Instead, you must apply to the County Court for a Vesting Order.
This is a court order that allows the lease extension to proceed without the freeholder's direct involvement, with the court effectively stepping in to grant the new lease.
Obtaining a Vesting Order adds extra time, legal complexity, and cost compared to a standard lease extension with a present freeholder.
It requires court applications and often investigations to demonstrate that the freeholder is genuinely absent. It's possible, but it's a much more involved undertaking.
If you are buying a property with a short lease and discover the freeholder is absent, it is critical to seek legal advice from a solicitor experienced in both lease extensions and absent freeholder cases. They can guide you through the required court process.
What to do when buying a property with a Short Lease
- 1
Understand Your Options (Formal vs Informal)
There are two main ways to extend a lease: the formal statutory process or an informal agreement with the freeholder. Only the formal route provides guaranteed rights and outcomes, so it's recommended for its security.
However, an informal approach might be the way forward if your freeholder is known to be reasonable, but this requires careful legal advice due to the lack of statutory rights.
Before you agree to buy, understand the different ways you can secure a lease extension in conjunction with your purchase (all these strategies rely on initiating or assigning the formal statutory process):
- Seller Serves Section 42 Notice: The seller serves the Section 42 Notice on the freeholder before selling and then assigns the benefit of this notice to you on completion. This means the statutory process is already underway, saving you initial time and effort.
- Completion Upon Extension: The seller completes the entire lease extension process before or at the same time you complete the purchase. Your purchase then proceeds with the newly extended, long lease.
- Buyer Extends After Completion: Thanks to the abolition of the two-year ownership rule, you can now serve your own statutory Section 42 Notice immediately after completing the purchase.
Discuss these options with the seller and their agents early on to see what they are willing to agree to. While you can now extend yourself after completion, arranging for the seller to start the process can offer time or negotiation advantages.
- 2
Get a Lease Extension Valuation
The cost of extending the lease, known as the premium, is often the largest expense. You need an accurate estimate of this premium from a qualified RICS surveyor who specialises in lease extensions.
An independent valuation helps you understand the financial commitment involved and provides a basis for negotiation with the freeholder.
Without a professional valuation, you are effectively negotiating in the dark and could end up paying significantly more than necessary.
- 3
Determine Who Pays for the Lease Extension
Lease extensions involve several costs: the premium (based on the valuation), your own legal and valuation fees, and the freeholder's reasonable legal and valuation fees. It is crucial to agree with the seller as early as possible who will be responsible for these.
If you are paying full market value as if the property had a long lease, the seller should typically cover them. If you are buying at a discount due to the short lease, you will likely cover them yourself. Clarity here avoids disputes.
Note that under the statutory process, while you generally pay the freeholder's reasonable costs, your own costs (legal and valuation) are not recoverable from the freeholder, regardless of the outcome. This is a key factor when considering your budget.
- 4
Instruct a Specialist Lease Extension Solicitor
You'll need a solicitor who specialises in leasehold property and lease extensions, not just general conveyancing.
They will check your eligibility, review the lease and title documents, advise on the best strategy for the extension in your circumstances, handle the formal notice procedure (if applicable), liaise with the freeholder's solicitors and your valuer, and manage the legal process of the extension concurrently with your purchase conveyancing.
Their expertise is invaluable in ensuring the process is handled correctly and efficiently.
How to confirm the number of years left on your lease
It can sometimes be confusing to work this out, especially if you are given information like "the lease was granted for 99 years from 1970".
A common misunderstanding is to think "99 years from 1970" means there are still 99 years remaining today. However, you need to calculate the time that has passed since the lease was granted.
Using the example of a 99-year lease from 1970: by 2024, 54 years would have passed (2024 - 1970 = 54), leaving only 45 years remaining (99 - 54 = 45).
This is well below the 80-year 'short lease' threshold. Remember, when your lease term expires, your right to occupy the property ends, and ownership typically reverts to the freeholder.
You can find information about your lease term by reviewing the lease document itself. This legally binding document will state the date the lease was granted and the original length of the lease term.
If you don't have a copy, you can usually obtain one (or the property's title register, which will summarise the lease details) from the Land Registry for a small fee.
If you are buying a property with a short lease, the seller's solicitor should provide a copy of the lease as part of the pre-contract information.
- RICS Valuers for the lease premium.
- Handling of the Section 42 Notice.
- Negotiations.
- The full Lease Extension process.
- Tribunal cases.
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
