Buying a flat with a short lease and how to extend lease
(Last Updated: 29/05/2024)
24/05/2023
371
9 min read
Key Takeaways
- A leasehold property is considered a 'short lease' if it has 80 years or less remaining.
- Short leases come with special considerations, the property may not be right for you at all.
- You may be able to extend the lease on completion, through the seller, or two years after your purchase is registered.
- If you are buying a short lease on a shared ownership property, things work slightly differently.
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 short lease?
The main concern is that short leases are harder to mortgage and harder to sell. If you need to release funds quickly, you may find your equity tied up and its value will decrease quite rapidly. It is still worth buying a short lease if you (or ideally your seller) can extend the lease.
What are the disadvantages of buying a leasehold flat with a short lease?
There are a number of reasons that buying a leasehold with a short lease may not be right for you:
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)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.
Free initial leasehold advice
Arrange a free consultation with one of our experienced conveyancing executives on:
- Lease extension.
- Purchasing the leasehold, freehold or share of freehold.
- Selling a leasehold property with a short lease.
- Extending the lease at the same time as you sell.
We specialise in lease extensions and have RICS valuers for the premium/negotiation and solicitors for the section 42 notice and formal or informal extension. Request a tailored quote for:
- RICS Lease Extension Valuation or L2 Homebuyers Survey.
- Serving of the section 42 notice or section 13 notice on the freeholder.
- Negotiation with the freeholder (with the support of your RICS valuer).
- Completion of the legal work, including deed of variation.
- Application to Tribunal to determine the premium.
- Vesting order for absent landlords.
What is considered a short lease?
Anything less than 80 years is generally considered to be a short lease. With a short lease that requires a lease extension you need to not just factor in what the mortgage lender agrees to. You need to also think about if you are buying a lease with 80 to 85 years left to run, it is highly likely that during your ownership of the property you will be involved in extending the lease.
As you are paying the full price for the property, you should look to get the current seller to contribute towards the lease extension cost. In our article below we explain what you can do to save time and money when buying a lease under 80 years.
Sellers and their agents often glean over the issues a short lease comes with so read on if you are planning on buying a flat with a short lease as we explain the costs and risks involved.
How long should a lease be when buying a flat?
We often are asked, is a 90 year lease long enough? Although not classed as short as it is above 80 years, If you bought the property with 90 years remaining, intending to sell after 5 years or so, you'll need to consider that your buyer will likely want to have the lease extended. When buying a 90 year lease, factor in the likelihood of having to extend it on or after purchase.
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 (or peppercorn) ground rent, however in rare occasions the freeholder may agree to an informal lease extension of any number of years. The ground rent wont fall to zero until the term of the pre-existing lease runs out.How can you confirm the number of years left on your lease?
It can often be confusing to find out your lease term. For example you may be informed the lease has 99 years to run from 1970.
Often you'll think you have 99 years left to run on your lease and nothing to worry about, however the truth is as of 2019, this lease has reduced by 49 years (from 1970 to 2019) meaning it only has 50 years left to run before the lease expires and you have no property to live in. Once your lease term expires you have no legal right to remain in the property.
If you are planning on buying a flat with a short lease you can find out how long the lease has left to run by reviewing the lease (downloadable at the Land Registry) provided by the seller. It states the date the lease was granted and the length of time of the lease so you can work out the years left to run.
Fixed Fee – No Sale No Fee – On all Major Lender Panels - Lease Extension Specialists
What to do when buying a leasehold property with a short lease
This is the preferred option for the buyer. By extending the lease on completion, it means that the seller passes title to you with a lease that has the new lease term added onto the lease.
Who should pay for the lease extension premium?
This depends. If the lease is short and you are paying under the market value of what the property would be worth with a long lease then you should pay the premium to extend the lease. If however, you are paying the current market price as if the property had a full lease then the seller should pay for the lease extension premium.
The seller will know they have a weak position if they have a lease under 80 years so make sure to factor in all the costs of extending the lease when making your offer. Buying a flat with a short lease is risky so factor in some money to cover your losses.
Pros
- 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.
Cons
- 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.
If option 1 is going to take too long to complete then this is the next best option, although it comes with some dangers. By getting the seller to serve the Section 42 notice on the title ( read more about the Section 42 notice), this passes the statutory right to extend the lease to you after completion.
You'll then need to agree the new lease term directly with the freeholder, although there is no guarantee the freeholder will agree to the notice and you may need to go as far as applying to the Leasehold Valuation Tribunal to rule on the value of the premium you'll have to pay to extend the lease (this is very costly and can take months to complete).
Who should pay for the lease extension premium?
This depends - and goes back to the scenario above. If the lease is short and you are paying under the market value of what the property would be worth with a long lease then you should pay the premium to extend the lease.
If however, you are paying the current market price as if the property had a full lease then the seller should pay for the lease extension premium. In the latter example, the seller or buyer's solicitor would hold the lease extension premium amount as a retention until the freeholder agrees the final sum and then the retention is used to pay the lease extension premium.&
Be careful though to make sure the retention is large enough so as to cover the premium.
Pros
- 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.
Cons
- 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.
This is only an option if your mortgage lender is happy to lend you the money based on the current lease term. The cost to extend will be more as you'll need to wait the statutory 2 years before you can start the formal lease extension process.
Pros
- 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).
Cons
- 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.
Selling a flat with a short lease?
The key thing to remember is that anyone buying the property will have to deal with the short lease. You may have to pay for this to be extended, or, risk not being able to sell. It may be possible for you to serve the section 42 notice and leave the extension to your buyer, if they are willing to transact in this way.
Fixed Fee – No Sale No Fee – On all Major Lender Panels
Frequently Asked Questions
EA
Written by:
Caragh Bailey
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.
Reviewed by:
Andrew Boast
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.
