Selling a flat with a short lease
09 October 2020 8462 Views
Landlords and property investors with leasehold property within their portfolio, as well as their advisors, will be aware of the difficulty and delay a short lease (90 years or less) can cause when it comes to selling a property.
However, one conversation with a specialist lease extension solicitor, such as those at Holmes & Hills Solicitors - who provide free initial guidance to leasehold property owners across England and Wales - and the property owner will understand their options and be in a position to take immediate action to commence the process of extending the lease and making the property more saleable.
90 years or less
Where a leasehold property has 85 years or less remaining, buyers are likely to struggle to be able to secure a mortgage.
Even where there are 86-90 years remaining, many buyers, despite not fully understanding the legal issues surrounding leases and leasehold property, appreciate that a lease of this length is something to be concerned about. Many will dig a bit deeper and ask questions such as 1) when will the lease need to be extended, 2) when will they be able to extend the lease and of course, 3) how much will this cost.
Whilst the answers to the first two questions are unlikely to concern them, the answer to third will. That’s because the third question will be difficult for anyone but a lease extension valuer to answer and with few, if any, buyers willing to pay the £500-£800 upfront cost for a lease extension valuation, the uncertainty is enough to scare the vast majority of potential buyers off.
Even in the unlikely event the buyer doesn’t think it is a problem, or is completely naive to the risks and costs, their conveyancing solicitor will be advising them of all the risks and uncertainty they are taking on as soon as they have sight of the lease and report on this to their client and any potential lender.
Contact a specialist lease extension solicitor
Thankfully, leasehold property owners need not struggle in their attempts to sell a flat with a short lease. At the earliest opportunity, preferably the point of considering a sale or having the property valued by an estate agent, the property owner should contact a lease extension specialist such as those at Holmes & Hills Solicitors
Leasehold owners looking to sell actually have several options available to them and with good advice from the outset, informed decisions can be made and action taken to prevent delays to the sale process. The earlier a course of action can be decided upon and commenced, the earlier an estate agent can begin marketing the property and informing potential purchasers about how the short lease is being dealt with. From that point, the length of the lease need not be an issue when it comes to marketing and selling the property.
Option 1 - Extend the lease informally whilst marketing the property:
Unless the freeholder is a local authority, the leasehold owner will likely have the option of extending the lease via the non-statutory process (informally). This process can be completed far quicker (within 2-3 months often) compared to the statutory process (8-12 months).
Whilst the lease is being extended, the property can be marketed with a long lease. In the event a buyer is found prior to completion of the lease extension, a conditional sales contract can be drafted for the lease extension to be completed prior to, or simultaneously with, the sale. With conveyancing usually taking longer than two months on leasehold properties, the non-statutory lease extension need not cause delay.
What if a leasehold owner can’t afford the non-statutory lease extension?
In situations where a leasehold owner isn’t able to fund the costs of the non-statutory lease extension themselves, rather than this stifle and delay the lease extension (and sale), the purchase deposit monies can be utilised to provide for funding the lease extension costs together with any equity from the buyer. In this way, even if a leasehold owner cannot afford to extend the lease, they are not prevented from putting their property on the market and achieving a sale. The lease extension simply completes on the same day as and immediately before completion on the sale.
Option 2 - Serve and assign the benefit of a Section 42 Notice:
In situations where it is necessary to extend the lease via the statutory process, either due to the freeholder not being willing to engage informally or being unreasonable in the informal, non-statutory dealings, there is still an option for leasehold property owners to avoid delaying a sale.
To overcome the risk and uncertainty of the shorter lease term as perceived by potential buyers, a leasehold owner can commence the process of extending the lease via the statutory process by having a lease extension solicitor serve a Section 42 Notice, provided the property owner meets the requirements. The benefits and liabilities of the Notice are then assigned to the buyer on completion of the sale.
In this situation the lease extension does not complete before the sale but the buyer does not have to wait two years following the purchase before being able to commence extending the lease themselves under the statutory process. A person must be the registered owner of a property for two years before having a statutory right to extend the lease and this is subject to the freeholder not being exempt from the process.
To avoid delaying the sale, it is simply necessary for the leasehold property owner to receive specialist legal advice and for the lease extension solicitor to draft the Notice and advise on and amend the sales contract. In this instance the contract would be conditional on the service and assignment of the benefit and liabilities associated with the Notice. This protects both the seller and buyer’s position.
From the seller’s perspective, it is essential that the sales contract is reviewed and amended by a lease extension solicitor. This is to ensure the liabilities (as well as the benefits) associated with the service of the Section 42 Notice are assigned to the buyer, entirely freeing the seller of the same.
Talk to a lease extension solicitor about selling flats with shorter leases
Leasehold owners that have a property with a short lease that they are currently trying to sell, or may be looking to sell, are encouraged to call Holmes & Hills Solicitors on 01206 593990 for free initial guidance and information on the firm’s combined lease extension and conveyancing service.
Contact is also welcomed from advisors to property investors who may have clients owning leasehold properties with short leases.