Whether you’re buying or selling a flat, you want to get the best price possible.
Lease lengths have an impact in either scenario.
Read on to learn more.
What is a lease on a property?
A lease is a type of agreement that you have with a freeholder. This is seen with leasehold properties.
Your lease outlines the length of time you’re allowed to live there. Once it expires, your freeholder can reclaim ownership of the property.
A lease can also involve conditions such as:
- Whether you need to contribute to a sinking fund
- Limitations on guests
- Whether you can have pets.
And more.
What happens when leases run out?
When a lease runs out, you can be evicted and without a home.
That’s why properties with a short lease are less valuable. The owner can live there for less time before being forced to leave.
What counts as a short lease?
Most property experts agree that a ‘short’ lease has less than 80 years remaining.
Most banks won’t lend on properties in this category.
You may even be unable to sell your leasehold property on the open market unless you find a cash buyer.
Your house price will also go down. The size of the decrease depends on the circumstances, such as how low the lease falls.
What might cause a short lease?
Owner can’t afford an extension
A lease extension costs money, and the owner may be unable to afford this.
Most freeholders want to recoup half of the growth in property value that the lease extension will trigger. This can amount to £10,000 or more in many cases.
Inherited properties
Properties inherited from an elderly relative will likely also often have a short lease.
No plans to sell
You may have allowed a lease to drop low because you had no intention of selling it. There may thus have been no urgency.
It could also be because your relationship with the freeholder is poor.
In this case, you might have hoped these personnel would change before you began extending your lease.
How much does a short lease devalue a property?
A short lease will devalue your house by at least 10%. And in most cases, it will be far more than this, at around 20% or higher.
Keep in mind that this varies based on several factors.
Short vs. very short leases
For example, the further your lease length drops, the greater your house value reduces.
And you should consider competition. In the rare instance when all things are equal, a longer short lease will be more attractive to buyers than a very short one will be.
Conditions on lease
Other details in your lease have an impact as well.
For example, limitations on keeping pets or service charge costs.
Should I extend my lease before selling a property?
It depends on the situation.
Extending your lease will typically increase your house value. But it comes at an up-front cost of several thousands.
It’s completely possible to sell your house without extending the lease.
You’ll just need to find a cash buyer or an auction house.
This can save you the time and effort of completing all the paperwork. You’ll also save on the fees you pay your solicitor and estate agent.
Your financial situation will have the biggest impact on which route is best.
And the amount of time and effort you’re willing to dedicate is another.
Some freeholders will be compliant and cooperative in this process. While others will make your life difficult…
How much does extending a lease cost?
Freeholders try to recoup half of the value that a lease extension adds onto your property.
So, if a lease extension increases your house value by £40,000, your freeholder typically charges around £20,000. Keep in mind that these figures can vary.
You may also have fees associated with paying a solicitor to support you.
This is essential to ensuring all paperwork is completed correctly. You’re more likely to make mistakes without this support.
Other costs involved include land registry fees and a surveyor’s fee.
Can my freeholder refuse to let me extend my lease?
At the time of writing, your freeholder can only dig their heels in if you’ve owned the property for less than two years.
They can also fight you on this if less than five years remain on the lease length.
But in all other cases, your freeholder must grant you a lease extension.
Furthermore, the UK government plans to change the law to give leaseholders more power.
This includes preventing a freeholder from ever refusing a lease extension. These laws are expected to come into action in the next few years.
