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Is it better to sell a flat with a short lease... or extend the lease? Thu, 27 Mar 2014 19:01

As a leaseholder, a short lease is a potentially critical threat to your chances to selling your property. It's a problem that could affect over a million property owners in England and Wales. Ownership of a leasehold flat effectively means that you are granted a long lease from the freeholder. This means that you own the right to live there by definition of your lease, and the demise of your flat, however not the absolute ownership of the land or building as usually the building will contain various flats also on leases. Scotland and Northern Ireland have different leasehold laws.

 

But if you are a leaseholder in England or Wales, are you able to extend your lease, and if so, by how many years, and would this be worthwhile? After all, you could opt to sell a flat with a short lease to a company like Dream House Buyer, which can give you a cash offer for your flat, irrespective of the length of the lease. The 1993 Leasehold Reform Act means that most flat-owners are legally entitled to add the customary 90 years to their lease at a fair market price, as long as they have lived in the flat for two years.

 

Given that shorter leases generally decrease the price at which you can expect to sell the property on the open market, extending a short lease can be a good move - but it depends on several factors including: The exact current length of lease, value of the property, service charge and exact terms of the lease. There isn't much reason to worry if you're staying put and the lease is 90 years or more, and if you extend a lease of this length, the value added to your flat may barely exceed your outlay. But by the time the lease reaches about 83 years, you should seriously consider extending or selling.

 

80 years is the critical number. At this stage, you have to pay not just the usual lease extension price, but also 50 per cent of the flat's 'marriage value' - the amount of extra value that would be added to your property by a lease extension. The big difference between extending at 81 years and 79 years is what leads so many people to sell a flat with a short lease to a firm like Dream House Buyer whom are specialist buyers of flats with short leases. Dream house Buyer buys short lease flats for cash, which means that they do not have to satisfy a mortgage lenders criteria. 

 

The aforementioned two year ownership condition for extending should make you especially wary of buying a property with a lease of 80 years or less - however easy the estate agent insists extending would be. If your lease has dropped to less than 60 years, you can expect an extension to cost tens of thousands of pounds. In this situation, it is vital to seek good legal advice from a solicitor, and a valuation from a RICS chartered surveyor who specialises in lease enfranchisement and extension valuations. 

 

For those who do decide to sell a flat with a short lease of under 75 years, Dream House Buyer will happily make an offer on the same day of contact, before purchasing the lease in its current form.



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