Selling a Flat with a Short Lease
Monday, 6th July 2020
Architecture | Leasehold Valuations
One of the most common reasons for leaseholders wanting to extend their leases is the need to sell. A property’s value decreases along with the lease, with a 70-year lease worth around 90% of a 100-year lease, whilst a 60-year lease is more like 80%. The basic mathematics of the lease extension process means that the cost of extending, plus professional fees should nearly always be less than the reduced price a buyer would pay.
Mortgageability and Cash Buyers
The shorter a lease gets, the fewer banks there are who are willing to lend. This translates into fewer buyers, which in turn is likely to mean lower offers and lower values. Once you get into the 50s, there are so few lenders that you will only be looking at cash buyers which will depress prices even further.
If you cannot raise the capital for a lease extension yourself, you can start the lease extension process yourself, serve a formal S42 on the freeholder and assign the benefit to the incoming purchaser. Whilst you are left selling for a lower price, you will at least open up the market to a higher number of lenders and therefore potential buyers.
Informal Lease Extension
Not every lease extension requires the leaseholder to go through the S42 notice route and many freeholders are willing to agree to terms on an informal basis. If you have a short lease and want to extend to then sell on a long lease, you should be prepared to wait around 6 months from notice service to completion. An informal agreement, by contrast, can take a matter of weeks.
Leaseholders should always be wary of the first offer that comes their way, as in this surveyor’s experience these are significantly overpriced in 9/10 instances and typically include onerous ground rents that can devalue the property and be treated unfavorably by some lenders. There is usually some room to negotiate so you should always have your surveyor run their own valuation, to see what you should reasonably be charged.
Our surveyors at Peter Barry handle hundreds of lease extension cases per year and save clients thousands of pounds in negotiations. If you would like some free and impartial advice please either email or call on 020 8360 7615. We will be happy to help.
