Selling a flat with a short lease
09 October 2020 2014 Views
Many agents, certainly those in London, will have faced the difficult task of selling a flat with a shorter lease. A shorter lease widely being considered one which has 90 years or less remaining.
In the best case scenario, the seller understands the lease is short and that they are either going to have to deal with it or take a hit on the sale price. At the worst, the seller has come to you completely unaware and you have to educate them.
However uninformed the seller is, it is possible to sell a leasehold property with a short lease and to get this to proceed to exchange and completion no less smoothly than if the lease were a longer lease. This simply hinges on the seller getting excellent advice and guidance, at a very early stage, from a specialist lease extension solicitor
One conversation with a lease extension specialist, such as those at Holmes & Hills Solicitors - who provide free initial guidance to leaseholders across England and Wales - and the seller will understand their options and be in a position to take immediate action to commence the process of extending their lease and making their property more saleable.
90 years or less
Where a leasehold property has 85 years or less remaining, readers will know that 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 the 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, 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.
Tell the seller to contact a specialist lease extension solicitor
Thankfully, agents need not lose a sale instruction or struggle in their attempts to sell a flat with a short lease. At the earliest opportunity, preferably the point at which the property is valued, the seller should be told to contact a lease extension specialist such as those at Holmes & Hills Solicitors. Indeed, pointing a potential seller in the direction of free initial specialist advice which will assist them, can only help you in building a relationship, adding value over and above other agents and ultimately securing the instruction to list.
Sellers actually have several options available to them and with good advice from the outset, sellers can make informed decisions and take action to prevent delays to the sale process. The earlier a course of action can be decided upon and commenced, the earlier potential buyers can be informed 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 vendor is likely to have the option of extending their 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 lease extension need not cause delay to the sale process.
What if a seller can’t afford the non-statutory lease extension?
In situations where a seller 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 the equity from the buyer required. In this way, even if a vendor 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 dealings, there is still an option for vendors to avoid delaying a sale.
To overcome the risk and uncertainty of the shorter lease term as perceived by potential buyers, a seller 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 seller 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 seller 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:
If you are an agent and you have a leasehold property with a short lease that you are currently trying to sell, or you find that you come across this reasonably regularly, call Callie Tuplin, specialist lease extension solicitor, on 01206 593990 to discuss Holmes & Hills Solicitors’ combined lease extension and conveyancing service for sellers.
How many more sale instructions could your agency receive if you provide leasehold property owing vendors a source of free initial guidance that provides them the information they need to make their property significantly more saleable?