If you’re searching for a flat to call your own, the chances are good that you’ve already come across some with prices that seem too good to be true. Why is that? Well, it’s highly likely that the property in question has a short lease.
Buying a flat with a short lease can be an appealing prospect at first glance, but are there really savings to be made? Can you simply extend the lease? Or, should one move on to the next property and forget about the potential bargain?
They’re all good questions, and we hope to answer these and more in this post on short lease property.
What are leases anyway?
In short, a lease is little more than a contract between the person/s who owns the property and the person/s who wish to rent the property. It’s merely a way of guaranteeing the tenant (or the lessee) a roof over their head for a designated period of time, while ensuring that the landlord (the lessor) receives fair payment in exchange.
Leases, therefore, are legally binding and something that cannot be taken lightly.
What is considered to be a ‘short’ lease?
Basically, any lease that falls below 80 years is considered to be a short lease. While this may seem like a long time, in terms of leases, 80 years is the cut off point, something commonly referred to as the ‘80-year rule’.
Allowing a lease to drop below 80 years means any costs associated with extending it start to increase dramatically as marriage value (the value increase created by a new lease being granted) begins to become payable.
Can a property lease be extended?
Yes! Property leases can be extended.
While it is indeed possible to extend a short lease on a property, it’s not always that straightforward to do. Check out our guide to statutory lease extensions to get the lowdown on the process.
If you are the leaseholder and have stumbled across this post, you might also be interested in another one of our articles, When Should I Extend My Lease?, which goes into greater depth on details such as the 80-year rule mentioned above.
Do I have to extend a short lease?
No, you don’t have to, but in most instances extending a short lease is beneficial.
Those who may consider running a lease down include:
- Landlords who are looking to simply draw off rental charges for the next few decades without worrying about the lease reverting back to the freeholder once the lease expires.
- Those who have no dependants to pass an inheritance on to, or retirees who are confident that the lease will outlast them in their final few years and don’t want to lay out big sums of money unnecessarily.
There are no right or wrongs here, but unless you fit into the categories mentioned above, it’s likely that you’d be far better off extending the lease now rather than later or not at all.
Getting a mortgage when buying a flat with a short lease
This can be tricky, especially if the property’s lease has been left way beyond the 80 year mark. In fact, it may be completely impossible if there’s only 55 years or less left to run on the lease.
You may be able to find a specialist lender who will accommodate your needs, but be prepared to pay up for the privilege. In the vast majority of cases, interest rates will be noticeably higher on a short lease property to reflect the perceived risk being taken on by the lender.
Is it possible to get the seller to extend the lease for me?
Yes, it is possible, and it’s often the best solution.
There is a caveat, however: the seller must have owned the property for two years or more to be able to apply for a statutory lease extension.
If they have, you can then get them to serve the initial notice to the freeholder and then transfer the benefit of said notice on to you, which allows you to bypass the two-year ownership rule associated with statutory lease extensions.
So, is a short lease property worth the aggravation?
As with pretty much everything else to do with property, the answer to this question lies firmly with the individual. For some it will be the only option, while for others a short lease property will be more trouble than it’s worth.
One thing is certain, though: short lease properties can work out to be beneficial in the long-term, but you need to be prepared for a few short-term headaches before you see any upside.
If you are looking to move in Wanstead or any of its surrounding areas, give us a call today. We’ve been based in E11 since 1908, so we’re perfectly placed to help you find your next home.