Selling with a short lease: what to expect

Data held by the Ministry of Housing, Communities and Local Government estimates there are almost 5 million leasehold homes in England alone. As a result, many people buy, and subsequently sell, a leasehold property.  

Selling a leasehold home is different to selling a freehold one, so we have provided an overview of what you can expect. As ever, we are available to give personalised advice concerning your property and a sale you may wish to make.

Leasehold basics

When you own a leasehold home, you only own the property itself and not the land it sits on. The land is owned by a freeholder and the occupier will be known as the leaseholder. The freeholder will allow the leaseholder to live in the property for a set number of years and this lease ticks down over time. Leases can be granted for up to 999 but many are for 125 years or less.

Most flats, apartments and maisonettes are leasehold properties but in recent years, some new build houses have been sold as leasehold too. Owning a leasehold property usually means there is annual ground rent to pay (a fee for the right to occupy the land) and in the case of flats or apartments in a block, a service charge as well (a fee that pays for providing and maintaining communal areas or grounds).

What qualifies as a short lease?

A lease is ‘short’ if it has less than 80 years to run. Owners should check their conveyancing paperwork to confirm how long the lease had left when they bought the property. For example, if the lease had 88 years left when the buyer moved in 11 years ago, the lease would now be classed as short at 77 years.

Market value when selling with a short lease

Short leases are not attractive to all buyers. Once bought, the new owner will either need to pay the freeholder to extend the lease (something that can cost thousands of pounds) or hand the property back to the freeholder when the lease runs out, relinquishing any right to live in the property. As such, homes with short leases are usually sold at less-than-market value to make them more appealing.

Restricted mortgage availability

Short leases can also cause purchasers issues if they need a mortgage to buy the property. Many lenders will only loan where the lease is in excess of 80 years. Others will loan to those buying a short lease property but the conditions and mortgage rate may be incompatible with the purchaser’s circumstances. The cash-only buying audience is small, so serious consideration needs to be given to lease length and mortgage compatibility.

Factor in fees and charges

Another consideration that may affect a leasehold property’s sales success are the fees attached to living in the property. Some leasehold agreements contain a clause that permits the ground rent to double over a specific period, such as every 10 or 15 years, which can put buyers off. Service charges can also be uncapped and leaseholders have little to no control over how much is charged.

Courses of action when selling with a short lease

• Pay to extend the lease before a sale: leaseholders can apply to extend their lease if it is short. Although this is an extra cost, the property should achieve its market value if the lease has more than 80 years left to run.

• Do nothing: if the lease stays short, the seller will have to prepare for lower levels of enquiries and below-market-value offers. 

Marriage value warning

Current legislation says it’s only fair for the freeholder to benefit when they give the leaseholder the right to extend a lease of 80 years or less. The leaseholder is required to pay the freeholder 50% of the difference between the value of the property with the short lease and the value of the property with the new lease – a fee known as marriage value.

A word about conveyancing

The presence of a freeholder will make the sale of a leasehold property a little more complex and perhaps time consuming. Ensure you instruct a solicitor that has either sold a property in the same block/location or has a good track record of leasehold sales conveyancing.    Changes to leasehold legislation While the Conservatives were in power, they managed to pass the Leasehold and Freehold Reform Act 2024, although its contents have not been enacted. Now, Labour has drafted the Leasehold and Commonhold Reform Bill. Together these documents will eventually reform the leasehold market. The proposals contained within should make it easier and cheaper for leaseholders to extend their leases, with the abolition of marriage value and a ban on leasehold new homes, not apartments.

Selling in Scotland?

Scotland does not have leasehold properties, thanks to the Abolition of Feudal Tenure (Scotland) Act 2000 and the Tenements (Scotland) Act 2004. The Long leases (Scotland) Act 2012 mandated that any remaining long leases over 175 years were to be converted to outright ownership.

We are available to talk about leasehold property sales, timings and the two items of legislation that may alter the course of the leasehold sector.