Increasingly mortgage companies require longer and longer terms on leases before they will provide a mortgage. This has a direct effect on the ability to sell a flat or house with a short lease. If the term of the lease is so short that it is difficult or impossible to obtain a mortgage then the number of buyers who could potentially buy that property is significantly limited and consequently the value of the property reduced.
Ideally, in this situation you would extend your lease of a flat or buy the freehold of a house before selling the property. However, there are other options where you need to sell the property quickly or do not have funds available to pay for a lease extension/the freehold until the flat or house is sold:-
1 Reduce the price – If you reduce the price significantly it may well be that a buyer will be willing to take the risk of buying the property with a short lease and deal with that themselves later.
Important: This will not be possible if the Buyer needs a mortgage and the mortgage company requires a longer lease than you have. The mortgage company will not release funds until the lease is extended or the freehold purchased.
2 Using the sale proceeds to pay for a lease extension or freehold purchase – It may be possible to agree the terms of a lease extension or to buy the freehold directly with your landlord and then use money from the sale to pay for the lease extension or to purchase the freehold.
Important: You will need the Buyer’s agreement to use their money to complete the lease extension or buy the freehold before completing the sale.
3 Extension Directly to the Buyer – It may be possible to agree with your landlord that immediately on completing the sale, the Landlord will complete a lease extension to the Buyer or sell the freehold to them.
Important: Few Landlords or Buyers will agree to this.
4 Statutory lease extension or purchase of the freehold – You can start the statutory lease extension process by serving a Claim Notice. Then, when you complete the sale of your property, you assign the benefit of that Claim Notice to the Buyer and they can proceed with the lease extension as though they had always owned the property.
Important: The Buyer will usually require a reduction in the price to reflect that they are taking the risk of dealing with the lease extension or freehold purchase. This will not be possible if the Buyer needs a mortgage and the mortgage company requires a longer lease than you have. The mortgage company will not release funds until the lease is extended or the freehold purchased.
Clarke Mairs have extensive knowledge and expertise in dealing with lease extension and enfranchisement matters alongside conveyancing transactions and can guide you through the whole process – from marketing your property to completion of a sale – providing clear advice at each stage.
For further information about your options in selling your property with a short lease and a detailed quotation, please contact Katy Rushworth directly on 0191 245 4725 or firstname.lastname@example.org.