Is My Lease Too Short To Sell?

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There is no strict rule about the minimum length a lease should be when it is sold. However, many buyers are hesitant to purchase a lease that is close to or below 80 years in length.

When a lease drops below 80 years, the cost of extending it rises significantly. Consequently, a lease with 80 years or fewer can be more difficult to sell.

Mortgage lenders typically will not finance properties where the lease term is shorter than the mortgage duration. For instance, lenders are unlikely to offer a 25-year mortgage for a property with only 20 years left on the lease.

Whether a lease is too short depends on your personal situation and whether you intend to sell the property.

Deciding whether to extend your lease can be a complex decision.

Here are a couple of examples of how other leaseholders handled this situation:

Belinda Jones wanted to sell her flat and move in with her daughter. Her lease had 60 years left, and although she found a buyer, they were hesitant about the short lease.

Belinda couldn’t afford to extend her lease before selling and worried she wouldn’t be able to sell the flat. LEASE suggested she start the legal process for extending the lease and then transfer it to the buyer. This meant Belinda only needed to initiate the extension process, and the buyer could complete it after purchasing the property.

This approach allowed the buyer to pay the premium for the lease extension without waiting two years to qualify. Belinda’s estate agents negotiated a lower sale price to account for the shorter lease.

For other leaseholders, lease length can be crucial. Claire Smith considered a flat with 50 years left on the lease. Since she didn’t plan to stay in the area for more than five years, the ability to resell was very important to her.

Claire used the LEASE calculator to check the cost of a lease extension. The estimated price was much higher than she was willing to pay. With this information, she decided not to buy the flat.

What is classed as a short lease property?

A short lease property typically has 70 years or fewer remaining. The shorter the lease, the less the property is worth. Despite this, properties with leases of five years or less can still be sold, especially in urban areas where there are more leasehold flats.

If you’re thinking about buying a flat with a short lease, it’s crucial to research both the laws around purchasing short-lease properties and the specifics of the property itself. This will help you fully understand what you are committing to.

Extending a short lease

Leaseholders have a legal right to extend their lease by 90 years after living in the property for two years. If you’re buying a property with a short lease, waiting another two years before you can apply for an extension isn’t ideal.

If the previous owner has lived in the property for at least two years, you can ask them to serve a statutory notice to extend the lease as a condition of the sale. This notice can be transferred to you once the purchase is completed.

Benefits of buying a property with a short lease

Flats with short-term leases can be appealing to retirees and those without dependents, as they may not need to leave an asset behind.

These properties are also attractive to buy-to-let investors, who can recoup their investment by renting out the flat for the remaining lease duration before the lease eventually reverts to the freeholder.

Risks associated with a short-term lease

Short-term leases often occur when the owner can’t afford to extend their lease, and they are typically found in less affluent areas. These properties often need extensive, costly refurbishments before they are habitable.

You also need to consider the cost of ground rent and maintenance fees, which can be substantial. Even if you plan to let the lease run down without renewing, there are many other costs involved.

The main risk with a short lease is that it’s much harder to sell. As the lease shortens, the property’s value declines. This makes it less appealing to buyers and mortgage companies. Most lenders won’t provide mortgages for properties with leases under 70 years, limiting the market to cash buyers.

What happens if a leasehold runs out?

If a leasehold expires, the property reverts to the freeholder, who then regains full ownership. This means you no longer have tenancy rights. However, you don’t need to leave immediately unless you or the landlord end the agreement under the lease.

You do have the right to extend the lease, but it’s important to note that the cost increases as the lease gets shorter.

Getting a mortgage on a flat with a short lease

Securing a mortgage for a flat with a short lease is very difficult. The available loans are usually through specialist lenders who charge higher interest rates due to the high risk involved.

If you can, it’s better to be prepared to pay cash for the flat to make the investment worthwhile.

Strategies to Create a Flexible Long-Term Lease Agreement

While short-term leases come with their challenges, there are simple steps to establish a flexible, long-term lease agreement that suits your organization’s corporate real estate strategy.

Incorporate an early termination clause. This clause allows tenants to terminate their lease after a specified time by paying a predetermined fee. Typically, this fee compensates the landlord for unamortized lease-up costs like tenant improvements and brokerage commissions.
Include subletting and assignment rights. These rights enable tenants to sublease all or part of their space if they need to relocate before the lease ends. The clause outlines restrictions and the landlord’s approval process. It’s crucial for both parties to agree on acceptable terms rather than relying solely on common law principles.
Explore other flexibility options. Beyond short-term leases, negotiate lease renewal options, right of first refusal, right of first offer, expansion, and contraction options to tailor the lease to your organization’s needs.