Buying a Flat With Short Lease: What Is It & Is It Worth It?

 A short lease flat with an impressively small price tag may be more hassle that it is worth, no matter how desperate you are to buy.

Finding a property to make your home can be a challenge, and you may have come across a flat that appears to solve all of your buying woes. The catch? It has a short lease property. But what does that mean for you?

What is a short lease?

A flat with a short lease refers to the limited remaining term on a leasehold property. A "short" lease is subjective, sure. What is short for one buyer may not be short for another, but typically a lease with fewer than 80 years remaining is often considered to be short.

When the lease term runs its course, the value of the property tends to decrease, and there can therefore be implications for both the leaseholder and the freeholder (the land owner).

Potential buyers must be aware of the remaining lease term on a property and the implications it may have on the value of their investment, financing options, and future commitments related to lease extension.

Buying a flat with a short lease in the UK comes with its own set of challenges and considerations, so, what do you need to know?

How to manage your lease extensions

When you buy a flat with a short lease, you may have the option to extend the lease under the Leasehold Reform, Housing and Urban Development Act 1993.

To qualify, you generally need to have owned the property for two years before making an application, and it still is not certain, so any renewal or extension will come with risk.

Costs of extending leases

The cost of extending the lease can vary significantly. The cost will depend on factors like the remaining lease length, property value and ground rent.

Other factors like marriage value can suddenly raise the stakes.

This is when the remaining lease term drops below 80 years, a further element called "marriage value" is introduced into the total cost. Marriage value represents the increase in the property's value resulting from extending the lease. This can significantly increase the overall cost of lease extension.

Further to these costs, you may be responsible for the freeholder's reasonable legal and valuation costs.

It's best to consult a solicitor and a surveyor to get an estimate of the likely cost.

While the UK government has discussed various leasehold reforms, and there may be changes to the lease extension process and costs in the future, change could still be a long way off, and short leases still are a massive risk.

Why getting a mortgage is hard?

Banks and lenders may be more hesitant to offer mortgages on properties with short leases, as the property's value could significantly decrease as the lease term shortens.

If you're able to get a mortgage, you might find that the interest rates are higher, or you may need an even bigger deposit.

Why You need to Consider ground rent when buying or selling your property

Even if you are moving out of a rented property, the land your home is on still must be rented. Ground rent is a regular payment made by a leaseholder to the freeholder as a condition of the lease. Ground rent is typically specified in the lease agreement and represents a form of rent for the land on which the property is situated.

It is really important that you understand the terms of the ground rent and any service charges associated with the property. Both of these factors can have a major impact on the affordability and desirability of the property and therefore may make selling later down the line a problem.

The management of the property

Many properties come with management for the grounds, building and maintenance, particularly if they are part of an estate or housing complex. But, say you're unhappy with the management of the building, you might have the right to take over the management responsibilities from the landlord.

This is known as the Right to Manage (RTM).

However, the length of your lease will be an important factor in determining whether you can take over the RTM for your home. While it may be preferable for some, RTM is a huge amount of responsibility and can come with some serious drawbacks both practically and financially, which may ultimately lead to a decrease in the value of a flat if not maintained appropriately.

You will spend more on legal costs & advice

Extending a lease, or taking on a short term lease can lead to increased costs overall. Due to the complexities involved in buying a flat with a short lease, it's crucial to seek professional advice, but that advice of course does not come for free.

It is vital to consult a solicitor who specialises in leasehold properties, so you understand what you are in for and consider getting advice from a surveyor to understand the property's value and potential costs, to save future you as much time, money and hassle as possible in the future.

Negotiate your short lease on property

Landowners know that selling a flat with a short lease is a challenge. So, when buying a flat with a short lease, there may be room for negotiation on the price.

Sellers often recognize that buyers will incur costs to extend the lease and may be willing to negotiate accordingly, so while the property may come with more hassle than you might hope, it could be significantly cheaper. But, that cost may rack up elsewhere in years to come.

Getting a mortgage may be more challenging

Banks and lenders may be more hesitant to offer mortgages on short lease property, as the property's value could significantly decrease as the lease term shortens.

If you're able to get a mortgage, you might find that the interest rates are higher, or you may need an even bigger deposit.

Consider ground rent

Even if you are moving out of a rented property, the land your home is on still must be rented. Ground rent is a regular payment made by a leaseholder to the freeholder as a condition of the lease. Ground rent is typically specified in the lease agreement and represents a form of rent for the land on which the property is situated.

It is really important that you understand the terms of the ground rent and any service charges associated with the property. Both of these factors can have a major impact on the affordability and desirability of the property and therefore may make selling later down the line a problem.

The management of the property

Many properties come with management for the grounds, building and maintenance, particularly if they are part of an estate or housing complex. But, say you're unhappy with the management of the building, you might have the right to take over the management responsibilities from the landlord.

This is known as the Right to Manage (RTM).

However, the length of your lease will be an important factor in determining whether you can take over the RTM for your home. While it may be preferable for some, RTM is a huge amount of responsibility and can come with some serious drawbacks both practically and financially, which may ultimately lead to a decrease in the value of a flat if not maintained appropriately.

You will spend more on legal costs and financial advice

Extending a lease, or taking on a short term lease can lead to increased costs overall. Due to the complexities involved in buying a flat with a short lease, it's crucial to seek professional advice, but that advice of course does not come for free.

It is vital to consult a solicitor who specialises in leasehold properties, so you understand what you are in for and consider getting advice from a surveyor to understand the property's value and potential costs, to save future you as much time, money and hassle as possible in the future.

Negotiate if you can

Landowners know that selling a flat with a short lease is a challenge. So, when buying a flat with a short lease, there may be room for negotiation on the price.

Sellers often recognize that buyers will incur costs to extend the lease and may be willing to negotiate accordingly, so while the property may come with more hassle than you might hope, it could be significantly cheaper. But, that cost may rack up elsewhere in years to come.

Why should you research leasehold reform

As we mentioned, the UK government has been considering various leasehold reforms to address some of the issues faced by leaseholders and to keep costs in proportion. It is important that you stay updated on any changes in legislation that could affect your rights and obligations, and look into groups lobbying the government for change.

They might be able to help you.

For example, the National Leasehold Campaign is a grassroots campaign which was established to raise awareness of leasehold issues and advocate for reform. The campaign represents the interests of leaseholders across the country and has been instrumental in highlighting concerns about ground rents, lease extensions, and other leasehold-related matters.

Similarly, The Leasehold Knowledge Partnership (LEASE) provides free advice and resources to leaseholders and has been actively involved in advocating for leasehold reform. LEASE works to promote transparency, fairness, and accountability from within the leasehold system.

Really investigate the whole deal being offered

Buying a flat is a big decision, so you should conduct thorough due diligence before committing to a purchase. Review the terms of the lease, understand the building's management structure, check for any ongoing disputes or issues, and think hard about what commitments you are willing to make if a lease is shorter than you would like.

I already have a short lease property and I want to sell. What can I do?

The Property Buying Company is a cash buyer, and while we are unable to offer you 100% market value for your home, we are able to offer a service that sells your home fast, free, and securely, something many sellers with a home with a short lease may be eager to utilise. We take away the stress that selling your home can bring, simplifying the process and allowing you to relax - we will take care of the tough stuff.

Furthermore, when you sell with The Property Buying Company, you are in good hands. Don't just take our word for it, you can check out our Trustpilot, with over 1,000 reviews rating us as excellent.

For a chain and fee-free service which is quick and simple, we can help.

If you are ready to sell your home fast and without the hassle that the open market can bring, get in touch today and fill out one of our free, no-obligation forms to receive your CASH offer, which we could have in your bank in as little as 7 days.