If you are selling a property with a short lease the buyer may wish to extend the lease as part of the conveyancing process.
Is it possible to sell a property with a short lease?
If you are selling a property with a short lease there will be a smaller market for the sale of the property and you may only be able to sell to a cash purchaser or a purchaser who is willing and able to secure short term finance whilst the lease is extended.
Your property may be a good investment for a potential buyer who factors into the purchase price the cost of the lease extension and is willing to go through the lease extension process. For you, this will mean selling the property subject to a reduced sale price to reflect the short lease, however it will save you going through the lease extension process yourself and sourcing the funds to pay for the lease extension before you can sell your property.
What will the terms of the lease extension granted to my buyer be?
You can compel your landlord to grant you a lease extension provided that you qualify to make a statutory lease extension claim and once you start the claim, (which maybe simultaneously with the sale) you are entitled to assign the claim to your buyer. When you use the legal provisions to force your landlord to grant you a lease extension, you/your buyer will be entitled to an additional 90 years on top of the existing term of the lease plus your ground rent will fall to nil (also known as ‘a peppercorn’) from the date that the lease extension is completed.
For example, if you have a lease with 52 years remaining when you serve the lease extension notice, then once the lease extension has been completed, your buyer will have a lease with a 142 years term and will not need to think about extending the lease again in their lifetime. In addition, the ground rent will be abolished so there will be no ground rent payable for the remaining 142 years.
Do I qualify to make a statutory lease extension claim?
To qualify you must meet the following conditions:-
- You must have owned the property for two years before a lease extension claim notice can be served on the landlord; and
- The flat must be held under a long lease (a lease which was originally granted for a term of at least 21 years); and
- The lease must be a residential lease of a flat (not a business or commercial lease).
What is the cost of extending the lease?
Depending on what has been agreed between you and your buyer, usually the buyer will be responsible for all of the lease extension costs which will be comprised of the following:-
- Premium – this is the payment that will be made to the landlord in consideration for the grant of the lease extension. A specialist lease extension valuer will need to be instructed at the outset to advise you of the estimated cost of the lease extension, the initial offer premium to put forward to the landlord and to negotiate the premium on your/your buyer’s behalf to ensure the lowest possible premium is paid.
- Your/your buyer’s costs – this will include the cost of your/your buyer’s solicitor and your/your buyer’s valuer, plus any disbursements, for example, Land Registry fees, Tribunal fees, bank charges, stamp duty, etc.
- The landlord’s reasonable costs – this will include the reasonable costs of the landlord’s solicitor and valuer, plus any of the landlord’s disbursements in connection with the lease extension procedure. It is important to note that you/your buyer are not responsible for any of the landlord’s costs in connection with negotiating the premium or any protracted negotiations in respect of the terms of the new lease. If the matter is determined by the Tribunal then you/your buyer will not be responsible for the landlord’s costs in connection with any preparation or attendance at the Tribunal hearing.
- Administration costs – if there is a third party to the lease, such as a management company, then they may charge a small fee for arranging to approve and sign the lease on behalf of the third party.
In addition, the landlord is entitled to request 10% of the premium offered to them in the initial notice as a deposit at the outset of the lease extension. This will be deducted from the final agreed premium on completion of the lease extension or if for any reason the lease extension does not complete, then the landlord may deduct their reasonable costs from the deposit and then must return any balance to you/your buyer.
How long will it take to extend the lease?
We usually estimate that the procedure will take 6-12 months from the service of the initial notice to completion of the lease extension.
It is important to note that once the offer notice is served on the landlord to commence your claim the valuation date is ‘crystallised’. This means that the premium payable to the landlord is calculated in accordance with this fixed date (and the term that is left on the lease on this fixed date). Therefore, it does not matter if the lease extension claim takes a year to complete, the premium is calculated based on the number of years left on the lease when the notice is served on the landlord and not when the lease extension completes.
What is the procedure for selling a property with a short lease?
Once instructed, we will send the initial draft papers to the buyer’s solicitor, which comprises the title documents for the property including the lease, the Property Information Form, Leasehold Information Form and Fittings and Contents Form (which need to be completed by you as the seller) and management and service charge information. The buyer’s solicitor will then submit any relevant searches and raise enquiries.
Once all enquiries have been answered, the buyer’s solicitors have concluded their due diligence and have approved the contract you will then sign the contract in readiness for exchange of contracts. On exchange of contracts the agreed completion date will be entered into the contract and a 10% deposit will be paid to us to hold in our client account for completion.
On the day of completion, the buyer’s solicitor will transfer the completion monies to us and the buyer can then collect the keys to the property from the estate agent.
For further information about the conveyancing procedure and our associated fees, please see below:-
Lease Extension Procedure
Simultaneously with the conveyancing process, we will prepare the section 42 notice (the formal offer notice) which will be approved by the buyer’s solicitor and signed personally by you as the seller. We will also prepare a Deed of Assignment which is the Deed to assign the benefit of the lease extension claim from you to the buyer.
Between exchange of contracts and completion of the purchase, the lease extension procedure is formally commenced by the seller serving the formal offer notice on the landlord offering the premium that they are willing to pay for the lease extension. The premium offered will be advised by your/your buyer’s specialist lease extension valuer and must be a realistic offer. The formal offer notice will provide a deadline for the landlord to respond with a counter-notice which will be at least two months from the date the landlord receives the offer notice.
The Deed of Assignment will be signed by both the seller and the buyer and completed simultaneously with the sale of the property to assign the lease extension claim to the buyer. Following completion of the sale, the Deed of Assignment and Transfer Deed will be served on the landlord by the buyer’s solicitor and the buyer’s solicitor will take forward the lease extension to completion.
There will be special provisions included in the sale contract and Deed of Assignment to ensure the buyer pays all the costs of the lease extension, the deposit and premium itself.
How can LEASE Law assist you?
LEASE Law are specialist solicitors who can act on your behalf in respect of both the conveyancing and the lease extension when you sell a property with a short lease. By instructing us you will guarantee that one solicitor will act on your behalf in respect of both matters to ensure a smooth and swift sale. In the vast majority of cases, we are able to offer a fixed fee for acting for you in the sale and the lease extension.
The work that we will carry out for you will include preparing the draft contract pack consisting of the property information forms, title documentation, your lease and management and service charge information, replying to enquiries, preparing for exchange of contracts, completing the sale, preparing and serving the initial offer notice and deed of assignment and serving the initial offer notice on the landlord in respect of the lease extension. We will also liaise with your/your buyer’s valuer as necessary.
We can recommend specialist lease extension valuers who have extensive experience and expertise in this area to ensure that the premium that you/your buyer pays for the lease extension is as low as possible. The valuer will provide you with an initial report which will advise you/your buyer on the premium that you can expect to pay following negotiations and will also recommend the offer premium to put into your initial offer notice. The valuer will also negotiate the premium with the landlord’s valuer on your/your buyer’s behalf following the service of the initial notice.
Please contact Jade Wilson (firstname.lastname@example.org or 0204 511 9100) or Joanna Botley (email@example.com or 0204 511 9101) for a no obligation discussion about your potential sale of a flat with a short lease.