11 things you should know about selling with a short lease

The most recently published Land Registry data revealed 24% of residential property sales in 2022 were leasehold – that equates to around 207,000 transactions in total. If you own a flat or apartment, it’s highly likely you will have a leasehold agreement.

While everyday living as a leaseholder is the same as that of a freeholder, there are differences when it comes to selling – especially if you have a short lease.

Here are 11 things you should know about if your lease has less than 80 years left to run

1. Earlier in 2024, HM Land Registry reported there were 5.4 million leasehold properties in England and Wales and 1.2 million of those will need to extend their leases in the next 10 years.

2. A lease is considered short if it has less than 80 years left to run. Most leases are for anywhere between 99 and 125 years.

3. A short lease means the property’s value falls every day the lease is not extended. The shorter the lease, the less valuable the property. When it comes to valuing a property, the lease length will be taken into account. Sellers can expect a below-market-valuation if the lease is less than 80 years in duration.

4. Buyers who need a mortgage may have to avoid properties with short leases. This is because many mortgage lenders typically won’t lend against a property with a lease of less than 75 years.

5. Leaseholders can pay to increase the length of their lease ahead of a sale. This will make the property more attractive to buyers and increase the home’s value.

6. If a lease is not extended and it is left to run down to zero, the property returns to the freeholder and the occupier has no legal right to remain in the property or sell it.

7. If the lease to be extended has less than 80 years to run, marriage value will apply. This is an amount paid by the leaseholder to the freeholder, equivalent to 50% of how much the home’s value has risen after the lease has been extended.

8. Leaseholders can apply to buy the freehold but permission will not always be granted, and not all leaseholders are even eligible to buy the freehold. For example, a freehold will be unavailable to buy if the building contains less than two flats or more than a quarter of the building is used for non-residential purposes. In blocks, at least half of the flats in the building should want to buy the freehold for it to be viable, and at least two thirds of the flats needs to be owned by leaseholders who own long leases.

9. When in full effect, the Leasehold and Freehold Reform Act 2024 will make it easier, cheaper and quicker to extend leases and buy freeholds. Additionally, the standard lease extension term will rise to 990 years, marriage value will be abolished and leaseholders will be able to reduce their ground rent to a peppercorn (£0) by extending their lease or pursuing a new legal right to buy out the ground rent. The reforms, however, are not expected to take effect until 2025/2026.

10. There are very few leasehold properties in Scotland. The Abolition of Feudal Tenure (Scotland) Act 2000 and the Tenements (Scotland) Act 2004 ended what were known as feuhold (the Scottish term for leasehold) properties. The Long Leases (Scotland) Act 2012 also mandated that any remaining long leases over 175 years were to be converted to outright ownership.

11. Back in England and Wales, the Leasehold and Commonhold Reform Bill is a forthcoming legislation brought forward by the new Labour Government. Although it will stop short of the reforms seen in Scotland, it should further strengthen leaseholders’ rights and reinvigorate the commonhold tenure.

If you have a short lease and are considering selling your property, please contact us for advice.