Short leases

Q: I’ve managed to find a property that seems a bargain; the catch is that it has a short lease. What’s your advice on this as a viable option?

A: Genuine bargains rarely exist in central London so, if the property seems cheap, there’s usually a reason.

A short lease is a major sticking point as it will come with costs attached to it. Firstly, many mortgage lenders won’t lend on a property with a lease length of less than approximately 55 years, any less than this and it’s normally only 100% cash buyers who can purchase.

If a lease length is above 80 years, it is much cheaper to extend as you’re generally only paying for legal and survey costs. If the lease is below 80 years, you’re considered to be adding value to the property and you have to pay a ‘marriage value’ which can be very expensive. We’ve bought properties for clients over the years with shorter leases and the cost can range from around £5,000 to more than £1,000,000! Therefore, you need to do your sums. The difficulty is that you can rarely guarantee the exact cost of the lease extension and accompanying legal and survey fees. There is usually an element of negotiation, so if every penny of your budget really counts, you need to build in quite a generous contingency buffer.

If you are happy to go through the lease extension process, my main piece of advice is not to rely on any estimate given to you by the selling agent. Always verify the approximate cost with an independent enfranchisement surveyor who should be able to give you a desktop valuation based on certain information, such as the purchase price, ground rent amount, square footage and so on.

Once you know more about the cost of extending the lease, you can then look at the purchase price again and assess whether the property is a genuine bargain or not. If not, start negotiating armed with your lease extension cost estimate and see how you get on.

If you have a question you’d like Jo to answer please email or tweet her @joeccles.