Should I extend my lease before selling?

Leases and their effect on home prices

In the United Kingdom, most of the flats on the market are leasehold and there are also many houses that are leasehold properties too.

80 years remaining on a lease is considered the magic number under which the value of your property starts to diminish and the premium payable to extend your lease increases more significantly. This is because marriage value becomes payable from this point in time.

The good news is that it’s entirely possible to sell your short lease property regardless of the amount of time that might be remaining on the lease. Selling through auction is often considered, however this isn’t always necessary depending on how long is actually remaining on your lease.

Is it possible to extend an existing lease prior to selling my home?

Yes, it often is. If you have been the legal owner of the house or flat for at least two years, then you are entitled to request a 90-year extension to the leasehold by serving a section 42 notice on the freeholder (we would suggest seeking professional advice before serving this notice as you become committed to certain costs from this point).

Even if you haven’t owned the property for at least 24 months you still have the ability to seek an extension to the lease, for example through negotiating with the freeholder directly. The UK Government’s website and the Leasehold Advisory Service has very useful information about the rights of both the freeholder and leaseholder.

As your lease length remaining decreases, you should strongly consider a lease extension since homes that have longer leases are deemed more valuable than those with shorter leases and indeed obtaining a mortgage can often be easier.

Pros and cons of extending your lease before selling your property

A drawback of extending a lease is that the process can be expensive, so if you’re working with a limited budget before selling then it might not be a feasible option for you.

However, if you are able to afford the steps involved with extending a lease then it could put you in a better position for making more money from the sale of your home. It is generally accepted that houses and flats that have leases with 90 or more years left are more attractive to prospective buyers and therefore could entice higher purchase offers.

Another drawback of houses or flats with leases that are shorter than circa 80 years is that mortgage lending companies might be hesitant to provide a mortgage on the property because they have concerns that the value of the building could drop. As a result, the home might not provide the security that the companies need in order to provide the financing to buy the property.

Costs involved with extending your property’s lease

As noted briefly in the prior section of this guide, trying to extend your home’s lease before selling the property could become expensive – and this is far from ideal for those owners who are trying to sell their home without incurring many more costs.

That’s why it’s helpful to get a better understanding of some of the expenses that are involved with going through the formal process of trying to get a lease extension.

You should review the information below to decide whether or not attempting to get a longer lease makes sense given your overall budget when selling, or to sell the home “as is” with its current lease duration.

A number of factors can affect how much a lease extension might cost, as noted on the website Money Super Market. Some of these elements can include, but are not limited to, the following:

• The overall value of your property
• How long is left on the current lease
• The amount you pay in ground rent
• Certain terms in your lease agreement

The above factors will be case-specific to your property, but generally the cost of seeking a lease extension typically includes a premium that you will pay to the home’s freehold owner to secure the extension and also any fees that might be part of the process.

Fees that you could have to pay when trying to extend the duration of your lease can include getting advice from your solicitor or other legal representative, paying for a surveyor’s report on extending the lease, any applicable fees to pay to the HM Land Registry, and more.

In many situations these costs can quickly add up to many thousands of pounds, and that might not work for homeowners that are trying to sell without incurring many new expenses.

If you ultimately decide against trying to extend your property’s lease before selling, don’t worry that this will make it impossible to attract buyers that will give you a fair offer.

You still have options available, for example selling to a quick home buyer such as LDN Properties. These companies are well known for making fast and competitive offers on all types of leasehold and freehold homes, including those that have short leases remaining.

There are also several benefits to enjoy when selling via this method, including that you won’t have to pay any commission, and the entire process should only take a few short weeks.

What are the steps involved in a lease extension before selling?

If you decide to extend the lease on your property before trying to sell it, it’s best to hire a legal professional who can oversee the process. It’s possible to try negotiating a lease extension directly with your freeholder, but this approach can be rife with problems and can indeed end up being more expensive.

The first step that you need to take is to serve notice on your freeholder, known as a section 42 notice. This kicks off the process to extend your lease and indeed commits you to certain costs, therefore it is essential to obtain professional advice before starting the process.

After notifying the freeholder of your interest in extending the lease, there are many more steps to take, as The Advisory explains. You will typically need to hire a solicitor that specialises in lease extensions, and be sure to choose on that belongs to the Association of Lease Extension Practitioners.

Another important step is to have a qualified surveyor assess your lease extension plan, and your solicitor will likely have a list of reputable surveyors that they can give you.

Once these initial tasks are completed you will then need to make a form offer to the freeholder of the property, after which your solicitor will negotiate with them on the exact cost of the lease extension and various conditions associated with it. Your freeholder might ask that you pay a deposit as part of the extension, and this can cost at least several hundred pounds.

You should plan on the entire process of extending your lease taking many months from the beginning to the end, and in certain circumstances it might take even more than a year. This would therefore delay a potential sale by that amount of time, which could be at odds with your selling plans if one of your main priorities is finding a buyer as fast as possible.

If that applies to your selling situation then you should consider trying to find a buyer without extending your lease, and the next section of this guide explains ways to do this – including selling to a quick buyer like LDN Properties, which should only take a handful of weeks.

Options available for selling your leasehold property

Whether you seek to extend your lease before selling or not, you will eventually have to choose how you would like to find a buyer for your home. The options are usually selling to a quick home buyer, selling at an auction, selling via an estate agent or selling on your own.

Consider making a note of your top aims with selling, such as how fast you want to find a buyer, whether you can accept paying any fees on the sale, and your ideal selling price. Then compare all of these elements against the specifics of the four options below, as this should assist you with finding out which of the selling methods best matches your needs.

Note that all four of the choices have their own drawbacks and benefits in terms of how much they might cost, their average timeline and other important issues.

Selling to a quick home buyer

Quick buyers like LDN Properties are so-called because they have the funds upfront to buy your home, with no waiting for weeks or months to first get authorised for a mortgage to afford it. This cuts the typical timeline when selling via this method down to just a few short weeks, and this covers the important last steps of paying you the proceeds and exchanging contracts.

These companies are also a great choice for selling a leasehold property regardless of how much time is left on the lease agreement, because they will make competitive and swift offers to buy almost any home no matter its age, condition, location, shape, size or type – and that includes properties that do not have much time left on the lease.

For example, LDN Properties launched in 2003 and since then it has made many varied property purchases throughout the UK that includes not only homes with short leases but also flats with a freeholder dispute, homes located near to mobile phone masts, properties situated near to an industrial estate, flats with an absent freeholder, smoker’s homes, properties with a section 20 notice, houses of multiple occupancy, houses with an absence of easement and many other scenarios.

Another important benefit of selling to a quick buyer is that they will not charge you any commission on the sale, so you can count on receiving the full sale proceeds. That compares favourably for many buyers to selling through an estate agent or an auctioneer, which are two strategies that will charge you fees that are deducted from the eventual sale proceeds.

Selling at an auction

At a property auction people have the chance to place bids of increasing value on your home, starting at the reserve price, which is the lowest value at which you accept the property can sell. The goal is to have many buyers interesting in your home so that you get plenty of bids, pushing the final sale price high.

A bid at the reserve price is a binding legal agreement to sell your home that the winning bidder can sue to enforce should you try to abandon the sale after the auction. That’s why you need to select a reserve price that should produce a profit, even after paying the auctioneer’s fees. Otherwise you risk only breaking even on the sale or possibly selling at a loss.

Expect to pay about 2.5 percent of your home’s sale price following the auction, and this fee increases your costs because it will be taken out of the auction proceeds. It pays for the work that the auctioneer does in selling your home, starting with creating and advertising a listing that describes the property and includes photographs of it, organising and hosting the auction and then overseeing the completion of a successful sale.

This can be a long process and there is a fair amount of waiting involved, including several weeks or longer between when you opt for selling this way and when the auction happens. After a sale, the buyer then has about a month to finish all their necessary steps to complete the purchase, including signing the mandatory legal documents.

If you don’t secure a lease extension before selling, it might be harder to get buyers interested at the auction. Always check with auctioneers about their track record in selling homes with a short lease, and avoid selling through anyone that lacks such experience, as this implies that they might find it hard to get auction attendees interested in your property.

Selling via an estate agent

If you are trying to avoid putting much effort into selling your home, you may want to consider selling to an estate agent because they’ll do all of the key tasks. This includes making and marketing a listing, organising viewings to give anyone interested the chance to visit your home, hearing offers and aiming to guide one to the final exchange of contracts.

For putting in this work, the average estate agent will charge you commission if they manage to find a buyer for the property. This is often within a range from 1.15 percent to 1.40 percent of the home’s final sale price, although the exact fee may be above or below this level. The charge will increase your total selling costs because it will be taken out of the sale proceeds.

Another downside of selling through an estate agent is that it can take a long time, possibly several months or even more than an entire year in some cases. And remember that someone can make an honest offer on your home but later change their mind and cancel it. This would cause the sale to fall apart, and they can do this without penalty if contracts aren’t exchanged. You would then need to begin again with seeking a buyer, delaying a sale much longer.

If you don’t secure a lease extension before selling, you might also find that some estate agents have no experience with finding buyers for such a property. This suggests that they could struggle to sell your home, so you should always inquire with individual estate agents about their past successes with selling homes with a short lease before using their services.

Selling on your own

Or you could try selling without any assistance, which requires that you take care of all the tasks needed to find a buyer. You’ll have to put together a listing, advertise it, arrange viewings, hear offers and then try to get a serious offer to the final step of exchanging contracts.

The only prominent benefit of selling this way is that you won’t have to pay any commission to an auctioneer or an estate agent when you find a buyer, which helps with reducing your expenses. But many owners who sell on their own often find that any saving they make as a result is cancelled out by the funds they need to spend on the selling process.

It can also take a long time to sell on your own, potentially many months or even more than an entire year. And note that someone can make a legitimate offer to purchase your property but then later decide against it and cancel the offer – and they can do this without penalty if you have you not yet exchanged contracts. This would in turn significantly extend your timeline for selling because you would need to start over with searching for another buyer.