If a lease has less than 85 years left, it’s a signal to proceed with caution. This is because once the lease drops below the 80-year mark, the cost of extending it increases significantly due to the inclusion of “marriage value” in the calculation. Leases with fewer than 70 years remaining often pose challenges in obtaining mortgages, making it imperative to approach the purchase of such properties with careful consideration.
Therefore, before putting your property on the market, it’s essential to have your lease thoroughly reviewed by a professional. This step ensures that you fully understand the implications of the lease length and any potential obstacles it may present in the sale process. Taking proactive measures to address lease concerns upfront can help streamline the selling process and avoid complications down the line.
What are leases anyway?
In brief, a lease serves as a contractual agreement between property owners and tenants, providing occupants with a designated residence for a specified duration in exchange for rent payments. This legal document ensures both parties fulfill their obligations: tenants have accommodation, while landlords receive compensation as agreed upon.
Given their legal significance, leases demand careful consideration and adherence. They establish rights and responsibilities for both landlords and tenants, dictating terms such as rent amount, duration of occupancy, and maintenance responsibilities throughout the tenancy.
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What is considered to be a ‘short’ lease?
Essentially, leases with a duration below 80 years are categorized as short leases. Despite the seeming length of 80 years, it marks a crucial threshold in lease terms, often termed the ’80-year rule’.
When a lease dips below this mark, expenses related to its extension notably surge, primarily due to the onset of marriage value, which entails the increased value resulting from a lease renewal.
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Can a property lease be extended?
Certainly! Property leases are extendable. However, extending a short lease isn’t always a straightforward process.
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Do I have to extend a short lease?
No, you don’t have to, but in most instances extending a short lease is beneficial. Landlords who are looking to simply draw off rental charges for the next few decades without worrying about the lease reverting back to the freeholder once the lease expires. Those who have no dependants to pass an inheritance on to, or retirees who are confident that the lease will outlast them in their final few years and don’t want to lay out big sums of money unnecessarily.
There are no right or wrongs here, but unless you fit into the categories mentioned above, it’s likely that you’d be far better off extending the lease now rather than later or not at all.
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Getting a mortgage when buying a flat with a short lease
Extending a lease becomes challenging when it falls below the 80-year mark, and especially so if it’s dwindled to 55 years or less.
While some specialized lenders might offer solutions, expect higher interest rates due to the perceived risk involved with short lease properties.
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Is it possible to get the seller to extend the lease for me?
Yes, it’s feasible and frequently the optimal choice.
However, there’s a condition: the seller must have possessed the property for at least two years to qualify for a statutory lease extension.
If they meet this requirement, they can serve the initial notice to the freeholder, and then assign the notice’s advantage to you. This circumvents the two-year ownership prerequisite linked with statutory lease extensions.
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So, is a short lease property worth the aggravation?Â
Like many property-related matters, the decision varies based on personal circumstances. While some may find it the sole choice, others might deem a short lease property more hassle than it’s worth.
Yet, one fact remains: short lease properties can prove advantageous in the long run, though they may entail temporary challenges before yielding benefits.
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