What Are Short Leases On Property?

Nikka Sulton

What Are Short Leases On Property?

If you’re on the lookout for a flat, chances are you’ve encountered properties with enticingly low prices due to short leases. However, the affordability of these properties may raise questions about their long-term value and potential savings.

Buying a flat with a short lease may seem appealing initially, but it prompts important considerations. Can the lease be extended? Are there hidden costs associated with lease extension? These queries highlight the need for thorough assessment before committing to a purchase.

In this post on short lease properties, we delve into the complexities of this type of investment. By addressing common concerns and exploring potential solutions, we aim to equip you with the knowledge needed to navigate the market confidently.

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.

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.

Can a property lease be extended?

Certainly! Property leases are extendable. However, extending a short lease isn’t always a straightforward process.

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.

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.

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.

So, is a short lease property worth the aggravation?

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.