Selling with a short lease: options & updates

Despite successive Governments promising to reform the leasehold system in England and Wales (more on that later) – and the abolition of leasehold property status in Scotland – millions of homeowners only own bricks and mortar and not the land on which the property sits.

Millions will need to extend their lease

In fact, HM Land Registry reports that there are 5.4 million leasehold properties in England and Wales. Alarmingly, 1.2 million of those will need to extend their leases in the next 10 years.

The phrase ‘need to extend their lease’ pertains to the leaseholder getting close to the end of their lease agreement. This occurs when zero years remain, with leaseholders having to hand the property back to the freeholder - without the right to sell it or rent it out.

While those leaseholders wishing to remain in their property will need to extend their lease before it expires, there is another milestone when leaseholders may wish to take action.

Short leases & property sales

Having a short lease can be a major concern when it comes to selling. How short is short? If there are less than 80 years left on the lease, the property may be more difficult to sell and there are multiple reasons why. Many mortgage lenders will not loan against a property with a short lease, which reduces the audience of buyers to mainly cash purchasers.

Secondly, a buyer of a short lease property will want a discount, knowing they will be the ones to pick up the cost of a lease extension once they have moved in. As such, leasehold properties with less than 80-years left on the lease will invite valuations below the market average.

Time your extension to avoid marriage value

The 80 year threshold is also important if you want to extend a lease. The Leasehold Reform Act 1993 introduced something called marriage value and it only applies when a leaseholder requests to extend a lease that has less than 80 years to run. Crudely put, marriage value is the value difference between the property with its short lease and the property with its lease extended, reflecting how much the home’s value has increased with a longer lease.

Once the marriage value has been established, the leaseholder has to pay 50% of this sum to the freeholder. If a leaseholder applies to extend their lease with more than 80 years left, the marriage value is nil. The moral of the story? If you’re thinking of selling, extend your lease with more than 81 years left to run.

Long leases: not as common as presumed

If analysis is to be believed, there are far more properties for sale with short leases than you would assume. An article published by Property Reporter in September 2024 claimed the average number of years left on the leases of leasehold properties for sale was just 43.3 years.

This figure drops to 24.8 years on average across the North West, with the average lease of less than 40 years in the East Midlands (33.1), Yorkshire and the Humber (38.7) and the South West (39.5).

Why do some leaseholders let their leases run down perilously low, knowing it compromises their home’s value? Many weigh up the hassle of extending their lease with the value they may lose, preferring to stay as they are and let a buyer take on the issue. Not all leaseholders can afford the costs associated with a freehold extension and some may not be able to wait for the extension process to conclude before they need to sell.

Wait for leasehold changes?

The complex nature of leasehold extensions, and how it seems to favour the freeholder, was behind Scotland’s reason to scrap its version of leasehold -  feuhold. Now England and Wales are on the cusp of leasehold reforms.

Passed into law but not enacted in full yet is the Leasehold and Freehold Reform Act 2024 - a Conservative legislation that gained Royal Assent before 2024’s election. Additionally, Labour has launched its Leasehold and Commonhold Reform Bill. Together, these reforms should make it simpler and cheaper for leaseholders to extend their leases.

Details include scrapping marriage value and making standard lease extension terms 990 years. Sellers of properties with short leases will need to consider their moving timetable, however, as the reforms are not expected to take effect until 2025/2026.

Our sales team works alongside legal experts to advise leaseholders when it comes to valuations, sales, lease extensions and the more complex leasehold elements not mentioned in this article. Contact us for guidance and a current valuation.