Many of us would think twice about buying a short-lease property. Just the sound of anything below 100 years may set off the alarm bells. Yet a growing number of specialist buyers are emerging across London.
This is according to Anita Sanford, Head of Sales at Henry & James. “Last month, we completed on an apartment on Eaton Square, Belgravia with just three years left on the lease.”
These unique properties, often located in the best addresses, are proving increasingly popular. “The apartment was only on the market for a couple of weeks and several buyers were interested. We sold the property very close to the asking price. The investor is already looking to purchase another short-lease property.”
A generation ago, many people were cautious about leases shorter than 99 years. Fortunately, a leaseholder of a property is usually entitled to extend their current lease by 90 years after owning it for a period of two years. This would normally add value to the property, as well as providing long-term security of tenure.
“However, when purchasing there is another option. The current owner can serve a Section 42 Notice so the buyer does not need to wait two years to extend. It is an option that many do consider,” adds Anita.
How much does it cost to extend a lease? The amount paid for the lease extension depends on several factors including present value, ground rent and the length of the existing lease. Generally the cost increases as the lease becomes shorter, although it is important to mention it can increase substantially when the lease drop below 80 years.
How long does a lease need to be to get a mortgage? This depends on the lender and in the past a lease of less than 65 years would not be considered by some banks and building societies. It is best to talk to a broker who specialises in short-leases and they can advise. Typically though, those who are investing in these properties are often cash buyers.
“One of the shortest-leased properties that I have sold was in Lennox Gardens, Knightsbridge,” adds Anita. “The property only had 2 years remaining on the lease and attracted plenty of the interest. This was because the purchase price was significantly reduced due to the short lease and even taking into account the cost of the lease extension there was a significant margin to be made.”
James Bailey, Chief Executive of Henry & James, also commented that the shortest lease the company have sold had 1 year and 1 month remaining and was similarly located in the Knightsbridge area.
To buy or not to buy? It is an opportunity to purchase a property in a good area and often at a reduced price hence the appeal to investors who take a long-term view; that said we have several people who have now retired who want a pied-a-terre in London.
When purchasing a short lease or looking to enfranchise a lease our advice would be to seek specialist advice on the likely premium you may have to pay. We are happy to guide people through process but there are companies set up specifically for this such as Fanshawe White (firstname.lastname@example.org) or Will Robinson (email@example.com).