Buying a Flat with a Short Lease

Section 42 notice when buying a flat with a short lease

Buying a flat with a short lease is risky unless you instruct a leasehold solicitor who can help to remove the risk with a section 42 notice. With over four million leasehold flats, leasehold is the most common form of flat ownership in England and Wales. Our previous blogs have looked at the lease extension process and also the recent leasehold consultation. Now we look at the process of buying a property with a short lease. When looking to buy your own leasehold property, the biggest trap can be buying a flat with a short lease. A short lease is anything around the 80-year mark or lower. This can lead to problems such as the property becoming unmortgageable and unsellable in the future. This is because the premium for extending the lease drastically shoots up into the tens of thousands of pounds once the lease becomes shorter than 80 years (marriage value) and lenders are hesitant to give mortgages on properties with such short leases. As a potential buyer, you can take action by negotiating a purchase price that reflects the expected statutory premium (including marriage value if the term is 80 years or less at the valuation date) and both parties’ “reasonable” legal and valuation fees, as well as the timing/risk involved in extending after completion.

Since removal of the historic two‑year ownership requirement for qualifying claims, a buyer can generally commence a statutory claim immediately after purchase. Pricing should therefore reflect the costs/risks the buyer will bear post‑completion, instead of relying on pre‑sale assignment mechanics. Where speed or funding is an issue, short‑term bridging finance can be used to complete the purchase and then extend/remortgage once the lease term has been remedied.

IMPORTANT UPDATES

Leasehold and Freehold Reform Act 2024

The introduction of the Leasehold and Freehold Reform Act 2024 (LAFRA) is set to bring significant changes for leaseholders and property owners across England and Wales. The Act increases the statutory lease extension term from 90 years to 990 years, abolishes marriage value, and ensures that all extended leases carry only a peppercorn (£0) ground rent. In addition, the Government has proposed introducing a £250 per annum cap on ground rent for existing leases. This cap is intended to protect leaseholders who still pay ground rent under historic leases that predate the Leasehold Reform (Ground Rent) Act 2022. The proposal has not yet come into force, but once implemented, it will apply only to existing leases that continue to attract ground rent, ensuring no leaseholder pays more than £250 annually. New or extended leases will continue to be restricted to a peppercorn (£0) ground rent. Once the Act comes into force, it is expected to impact the overall cost of extending a lease, potentially making the process more affordable for many leaseholders.

However, as some legislation has not yet taken effect and the detailed regulations are still awaited, we cannot provide definitive advice on its practical impact until the final provisions are implemented.

For a detailed overview of the Act and future updates, read our blog: The Leasehold and Freehold Reform Act 2024.

Can I buy or sell a leasehold property and extend the lease simultaneously?

Indeed, it is possible to arrange for the lease to be extended simultaneously with completion on the purchase. This way, there will be no need to wait for the lease extension to be completed before completing on a purchase, plus the newly-purchased property can be structured to satisfy the mortgage lender’s requirements for the term of the leasehold property. To simultaneously extend the lease (statutory or informal) and complete on a purchase, you need efficient leasehold solicitors experienced in lease extension and leasehold conveyancing to ensure the lease is extended in time for completion. At Starck Uberoi, we offer an efficient and comprehensive leasehold conveyancing service and can ensure your lease extension is completed in time.

Informal Lease Extensions When Buying a Flat with a Short Lease

In some cases, it may be possible to agree an informal lease extension directly with the freeholder rather than taking the statutory route under Section 42. An informal extension allows the buyer and freeholder to negotiate the length of the new lease and the premium payable, without relying on the statutory formula. This approach can sometimes be quicker or less expensive, provided that both parties act reasonably and the freeholder does not impose onerous conditions. However, because informal agreements offer no statutory protection, buyers should always have the terms reviewed by a specialist lease extension solicitor and chartered surveyor before proceeding. Care must also be taken with ground rent: if the deal is documented as a new grant (surrender and regrant), the 2022 ground‑rent rules will generally require a peppercorn for most new “regulated” long residential leases; a pure variation can leave the existing rent in place unless expressly amended. Lender acceptability must be checked in advance. Where lenders permit, an informal extension may be completed in close proximity to the purchase, but careful sequencing and lender consent are essential.

How much does it cost to extend a lease by way of a Section 42 notice?

Generally speaking, it will usually cost around £1,900 plus VAT plus disbursements to extend a lease by way of a section 42 notice. However, the fee will vary depending on the particular transaction. The legal fees for a statutory (section 42) lease extension will depend on complexity (competent landlord, intermediate interests, disputes/Tribunal), the landlord’s “reasonable” legal/valuation costs (payable by the leaseholder under the statutory regime), Land Registry/post‑completion work and any lender requirements. Alternatively, if you are able to negotiate an informal lease extension with the freeholder, our legal fees are generally around £1,250 plus disbursements for such matters. With an informal lease extension, the leaseholder and freeholder can agree on a premium, length of extension and the terms of the extended lease between them.

Do You Pay Stamp Duty on a Lease Extension?

In most cases, you won’t need to pay Stamp Duty Land Tax (SDLT) on a lease extension, especially if you’re not paying a premium for a share of freehold. SDLT generally applies only when the premium is £40,000 or more and the property isn’t your main residence. For buy-to-let or investment properties, SDLT is usually charged at 3% of the premium.

If the lease extension premium is below £40,000, no SDLT is due—but if it’s over £40,000, you must still submit an SDLT return, even if no tax is payable. Always check with your conveyancer, as SDLT thresholds and rules can change.

Limited companies and SPVs may face additional stamp duty liability. Even without paying a premium, SDLT could still be based on the market value of the lease extension. Our specialist SPV conveyancing solicitors can help you understand your SDLT position and manage your lease extension smoothly.

Should the seller complete and register a lease extension before I buy the property?

You might prefer the lease extension to be complete before you purchase the property and  arrange for the seller to complete the lease extension process themselves. However, a lease extension takes several months to complete so this would postpone the sale. Furthermore, the seller may not have the funds to carry out a lease extension, which is why they are selling at a reduced price. In this situation, it may be better to try and arrange an informal lease extension with the freeholder. Informal lease extensions can be faster to obtain and sometimes even be cheaper than a formal lease extension, although there are pitfalls you will need to look out for such as onerous terms.  It is always advisable to obtain advice from a solicitor and surveyor and if agreement cannot be reached then a section 42 notice can be served without delay.

Lease Extension for Share of Freehold

Most leases are extended by either serving a section 42 notice on the property’s freeholder or by negotiating an informal lease extension with the freeholder – but what do you do if you own a share of the freehold yourself?

Most share of freehold property owners will extend their lease by way of an informal lease extension, which means they will agree on the length, premium and terms of their lease extension with the other freeholders. You do not need to meet any statutory requirements to extend your lease informally and can extend your lease by up to 999 years for no premium (assuming your fellow co-freeholders agree to let you do this).

However, you and co-lessees could find yourself in a position where the length of your respective lease terms vary and therefore in theory the premiums payable would also vary particularly where some leases are over 80 years and others have less than 80 years to run. Disputes can also occur where some lessees have in the past paid a premium to their freehold company to extend their leases and now feel justified to demand that other lessees, who did not participate at the time, should also do so when later requesting an informal lease extension. In these situations, it is helpful for all parties to use our lease extension calculator to assess whether they can reach a compromise. In the event they cannot do so, the lessee is still entitled to follow the statutory procedure by serving a section 42 notice on the co-freeholders or freehold company in which they hold a share. We are happy to advise you on these contentious matters should the need arise or handle the transaction where agreement is reached. Where you have a mortgage, it is important to note that you will require your lenders consent and we can help in this regard being on the panel of almost all UK lenders.

Can executors serve a section 42 notice on a probate sale?

A probate sale is where the executor of the deceased’s estate sells the property. If the property is still in the deceased’s name, the executors can serve the Section 42 notice on behalf of the estate, enabling the buyer to take advantage of the statutory lease extension process immediately.

Can a Lease be extended on an Auction Property?

In short, yes, it is. At an auction, once the bid is accepted, you have effectively exchanged contracts. Therefore, any questions relating to the lease extension need to be asked before you go to the auction room and bid. The seller needs to have offered to serve the notice in the ‘special conditions’, which will be outlined in the auction information. It’s worth noting that for auction properties with short leases, buyers may be able to negotiate a lower purchase price to reflect the cost of the lease extension premium likely to be payable soon after completion.

What can I do if I want to sell my short lease property?

If you are trying to sell a short lease property, there are a couple of ways you may be able to make your sale easier.

Lease Extension Calculator

If you are looking to buy a property with a short lease, you need to obtain a valuation for the lease extension premium. You will need a valuation carried out by a surveyor specialising in statutory lease extensions to start the lease extension process. It is also essential to have a surveyor because they can estimate the price you will likely end up paying for the lease extension and give you the right price to offer when serving the Section 42 notice. Offer too little and the landlord can reject the claim, which could mean ending up in a first-tier tribunal. Offer too much and you end up overpaying for the lease extension. Starck Uberoi can put you in touch with surveyors we trust and you can use the lease extension calculator which has been coded by a firm of chartered surveyors.

What if the lease must be extended on completion of the purchase to comply with mortgage lender minimum lease terms?

This might be the case for properties where the years left on the lease has dropped so low that you are struggling to secure a mortgage to buy the property. This is because most banks refuse to mortgage properties with lease terms below 65 years.

To see what minimum lease term these mortgage lenders accept, see our blog on short lease mortgages. Should this be the case, you could request that the completes the transaction on the same day as the lease is extended, which could take a few months. If the lease extension is due to be completed on the day you are to complete on the sale, the lender is more likely to agree to grant you a mortgage.

If the seller is unable to extend the lease in time, you may need to negotiate an informal lease extension with the freeholder yourself. With an informal lease extension, you could negotiate the premium you would pay for the lease extension and the terms of the lease on an informal basis, without using the typical formula usually used to calculate statutory lease extension premiums.

Be wary, however, of the terms the freeholder proposes should you take the informal route. As of 30th June 2022, most new “regulated” long residential leases must be peppercorn rent (subject to limited exceptions); statutory extensions of flats are peppercorn for the extended term in any event.

Bridging loans for short‑lease purchases

Where a short lease prevents mainstream lending, a short‑term bridging loan can allow you to complete the purchase now and fund the lease extension, then remortgage onto a mainstream product once the term is remedied. Bridging is typically for 6–12 months, with interest rolled up and arrangement/valuation/legal fees payable; lenders require a clear exit strategy (e.g., remortgage or sale) and may take a first or second charge. You will need the current lender’s consent for any additional charge and to confirm works/extension milestones. At Starck Uberoi, we liaise with your broker and the bridging lender to align legal conditions, protect timelines and ensure the exit (remortgage) is deliverable.

Can I get a mortgage on a flat with a short lease at auction if I can’t get a lease extension in time?

If all else fails, there are some bridging lenders that may be willing to lend on flats with short leases remaining and we can put you in touch with mortgage brokers who will be able to assist. You can read more about auction conveyancing in our blog Auction Property Conveyancing and you may wish to read out blog about bridging loan conveyancing .

How Starck Uberoi can help

Starck Uberoi’s experienced leasehold solicitors can help you with your leasehold arrangements, from buying your first flat to extending your lease.  For more information please contact us either by visiting our Conveyancing or Lease Extension pages. To book an appointment, please call 020 8840 6640 or email solicitor@starckuberoi.co.uk.

Our Offices

Our Brentford solicitors, are located on the High Street in a grand three-story building, just a short distance from Brentford County Court. Our Belgravia solicitors are located Just a 5-minute walk from Victoria tube station in Grosvenor Gardens. Our Ealing solicitors are only a short walk from both Ealing Broadway and South Ealing and our Richmond solicitors have the pleasure of overlooking the picturesque Richmond Green.  Finally our solicitors in Canterbury are located in the UNESCO World Heritage Site of Canterbury Cathedral.

Our partner, Raminder Uberoi, can also provide a Notary Public service from any of our London offices.

For a lease extension cost, please visit our lease extension calculator.