Purchasing a home or investment property can be complicated, and it becomes even trickier with a short leasehold. While these properties can offer tempting price reductions, they also come with certain risks and potential costs. In this guide, we explain what a short lease property is, its pros and cons, and whether it’s worth the investment.
What is a lease?
A lease is a legal agreement between a property owner (the freeholder) and the leaseholder, giving the leaseholder the right to use the property for a set number of years. In leasehold arrangements, you own the property for the duration of the lease but not the land it stands on. When the lease expires, ownership of the property typically reverts to the freeholder unless you extend the lease.
Learn more in our full guide to what is a lease in the UK.
What is considered a ‘short lease’?
In the UK, a lease is typically considered short if it has fewer than 80 years remaining. Mortgages can become harder to obtain as a lease term approaches or falls below this threshold. Renewing the lease can also become significantly more expensive due to marriage value, a premium owed to the landlord when extending a lease with less than 80 years left.
Leases of 60 years or less are often deemed very short and may deter buyers entirely. Some lenders will only consider financing properties with a lease exceeding a minimum term.
Advantages of buying a short-lease property
While short-lease properties carry risks, they also have a few unique benefits:
1. Lower purchase price
One of the biggest draws of a short-lease property is its significantly reduced market price compared to similar properties with long leases. Sellers often lower the asking price to compensate for the shorter lease. This makes properties with a short lease more accessible to first-time buyers or investors with limited budgets.
For buyers looking to enter the property market or purchase in a desirable area they couldn’t otherwise afford, this discount can be a gamechanger. A lower upfront cost also means lower stamp duty fees, reducing the overall purchase expenses.
2. Higher return on investment with a lease extension
If you purchase a short-lease property and successfully extend the lease, the property’s value can increase substantially. For example, a flat purchased with a 65-year lease will typically rise in market value once extended to 155 years (adding the standard 90-year statutory extension). This can make short-lease properties an excellent investment opportunity for buyers willing to navigate the lease extension process.
3. Potential for negotiation with the freeholder
Freeholders may be more open to negotiation when selling properties with very short leases. Especially in cases where the freeholder wants to liquidate assets or simplify the ownership structure. This creates an opportunity to purchase both the leasehold and the freehold, providing full ownership of the property.
4. Ideal for cash buyers
For cash buyers, the difficulty of obtaining a mortgage on a short-lease property is irrelevant. If you have the funds available, you can take advantage of a lower purchase price. You can then increase the value of the property by extending the lease or use the property as a rental investment.
Risks of buying a short-lease property
Short-lease properties come with notable downsides that should be carefully considered:
1. High cost of lease extension
The shorter the lease, the more expensive it can be to extend. When a lease falls below 80 years, marriage value comes into play. Marriage value represents the increase in property value created by extending the lease, and the freeholder is entitled to 50% of this amount.
For example, extending a lease with 75 years remaining may cost tens of thousands of pounds, depending on the property’s value and location. If the lease term drops even further, costs can rise significantly. You’ll need to factor these potential expenses into your total budget.
2. Difficulty securing a mortgage
Most lenders have minimum lease length requirements. A common threshold is 70–80 years, and if the lease falls below 60 years, many mainstream lenders will refuse to offer a mortgage altogether. Even if you can find a lender, you may face stricter terms, such as a larger deposit or higher interest rates.
3. Property value decreases as the lease shortens
As a lease term gets shorter, the property’s market value diminishes. If you don’t extend the lease, the property will continue to lose value, making it harder to sell later on. This creates a ticking clock for leaseholders to act before the remaining term falls too far. You can learn more in our guide to how much a short lease devalues a property.
4. Potential legal complications
The process of extending a lease or buying the freehold can be complex, requiring professional advice from solicitors and surveyors. You’ll need to comply with the Leasehold Reform Act, negotiate with the freeholder, and may need to deal with disputes. These complexities can add stress and cost to the transaction.
5. Limitations on property modifications
With a short lease, your ability to make significant changes to the property may be restricted. Many leases contain clauses requiring freeholder approval for renovations or structural alterations, which could delay or prevent your plans to update the property.
Can you still get a mortgage with a short lease?
It is possible to secure a mortgage on a short-lease property, but it depends on the lender’s policies and the length of the lease remaining.
Is there a minimum length for a mortgage?
Most lenders prefer a lease length of at least 70-80 years at the start of the mortgage. They also typically require that the lease will still have 30-40 years remaining at the end of the mortgage term.
💡Editor’s insight: “There are a range of specialist lenders who offer alternative financing options for buyers of short term leases. If you can’t secure a mortgage, or prefer to purchase a leasehold property as a cash buyer, consider negotiating a lease extension as part of the purchase agreement to secure your investment.”
Can a short lease be extended?
Yes, lease extensions are possible under UK law. Leaseholders of residential properties generally have the legal right to extend their lease by 90 years, provided they have owned the property for at least two years.
Key points about extending a lease:
Costs: The cost depends on the current value of the property, the length of the lease, and other factors, including marriage value for leases below 80 years.
Negotiations: You can negotiate directly with the freeholder or follow a statutory process through a solicitor if an agreement cannot be reached.
Many buyers arrange for a lease extension to be included in the purchase price to avoid future complications. When in doubt, contact a dedicated lease extension solicitor for legal help.
Is a short leasehold property worth it?
The decision to buy a short-lease property depends on your financial position, willingness to navigate the lease extension process, and future plans for the property. It may be worth it if:
You can secure a lower price and afford the lease extension.
The property offers a good investment opportunity.
You have legal advice to guide you through the process.
However, without proper research, the risks can outweigh the potential benefits.
FAQs
What’s the difference between a short and long leasehold?
A long leasehold typically lasts between 99 and 999 years, while a short leasehold usually refers to leases with less than 80 years remaining. A long lease provides more security and is easier to finance.
Is it risky to buy a flat with a short lease?
Yes, buying a flat with a short lease carries risks, including higher extension costs, difficulties in securing a mortgage, and reduced property value. Proper financial planning and legal advice can help mitigate these risks.
Is 99 years considered a short lease?
No, a 99-year lease is generally considered a long lease. However, as the term decreases, it will eventually become a short lease when it drops below 80 years. You can learn more in our guide to is a 100-year lease enough?
Final thoughts
Buying a short-lease property can be a smart investment, but it requires careful planning. Understand the costs involved, explore financing options, and seek professional advice from a property solicitor to ensure the investment aligns with your long-term goals. A short leasehold can be worth it - if you know what you’re getting into.
