Are you looking for the best flat to buy? If yes, you may have encountered the same plot, but the price is half what you expected. In such cases, the product is under a short-term lease. This article discusses the factors to consider when buying a flat with a short-term lease.
Flats sold on short-term leases are not common in the current era. Moreover, most buyers do not understand the effect or impact of buying a flat on a short-term lease. Sometimes the buyer may not be away from it until the purchasing process is sealed. Flats are the properties commonly affected by short-term leases. If you are into flats for a short-term lease, there are some things to consider to avoid being in the dark during the process. These factors will also help you determine the types of flat you want to buy in the short lease and how to benefit from it. The price is usually significantly reduced when buying a property in the short term.
What Is a Short-Term Lease?
A short-term lease is bought for a discussed time for a cheaper price. When the agreed time elapses, the ownership returns to the original owner. When the lease time is shortened, the value of the flat reduces. For example, a flat with an 80 years lease period will only have 85 percent of the full value. A lease with fifty years remaining will have a value of seventy percent of the original value. When determining how to buy a flat for a short time, the value tag on the flat must correspond to the leasing period left. If the time is short, the price is likely cheaper because the flat depreciates and vice versa.
Factors To Consider When Buying Flat on Short Term Lease
The Right to Extend
The disadvantage of buying a flat for a short-term lease is that the owner will reduce the original owner after the agreed time elapses. This leaves the leaseholder with nothing at hand. The law guarding leaseholders was redefined and allocated in the early 1990s. According to the leasehold Reform Housing and Urban Development Act Of 1993, a leaseholder is entitled to extend the lease period. Under this act, the original owner cannot refuse the leaseholder’s request to increase the leasing period. Once the lease has been made for more than two years, the leaseholder has the right to extend the leasing period by 90 years or less.
When in a flat with less than two years before applying for an extension can’t be perfect timing. Depending on the nature of the short-term lease agreement, the leaseholders can ask the original owner for statutory notice that they wish to extend their lease period by a certain amount. However, the idea is only feasible if you have leased the flat for more than two years.
Does It Cost Money to Extend the Lease?
Before buying a flat on a short-term lease, clarify the cost of extending the lease period. Extending the lease period requires some cash, but the exact amount depends on the agreement with the freeloader. According to the act that guards the leaseholder’s right to apply for an extension, some procedures must be followed. The amount it costs to extend the lease for the flat is calculated procedurally. The cost for a lease extension is called the premium cost. The final cost is determined by negotiation between the freeloader and the leaseholder. However, the following accounts are to be considered during the calculation:
- The losses the freeloader is likely to experience due to the extension.
- The freeloader’s market value reduction due to the lease extension
- The marriage value: – When the value of the flat increases, the leaseholder is likely to increase the lease period. Under the leading guard act, when a flat features 80 years or less before the lease expires, the freeloader is entitled to get fifty percent of the increment. Therefore, leaseholders are advised to start their lease extension when the property has more than 80 years to avoid incurring losses.
The Benefits of Buying a Short-Lease Flat
Buying a flat on a short-term lease can appeal to retired people with no one to depend on. For some people, buying a flat as a leaseholder is a great way to own a high-end property for some time. The owner might never have to worry about maintaining its value for any benefactors after passing away.
The option of short time flat living is a feasible idea for buy-to-let investors who want to make some cash for a short time. Investments can be made by renting apartments in the flats to maximize their profits during the lease period.
The Risks Associated with Buying Flat for Short-Term Lease
The main risk of buying a flat on the short-term lease is that it can be a good deal but can’t be on-sold. When the lease time reduces, the value of the flat also depreciates. A depreciating property will not attract other buyers or leaseholders. The reason for the short lease is that the current lease holder can’t afford the lease extension. These issues are common in leaseholders with affluent backgrounds. Moreover, the short-time lease property may need high-end renovation and other minor repairs that are costly.
The Ground Rent
This is the amount of money the leaseholder is required to pay to the freeloader yearly. The amount can range from ten pounds to two hundred pounds. Before purchasing a flat on a short-term lease, check the cost of the ground rent. If there are changes in the ground rent, it should be indicated on the lease agreement.
The Bottom Line
A short-term lease is bought for a discussed time for a cheaper price. When the agreed time elapses, the flat ownership returns to the original owner. When the lease times get shorter, the value of the flat reduces. For example, a flat with an 80 years lease period will only have 85 percent of the full value. A lease with fifty years remaining will have a value of seventy percent of the original value. When determining how to buy a flat for a short time, the value tag on the flat must correspond to the leasing period left.