How to sell a property with a short lease or missing documents

Selling a house inevitably involves lots of paperwork and documentation – and leasehold property comes with an extra layer of complication in the form of lease extensions, ground rent. In the latest of our guides to selling problem properties, we look at issues surrounding short leases, as well as what to do if you are missing vital documents such as deeds or certificates.

What is the problem with short leases?

When selling a leasehold property, it’s vital to consider the length of time remaining on the lease. Lenders will not usually approve a mortgage on a property with a short lease (typically anything less than 70 years. Fortunately, the UK government is currently undertaking a reform of leasehold property that will make it much easier and less expensive to extend leases – the housing secretary, Robert Jenrick, announced in January 2021 that leaseholders will be given the right to extend by up 990 years at zero ground rent. However, these reforms have not yet passed into law.

In the meantime, leaseholders have two options to extend their leases: a formal statutory route, and an informal approach to the freeholder.

• Formal lease extension: If you have owned a leasehold flat for more than two years, you have the legal right to require the freeholder to extend the lease by 90 years for a “peppercorn” ground rent. (This is a nominal rent, required to fulfill a contract, but in practice generally means no rent is collected.) The 90-year extension is added to the lease that already exists, so if there are currently 75 years on the lease, this will be extended to 165 years. 
  This is done by serving a notice (known as a Section 42 notice) to the freeholder. Once this is done, the freeholder must respond within two months, following which a further two months is allowed for negotiation. The cost of extending the lease by this method will depend on how long remains on the existing lease. You will have to negotiate a premium to pay for the extension, as well as valuation and legal costs (both yours and the freeholder’s). In addition to this, once less than 80 years remains, the freeholder is entitled to a 50% share of the “marriage value”: that is, the value added to the property by the lease extension. For example, if the property’s value is increased by £30,000, then £15,000 must be paid to the freeholder. This is why it is important to negotiate an extension before the lease drops below 80 years.
  Note that the 90-year extension applies only to leasehold flats. For houses, a single extension of 50 years can be granted by the statutory route.
• Informal lease extension:: If you have not owned the leasehold for two years, then informal negotiation with the freeholder is the only option. Informal lease extensions can be any length, not limited to the statutory 90 years, and if agreement is reached quickly can be less time-consuming and expensive than going through the formal process. However, the requirement to limit ground rent to a peppercorn does not apply, so in most cases it is best to follow the formal process if you can.

The Leasehold Advisory Service has lots of resources related to lease extension, including a calculator that can give an estimate of costs.

What if I need to sell before the lease is extended?

The formal process of extending a lease can take several months, especially if agreement cannot be reached over the cost and the case is referred to a tribunal. However, it is possible to set the process in motion by serving a Section 42 notice, and transfer the benefit of the lease extension to the buyer. In this way the buyer will still be able to benefit from the lease extension without having owned the property for two years. The buyer can then take over the negotiations with the freeholder and pay the premium; the selling price will need to take this into account.

This is especially valuable if the lease has 82 years or less remaining, since it would drop below 80 years by the time the new buyer had owned the flat for two years and qualified for the formal lease extension process.

What documents are needed when selling a house or flat?

These are the key documents you will need for the conveyancing process:

• Proof of identity – both photo ID and proof of address, such as a utility bill
• Title deeds – either original paper documents or copies from the Land Registry
• Seller’s Property Information Form (TA6) – plus any documents listed on this form, such as planning documents, warranties, safety certificates etc
• Fittings and Contents Form (TA10) – detailing what interior items are included in the sale
• Energy Performance Certificate (EPC)
• Mortgage statement (if applicable)

Additionally, for leasehold property:

• Leasehold Information Form (TA7) – if selling a leasehold property
• A copy of the lease
• Management information pack – including details of ground rent, service charges, planned works etc

What should I do if any documents are missing?

Many of these, including the transaction (TA) forms will be completed as part of the selling process, but other documents may have been misplaced. The most common missing document problems are:

Title deeds

For most properties, the days of requiring bundles of old paper deeds to prove ownership have gone. Since the 1990s, registration of property sales with the Land Registry has been compulsory across England and Wales, and almost 90% of freehold land in England and Wales is now registered. A search of the Land Registry will show if this is the case, and it is straightforward and inexpensive to obtain an official copy of the title deeds.

It is much more complicated if the property is unregistered. In this case, if the deeds cannot be found, the owner must apply for “first registration of title”, giving evidence of possession and when the deeds were lost or destroyed. The Land Registry has a guide to this process, but it is complex and you will likely need to get a solicitor to help.

Before taking this route, ensure you have made every effort to locate the deeds. If you have a mortgage, the lender is likely to have them; alternatively they may be held by solicitors who handled the sale or any previous sales of the property.

Planning permission and building control

A buyer or mortgage lender may want to see evidence that any building works, extensions or renovations have been carried out properly and with the correct permission. Evidence of planning permission can often be found by searching the local authority’s planning website. Online records may not go back very far, but if the work was carried out a long time ago, it is worth remembering the “four-year rule”. This prevents enforcement action being taken against alterations or extensions to a dwelling if it has been unchallenged for four years from the date of completion. Certain types of work, such as small extensions, can also be carried out with no planning permission under “permitted development” rules. 

To avoid the potential for problems in such cases, you can apply for a Lawful Development Certificate, from the local planning authority, which confirms that the work has been permitted. This costs £103 in England.

Even if building work did not require planning permission, it should still have a completion certificate issued by a building control inspector to confirm that it complies with the necessary building regulations. If the work was carried out after 1985 and the certificate has been lost or was never issued, you can apply to your council’s building control department for a “regularisation certificate”. However, this process may be time-consuming and invasive, as the structure of the building may need to be opened up to check the work.

An easier option – and one which lenders may insist on – is to take out indemnity insurance to cover the buyer for any costs arising from an enforcement order.

Safety certificates

Gas and electrical safety certificates are not a legal requirement when selling a property, only when letting it out, however it is highly recommended to have them. 

If the house has a gas boiler, you need a certificate to confirm that it was installed properly to comply with building regulations. Gas safety certificates and replacement boiler installation certificates can be obtained via the Gas Safe Register.

Similarly, electrical installations and modifications have to be carried out by a qualified person and signed off to satisfy building regulations. An Electrical Installation Certificate (EIC) should have been completed by the installer. If you don’t have a copy, you may be able to obtain it from the electrician who carried out the work, or download a copy by searching for your address at http://www.checkmynotification.com. Failing that, you can get an Electrical Installation Condition Report (EICR) from a qualified electrician: this is a survey of your property’s electrics.

In these cases, the buyer’s solicitor or mortgage lender may still require indemnity insurance to cover the cost of future enforcement action.

Movewise can advise on the best way to sell any home. To take the first step, contact our property team today.