A spacious Knightsbridge studio flat with access to private gardens for £142,500? Yes, it's true but of course there's a snag: it has a five-year lease.
Estate agent James Wardle recently sold the flat, with it's blue-chip postcode in Egerton Gardens — just off the Brompton Road and a couple of minutes walk from the V&A — to a young accountant who planned to exercise his right to seek an extension of the lease, doing most of the paperwork himself.
Extending the lease, including professional fees, is likely to cost him more than three times what he paid for the property and he can expect it to be a long and sometimes difficult process. Not even the experts can agree whether owners like him can hope to profit from the enterprise.
However, those willing to take the risks, as this young man obviously is, can benefit from having a smart, central London address in a top postcode that will eventually command a 15 per cent premium when it comes to being sold.
'Generally, the more expensive a property and the shorter its lease, the more expensive it will be to extend'
"If your issue is cash flow and you lust after living in Cadogan Gardens or Wilton Crescent then it is a way to get a lot of address for your money, and that is what some people are in it for," says Andrew Symington, of the valuations department of Hamptons International.
Sally Trevaskis, a lawyer in the residential property team of Cripps Harries Hall, explains: "There are some lovely parts of London where leases are all quite short, and that includes some very smart parts of Kensington and Chelsea."
Take a deep breath
Your first problem is going to be finding a mortgage. Ed Mead, a director at estate agent Douglas and Gordon, says normal rules do not apply in prime central London. "All high street banks will turn you down. You need cash — or a good broker, if you want a loan," he says. But if you can raise the funds, your purchase, despite the short lease, could prove good value.
The price is likely to be reduced by a shortage of potential buyers: many people don't want to take on the hassle of getting a lease extended and overseas buyers absolutely don't want to get involved, finding leases incomprehensible.
Before you buy, you must get an expert opinion on the cost of obtaining a long lease, and then see what long-lease properties in the area are selling for. Then do the maths. Generally, the more expensive a property and the shorter its lease, the more expensive it will be to extend.
"It is what we know in the trade as a wasting asset, because every year the value decreases as you get closer to the termination of the lease," says Stephen Williams, head of Lupton Fawcett's residential property department.
Hamptons' Symington does not recommend buying a lease shorter than 40 years, though some shorter leases can produce a profit if the property requires a lot of work that you are prepared to do yourself.
The other option is to forget about extending altogether — the approach favoured by Douglas and Gordon's Mead. "Often the value of flats with short leases in high-end areas does not fall," he says. "Until it gets down to about 20 years you don't need to pay it much attention, so you could have 20 good years and then sell and not lose out."
However, if you plan to stay more than 20 years then it makes sense to begin extending the lease sooner rather than later.
How to extend a short lease
If you buy a short-lease property you have a legal right to extend the lease. But you must get a specialist valuation of how much the process is likely to cost. You can find a list of valuers at www.lease-advice.org.uk (which also has extensive advice on the process). Ignore estate agents' estimates: some may be optimistic.
* Once you have bought a property you can immediately approach your leaseholder — personally or through a solicitor — asking them to negotiate. Lawyer Sally Trevaskis suggests starting out with a low offer to give yourself wiggle room. Ideally, you will be able to meet in the middle.
* You will need to pay for your own valuation (£500 to £1,000, plus VAT) and legal fees (from about £750, plus VAT) as well as the fees incurred by the landlord.
* If the landlord won't co-operate and drags things out, or you find that you have to wait a (mostly) obligatory two years after buying before you can start legal proceedings, you can let the property, if you need to, while you are negotiating.
* Legal proceedings involve serving a notice on the landlord and getting your valuer to negotiate with theirs. Fees will soar and it will probably delay everything for about a year.
* If you still can't agree a price you can appeal to the Leasehold Valuation Tribunal (for information visit www.direct.gov.uk). But this costs more money.