I have 64 years left on the lease of my flat and have recently been advised to have a lease extension. Why do I need to do this and what impact does it have on my property and its value? Also, is it an expensive process?
Thank you for your question. All leaseholders at some point will want to extend their lease, leaseholders should be made aware that their lease is a diminishing asset and as the term of their lease reduces so does the value of their lease. It is vital that if you as a leaseholder are made aware of a drop in length in your lease you should immediately consider a lease extension so as to maintain the value of the asset you have paid for. If the lease still has over 80 years left then the leaseholder will need to pay the landlord a premium to extend it. When your lease reduces to anything below 80 years, the landlord is entitled to additional compensation known as “marriage value”. Under the Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA), tenants have the benefit of extending their lease for an additional 90 years at no ground rent (provided you have been originally granted a lease of more than 21 years and you have owned the lease for a minimum of two years). This means that once you have been granted the extension, you will have the security that your property is yours for a lifetime and the asset is no longer a diminishing one and your current ground rent that you are paying now will be reduced to a peppercorn rent.
• It is widely acknowledged that extending a lease will increase the market value of a leaseholder’s property. A flat with an extended lease should sell for full market value. Potential buyers will find a lease more appealing if the lease has been extended or if there is a guaranteed ability for them to extend it once purchased by taking over the extension process. Failure to act in getting an extension on an 80 year lease or below could affect the value of your flat and make it difficult to sell.
• Lenders will also be keen to grant a purchaser a mortgage if there is sufficient number of years on the lease. If your lease becomes shorter mortgage companies will worry that the value in your flat might decline and therefore will not wish to grant you a mortgage or re- mortgage as their security may be affected. This could pose a problem if your flat is mortgage dependent.
• Marriage value will apply once a lease drops below 80 years, making the lease extension more expensive to extend. The term “marriage value” is the possible increase in the value of the flat arising from the new lease.
The sooner you take action to extend your lease the better position you will be in to negotiate your premium.
The total cost of your lease extension will be determined in two parts, firstly the premium of the property and secondly the professional costs. The premium is made up of a calculation provided by a competent surveyor who will value your property and then negotiate the premium with the landlord’s surveyor. The professional fees will very much depend on how straightforward the lease extension claim is. You are responsible to pay for your legal fees plus the landlord’s reasonable costs and valuation costs. SDLT should also be considered when determining the cost process of obtaining a lease extension. You should seek professional advice on the costs before deciding to make a claim to extend your lease.
Jaime Burgess, Paralegal at Streathers Solicitors LLP