At first sight, lease extensions can appear daunting. Richard Cleminson, Director Kinleigh Folkard Haywood Surveying, explains why it is important leaseholders are aware of the pitfalls and opportunities of getting lease extensions right.
The most immediate reason for extending your lease is that a short lease can seriously affect the value of your property. For example, a flat with a lease of 100 years is worth roughly the same as a Freehold property; however, that same flat with an unexpired lease term of 60 years, could be valued at approximately 80 per cent of its long leasehold price.
Whilst in practice values are more likely to be worked out utilising the long leasehold price, less the estimated cost of extending the lease, it is worth remembering that if you wait until you have less than 80 years to go, buying an extension becomes significantly more expensive. With lease of less than 80 years unexpired, leaseholders have to pay so-called Marriage Value (a compensatory fee to the landlord). All of this is important because the length of the lease affects saleability as most buyers will shy away from a short lease and additionally they may also find that they can’t get a mortgage from a high street lender.
Under the Leasehold Reform Housing and Urban Development Act 1993, an individual lessee has the right to extend their lease for an additional 90 years at a peppercorn ground rent. The basic qualifying criteria for a lease extension are that the original lease must have been a long lease, i.e for a term of not less than 21 years from the date of grant, and also they must have owned the property for at least 2 years.
You will need the help of a surveyor to provide you with: the likely Premium valuation range for extending the lease; advice as to the amount of money you should offer the freeholder and if required, to negotiate an agreement on your behalf. In addition you will need a legal representative, either a solicitor or a licensed conveyancer, who will: prepare the paperwork for your application; serve the notice on the landlord; answer requests for information and conveyance the new lease. (By mutual consent a lease extension can also offer the opportunity of correcting any mistakes that may exist in the original lease).
Is it worth doing? Well that depends on your circumstances, but the Leasehold Advisory Service, the information service for leaseholders, offers the example of a flat with a 68 year unexpired lease, on a ground rent of £50 pa, with a current value of £150k and an improved (extended lease) value of £165k. In this scenario an extension of 90 years is likely to cost £8,000. But the same property, on a lease with only 35 years to run, could set you back a whopping £55,000. However, if the current lease is 95 years (and therefore attracts no ‘marriage value’ for the landlord) the cost of an extension would be only around £750.
There are hundreds of thousands of flats that are going to require lease extensions in the future and many of these within the next five years. If you feel you would benefit from some advice on this matter then don’t delay and contact Beavis Morgan today.