Lease Extension- Should I extend my lease?
Residential ownership of flats is commonplace, with an estimated two million leasehold flats in England and Wales. Many flat owners do not realise that a leasehold interest in property usually depreciates in value over time. Putting aside fluctuations in the property market, as the length of lease shortens, the value of the property decreases.
For many leaseholders, the unexpired term only becomes an issue when they look to sell. Obtaining a mortgage may become difficult with a lease length of fewer than 75 years remaining, and almost impossible to obtain for fewer than 60 years. While statute enables qualifying leaseholders to extend their lease, the costs involved, the legal complexities and the time required to complete the new lease can result in delays and difficulties for the sale process. Leaseholders are therefore advised not to leave a lease extension too late .
While many leaseholders may feel they can’t afford to extend their lease, they should really be asking themselves if they can afford not to? In particular:
The increase in the value of the flat with an extended lease will usually exceed the cost of the extension
The value of the flat will be significantly reduced if the remaining term is short
The cost to extend the lease will usually increase over time
If the remaining term falls beneath 80 years, the premium to extend the lease will significantly increase as a share of ‘marriage value’ also becomes payable
The Aim of a lease extension
Having gone through the process of a lease extension in accordance with the statutory provisions, the result will be:
A new lease for an additional 90 years added to the current unexpired term
A peppercorn ground rent
Otherwise, the terms of the existing lease will usually remain unchanged. Service charges and insurance will still be payable.
Qualifying for a lease extension
Most leaseholders will qualify for a lease extension if they have owned the property for more than two years. It is important to discuss qualification criteria with a lawyer early on in any lease extension claim.
What will it cost to extend the lease?
The basis of valuation is set out in statute and there are many variables that determine the final premium. Changes resulting from case law can also have significant implications. There are on-line tools that indicate the likely premium payable (see below). These are useful as a guide, but they do not able to allow for factors that may have a significant bearing on the valuation, including:
Unusual or restrictive lease terms
If there is a head lease present
Any improvements undertaken by the leaseholder which should be disregarded
Implications of variable ground rents on the valuation
Any leaseholder considering a lease extension should obtain independent valuation advice from a chartered surveyor experienced in Leasehold Reform valuations. As well as the lease extension premium, the leaseholder will also be responsible for the majority of the landlord’s legal and valuation fees.
The Next Step?
There is a wealth of information available on-line for leaseholders, providing extensive guidance on the statutory rights, processes and potential costs. While the information is of great value, the process of a statutory lease extension is very complex and professional advice is recommended:
Seek advice from a solicitor experienced in residential leasehold property
Obtain early valuation advice from a chartered surveyor experienced in residential leasehold valuation
If you wish to discuss lease hold property, please do not hesitate to contact Peter Davy at James and Sons.
Other Useful Resources
Money Saving Expert provides a basic introduction to the process of lease extension:
The Leasehold Advisory Service (LEASE) provided in depth advice and resources in respect of most leasehold property matters:
LEASE also provide a Lease Extension Calculator: