The Lease Extension Guide will have a series of parts which will be useful for both long leaseholders looking to extend their leases, and landlords of residential property subject to such long leases. Part 1 will consider why a long leaseholder should consider extending their lease.
A leaseholder who has less than 90 years left to run on their lease should consider applying for a lease extension. Failure to do so could make the lease more difficult to sell or mortgage, and as the remaining term reduces, the premium payable for an extension will increase.
Why would a leaseholder seek to extend their lease?
When a landlord grants a lease it is for a fixed number of years. Once those years have completely elapsed, the lease ends and the property reverts to the landlord. This means that a lease is a depreciating asset – as the years start to expire and the term gets shorter, the lease gradually loses value and the cost of any extension inevitably gets more expensive.
A short lease can be more difficult to sell as many buyers are hesitant to purchase a lease with less than 85/90 years left to run. Mortgage companies are also becoming more and more nervous about their lending habits and will often not lend on properties with less than 75 years remaining on the lease. This means that there will be less buyers available for a property with a short lease.
The cost of extending the lease will be considerably more, if the years left on the lease drop below 80. If there are less than 80 years left on any long lease then an additional amount known as “marriage value” will become payable to the landlord making the cost of the extension more expensive.
Marriage value represents the enhanced value to a landlord of potentially being able to join the leasehold and freehold interests together on the expiry of the lease to make the property more valuable. Where marriage value applies, the flat owner will have to offer the landlord 50% of the figure attributable to this enhanced value. This is a valuation point, if you are a leaseholder who thinks this might apply to your lease, you will need to instruct an expert surveyor – we can recommend several who will be able to advise you.
If the lease has between 70 – 90 years left to run, the leaseholder should seriously consider undertaking a lease extension. Part 2 of The Lease Extension Guide will consider who qualifies for a lease extension, how qualifying leaseholders can go about agreeing one with the landlord, and what the terms of the new lease might be.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.