The Lease Extension Guide: Part 1 – why should a leaseholder seek to extend their lease?

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. 

We are experts in this area and we have an experienced Residential Property team and Property Disputes team who can assist leaseholders and landlords with lease extension and lease enfranchisement matters.