If you have bought a Leasehold flat then depending on the term of the Lease you will, at some point, need to extend it. Once your lease falls below 80 years not only does the value of your property begin to drop it becomes more expensive to extend the Lease. This is because of the general rule of “Marriage Value” which is based on one half of the difference between the value of the property with a longer lease and its value with the shorter lease.
There are two ways to buy a property: either freehold where you own the property outright, or leasehold, which is the case with the majority of flats, where you only own the property for a fixed amount of time such as 90 years and the Landlord retains the freehold of the property.
Of course, it’s always a good idea when looking to buy a flat to find out when the lease due for renewal and whether you will have to spend money on extending it. When you first decide to purchase a property your solicitor should point this out as a part of the conveyancing. For owners who have lived in their property a good few years it is easy to forget that the lease will need renewing at some point and is worth checking if you are not sure how much time is left.
The critical thing is not to let it fall below a term of 80 years.
The cost of actually renewing a lease is not as prohibitive as you might think, as long as you carry it out at the right time:
- If you have owned your flat for over two years, then you have the right to add 90 years to your lease under the 1993 Leasehold Reform Act. You will need Legal Advice to do this and in most cases, you will have to instruct a Lawyer to undertake the procedure on your behalf.
- Timing is all important, letting the lease run down too much can make it more expensive to renew and reduce the resale value of your property.
- Any property or flat that has a leasehold under 60 years will encounter severe difficulties when it comes to applying for a mortgage as finance companies will not allow the purchase or re-mortgage to go ahead without an extension on the lease.
- The general advice is that, to maintain the market value of your property, you should think about extending the Lease before the term falls below 80 years. Below this magic figure, the cost of renewal starts to become a lot more expensive because extending the lease term will add value to your property and this has to be taken into account.
- Only a qualified surveyor can accurately assess the likely cost of obtaining such an extension but it is based on one half of the difference between the value of the property with a longer lease and its value with the shorter lease.
- In our experience the cost can be several thousand pounds and if the freeholder is not willing to negotiate reasonably then it might be necessary to submit an application to a Leasehold Valuation Tribunal and in that event you would be liable for the freeholders surveyors costs and legal fees as well as your own.
- An important point to remember is that it is likely to cost much more to extend a lease that has less than 80 years left to run than a lease that has more than this, so (if your lease has more than 80 years to run) even if you do not want to pursue a lease extension now, you should certainly consider doing so before there are less than 80 years left and you should allow plenty of time to do this because once the Lease term falls below 80 years the higher value to extend the Lease can be claimed by the Landlord.
- You should obtain a valuation from a surveyor before proceeding with your purchase or Lease Extension
It is important to employ the services of a good Lawyer who know what they are doing and have experience in this field of work. This is all the more pertinent if your property has slipped below that 80-year marker and especially if you are thinking of selling within the next couple of years. A Lease Extension can make a big difference not only to the amount of money you make on the final sale but the type of buyers who will come forward.