“It’s time to sell my flat” said my client. “There’s 79 years left on my lease, which won’t affect its value, will it?” “Yes” was my reply. Because a lease, like many other purchases we make, is a diminishing asset.
Leasehold is the most common form of flat ownership, with over four million such properties in England and Wales. If you own a leasehold you effectively rent the property for the period of the lease. You own the right to occupy the building, but not the building itself.
The value of your leasehold property decreases as the lease term shortens, which not only reduces the property’s market value but also makes it more difficult to obtain a mortgage, particularly for a lease with less than 80 years left. And, the shorter your lease gets, the more expensive it becomes to extend.
If you have owned your leasehold flat or house for two years, legislation gives you the right to extend your lease for a fair price, which is where you will find the skills of a lease extension specialist surveyor absolutely invaluable.
You have the right to add 90 years to what is left on your existing lease. So, if the present lease has 75 years left, your extended one would be for 165 years. However, as the landlord is entitled to fair compensation for this extension, you need to get a valuation of the property from a lease extension surveyor, to provide you with a “best and worst case” figure from both the leaseholder’s and landlord’s perspective, which will help determine the premium payable.
You may have heard of “marriage value.” This is the difference between the combined value of the lessee’s and landlord’s interests in the property with a short lease, compared with their combined interests with an extended one.
If your lease has more than 80 years left, there is no marriage value. But once it drops below 80 years, the marriage value is shared 50:50 between landlord and leaseholder - which is why the 80-year point is so important.
If your lease has 85 years or less remaining, don’t delay dealing with it; putting off that expense now will simply increase the price you will eventually have to pay. Galling as it may seem to spend the money, it will make financial sense. And, as it involves a complex area of law, it’s also critical to appoint a specialist lease extension solicitor.
If you’re a flat-hunter, alarm bells should ring if a lease is nearing 80 years; don’t accept promises of extensions and don’t wait until you’ve completed your purchase. Seek professional advice.
If you need specialist advice about extending your lease, contact my colleague, lease extension expert Harriet Fleming on:
01727 519143 or at
harriet@rumballsedgwick.co.uk
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