Why should I extend my lease?
Lease is a diminishing asset and as its term reduces so does the value of your flat. The extent of this is not fully appreciated in the early years because the decrease in value is generally offset by increases in the housing market.
In addition, if a lease has less than 80 years unexpired term when you seek to extend it then, as part of the price, you will have to pay what is known as “marriage value” to the freeholder. This will significantly increase the price of the extension. Prior to 80 years cut off date, no marriage value is payable. This is very important reason to extend your lease sooner rather than later.
An extension reverses this process and the full value of the flat can be realised on sale. This is the main reason people extend their leases.
Unfortunately the longer you leave it to extend your lease the more expensive it becomes.
However when the term reaches 70 years or less it is more difficult to obtain a mortgage on normal terms. It therefore becomes difficult to sell the flat and so it reduces in value.
Before the Leasehold Reform Act leaseholders were at the mercy of unscrupulous landlords who took the opportunity to charge high premiums for the extension and to increase the ground rent. Leaseholders watching their flats devalue had little option but to accept the landlords terms.
Can I extend my lease?
Yes, more than likely! The majority of flat owners will be able to extend under the legislation. There are some legal requirements that must be met. The most significant are as follows:
You need to own a lease with an original term exceeding 21 years
You have to have owned your flat for at least 2 years.
Apart from the above there are other ways to extend the lease which our expert will be happy to discuss upon request.
What am I entitled to when i extend?
You will be entitled to:
An extension of 90 years. i.e. 90 years added to your remaining term.
Nil ground rent. i.e ground rent is reduced to zero for the entire term of the extended lease.
The premium is calculated under the legislation i.e the landlord cannot pick a figure out of the air.
How much will it cost?
The landlord is entitled to compensation for the loss he will experience on granting of the lease extension. This compensation is essentially the premium that you as the leaseholder will pay. It is made up of the following:
the diminution in the value of the landlord’s interest in the flat; that is, the difference between the value of his interest now with the present lease and the value of his interest after the grant of the new lease with the extra 90 years, the landlord’s share of the marriage value.
compensation for loss arising from the grant of the new lease. You would also be require to pay landlord reasonable cost of legal and valuation.
How do I get started?
You may have already approached your landlord for a quote to extend the lease. You may be unhappy with the price or want to check that the quote is fair. Or you may want a professional assessment of the premium with which to approach your landlord.
Initially then you will want a professional report that gives a valuation of the cost of the extension and that can be used as a basis in subsequent negotiations with the landlord. The same report can also be used if the matter goes to tribunal.
What is the procedure under the Act?
If you were to proceed under the Act then the formal procedure is started by the service of the Tenant’s Notice on the landlord (the Tenant’s Notice) and it then follows a prescribed route. Although this is the beginning of the formal process for acquiring the ninety year extension, it should follow a period of preparation to ensure that you are fully equipped and advised to complete the acquisition. There is a substantial amount of work to be completed before you start.
- Checking Eligibility (including identifying the “competent landlord”)
- Assessing the premium
- Establishing the Finance
- Gathering the Information
- Preparing the Notice
- Preparing for the subsequent procedures