A lease is essentially a licence to occupy a property for a period of time, e.g. 100 years. As time passes and the remaining time decreases, it’s important to consider extending it. Once the lease drops below 80 years, the value of the property is affected, and the cost of extension increases.
There are two ways to extend – formal and informal. The formal route means using a solicitor to exercise your legal rights under Section 42 of the 1993 Act to a minimum of 90 years with a zero ground rent. The informal route means a negotiation between you and your freeholder. If your freeholder is an individual you know and trust, this may work for you. But in most cases, the freeholder will be a large commercial organisation and the risk is that they add fresh clauses such as a higher or escalating ground rent, especially if they think you are not being represented by a lawyer. At first glance the informal route seems attractive as there are no legal costs, but never accept a new lease without having it checked by a leasehold specialist.
Once your solicitor serves a Section 42 notice that freezes your lease, and the value of your property, for six months. The freeholder knows the shorter your lease gets the more money they will receive, but they are legally obliged to respond to a S42 notice.
This calculator will give an approximate cost but it doesn’t calculate the impact of an escalating ground rent (one that increases over time). You can also call a few solicitors and get some quotes. Some will include a surveyor as part of a package. Or you can choose your own surveyor. Their job is to determine the value of the property (and to justify it if the freeholder wants to haggle). ALEP provides a list of leasehold specialists. Normally the cost of extension includes remaining ground rent – for instance if 90 years remain, and your ground rent is £10 per year, the premium would be £900. Under current law this also applies to escalating rents, making some extensions prohibitively expensive.
Marriage value
Once the lease falls below 80 years, the difference in market value between a short lease and long one becomes substantial, and the freeholder is currently entitled to a share, known as marriage value (marriage of the old and new value). For example if the new, long lease increased the value of the flat by £50,00, the freeholder would be entitled to £25,000. And therefore the leaseholder would have to pay a premium of £25,000 in addition to the solicitor and surveyor fees. The Government has promised to scrap marriage value but …
For more information
Lease Advisory Service
Lease Clinic at Comptons solicitors
www.leaseholdinfo.com