The importance of renewing your lease


How many years do you have left on your lease?

Most modern leases have long terms remaining (e.g. 999 years or over 150 years).  This is great, because it means when you come to sell in 10 years time, there is still a long time left to run on the lease.

However as lease terms diminish (every year the term is getting shorter) there comes a point where there can be a big impact to you, the leaseholder.  Let me explain… It is well documented that as leases run below 85 years, there is an impact on the value of the property, and this impact becomes more significant the closer you get to the end of the lease.  Mortgage companies know this, and at 70 years remaining the bank will most likely reject a new mortgage application.

There were a lot of flats and maisonettes built in the 1980s with 99 year lease terms, and these now have around 65-75 years remaining.  But there is good news.  Providing you have owned your flat for 2 years or more, the chances are you have a right to extend your lease by 90 years thanks to numerous Acts of Parliament – although you will have to pay for this extension.

The lease extension would be for an additional 90 years.  In fact what happens is that the existing lease is put to one side, and ‘a new lease for a length of whatever was left on the old lease plus 90 years’ is created and your ground rent will become a peppercorn rent (effectively zero).

So how much should you pay for this lease extension?  This is the key question and will very depending upon the terms of the existing lease.  It is important that you seek advice on this as one of my clients found out recently.  If you have more than 80 years remaining, DO NOT wait until the lease is getting close to 70 years.  This is because for leases of more than 80 years remaining, we can ignore marriage value.  Marriage Value is the increase in the total value of the leasehold and freehold combined once the lease is extended.  The reason this is a good thing for you, the leaseholder is that it can make a big difference on the premium payable.

Let’s look at an example.

A lease has 81 years left to run.  The ground rent is £100 per annum and the flat with a nice long lease would be worth about £200,000.  The premium payable to the Freeholder for an extended lease under the Act would be about £5,300.

However, 2 years pass and it now has 79 years left to run.  Marriage value must be included in the calculation, so the premium payable would be around £2,000 more.

Now our leaseholder actually waits until there is only 71 years left.  The premium is up at around £12,000.

It can be costly to wait, so if you have less than 85 years remaining on your lease, you should consider renewing the lease at the earliest opportunity.  To do this you will need a solicitor, and a valuer.  Whilst we cannot help with the solicitor side of things, we can certainly calculate the amount you should be paying for your lease extension and if needed negotiate with the Freeholder on your behalf.

Please note that the figures provided above are representative only and should not be taken as advise on how much you should pay for your lease extension.


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