Extending your lease

Lease extension applications can be costly affairs, both in terms of premium paid for the lease extension and also the fees. Fees are assessed against a test of reasonableness, but a landlord is not necessarily required to proceed with the cheapest quotation: if he does not, he must use his usual advisers. Even then his costs are not beyond question.

For a tenant the best negotiator rather than the cheapest fee quotation should be the priority as this could ultimately save you thousands of pounds.

Lease extensions are available once you have been the registered owner of your flat at the Land Registry for 2 years. The service of Notices for a formal claim is under Section 42 of the Leasehold Reform Housing and Urban Development Act 1993.

Bear in mind this is a compulsory purchase process, but a landlord is liable for his own negotiation and court or tribunal costs. Therefore, after obtaining your valuation, check if informal negotiation is an option. This could save time and cost. However, you should remember that quite often a landlord will look to keep the ground rent income: if so, there is scope for further savings on the premium.

The reason for obtaining a lease extension is generally that you are looking to sell, raising finance or wanting to protect the lease length. Therefore, timing against savings should be considered.

The crucial date is 80 years remaining on a lease. Above this lease length you do not need to share the “marriage value” or “profit” created from a lease extension. Below you do. If your lease goes under by one day there is potential for up to a 25% increase in premium.

Equally the prevailing market conditions must be considered. From the table below, using the example of a £150,000 flat on an 79.99 year and 80 year lease, at £50 fixed ground rent, it is possible to note that the premium value will almost be in line with the market. The payment of ground rent means that this is not exactly in line.

Extending Your lease

The lease of “lease and value” will have an affect as well as market conditions. “Waiting for the right time” is not necessarily the best option. However, with the market, according to the statistics and press, being on the rise, or at a minimum stabilising, the advantage of a fixed valuation date and lease, being the date that you serve your notice under the Act, the time is now.

 

 

Table: Market Value Against Premium

© Justin Bennett Bsc (Hons) MRICS,
Director, Langley Byers Bennett

LBB Chartered Surveyors