When you buy a flat, you probably want a lease lasting beyond your lifetime, so that when you move on you still have a substantial asset to sell on or leave to your children. 99 years will do nicely, but only if you catch the lease early in its life and don't stay too long. Many London flats were built or converted in the 1980s, and their original 99-year leases are now down to less than 80 years.
Once your flat lease has less than 55 years to run it will be hard for prospective buyers to get a mortgage. As that point approaches, its value will sink like a stone. Value also drops sharply just before the 80-year mark, because of its marriage value.
Although a leaseholder may agree on the terms of a lease extension with the landlord, a residential leaseholder may be entitled to compel the landlord to extend the lease (“a statutory lease extension”). This may be the case if the lease was originally granted for at least 21 years, and the leaseholder has owned the lease for two years or more..
In consideration for payment of a premium, a statutory lease extension is 90 years to the existing unexpired term and the ground rent becomes a “peppercorn”.
Why extend the lease?
- Increases the value
- A longer lease is more marketable
- It is easier to obtain a mortgage against a longer lease
Your flat has a market value, which is what someone would be willing to pay for it. With a longer lease it will be worth more. To extend the lease you will want to pay a price that is no more than the difference between these two values, and preferably a lot less.
The 'reversion' - the landlord's right to get the property back at the end of the lease, to receive the ground rent in the meantime, and perhaps to make money out of managing the property - also has a market value, as an investment. If the lease is extended the reversion will be worth less. The landlord will want a price for the extension which represents this drop in value, and if possible a lot more.
You may be able to agree the price of the extension with your landlord. Even if you do, it may still be worth getting a professional valuation from a surveyor, to make sure you are not paying over the odds. If you cannot agree, a surveyor's valuation can be ammunition for negotiations, or a surveyor can negotiate for you.
Valuation is not always a simple process, and we are not surveyors, but we can introduce you to surveyors we regularly work with and have found reliable. Once agreement has been reached, the lease extension itself is a conveyancing job and we shall be happy to deal with that for you.
When should the lease be extended?
A lease can be extended at any time, but allowing the lease term to reduce to less than 80 years could result in an increased premium for the lease extension. The sooner a lease is extended, the cheaper the premium payable.
As a rule, though there are exceptions, you have a right to extend your lease by 90 years whether the landlord agrees or not, once you have owned your flat for two years. We can handle the whole process for you; talk to us about what it will cost and how long it will take.
The first step is to give the landlord notice about claiming a new lease and offering a price for it. After that:
The landlord has two months (sometimes more) to accept or reject your claim or propose a different price. If the landlord fails to respond, you are entitled to a lease on the terms you proposed. If the price cannot be agreed, you can apply to the Leasehold Valuation Tribunal to fix the price and you can apply to the court, if necessary, for a decision on whether you are entitled to a lease or an order to force the landlord to complete the lease.
If the landlord has disappeared and cannot be given a notice, you can apply to the court for a vesting order saying that you are entitled to a new lease. The tribunal then fixes the price, and a judge signs the lease on the landlord's behalf when you pay the price into court. The court holds the money until the landlord re-appears and claims it.
As part of our involvement in a lease extension, we not only assist extending the lease we also apply specialist knowledge, expertise and experience to review the terms of the existing lease in their entirety. We advise on how the lease can be improved and updated to help comply with current mortgage lender requirements, and avoid any issues selling the lease in future.
At QualitySolicitors Amphlett Lissimore, we understand that cost will be a concern. Therefore, we will give you a firm estimate of the costs involved at the outset so that you are fully aware of your position before you start the process.