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By extending your lease, you are helping to safeguard the future value of your residential property.
In our opinion it is best to extend a lease whilst there is still 80-95 years remaining. Residential leases can still be extended if they are shorter than 80 years, but it becomes significantly more expensive to do so.
The value of a leasehold property decreases as the lease gets shorter, compared to a similar property that has a longer lease. Estate agents will also tell you that trying to sell a leasehold property with less than 90 years remaining is significantly more difficult than attempting to sell one that has more than 100 years remaining on the lease. This is due to the fact that it can be more difficult for purchasers to secure a mortgage against a property with a shorter lease, as well as the fact many purchasers, investors included, consider a shorter lease a risk. Where the property can be sold its value is likely to be diminished.
It can also be more difficult to re-mortgage a leasehold property which has a shorter lease. Something to consider if you are thinking about re-mortgaging the property in the next few years. In this instance it is advisable to extend your lease first.
Most flats and maisonettes in England and Wales are leasehold properties where the property is ‘leased’ to you, the leaseholder, by the landlord (the freeholder) for a fixed term, usually between 99 and 125 years. If the lease has not been extended, ownership of the property will eventually revert back to the freeholder once the lease comes to an end, leaving the leaseholder empty handed.
You are strongly advised to extend your lease before it falls below 80 years, at which point it becomes more expensive to extend your lease.
Under the 1993 Leasehold Reform Act, if a lease is renewed with less than 80 years remaining, the leaseholder must compensate the freeholder by paying an additional fee called a ‘marriage fee’, which is equal to 50% of the increase in value derived from the lease being extended. For example, if the value of a property increases by £20,000 due to the lease being extended (where the lease has less than 80 years remaining), the leaseholder must pay 50% of that increased value (i.e. £10,000) to the freeholder, in addition to other costs.
This additional ‘Marriage fee’ (£10,000 in this example) does not apply and is not payable if a lease is extended whilst still having more than 80 years remaining.
An added benefit of extending a lease under the 1993 Leasehold Reform Act is the replacement of the ground rent payable with a ‘peppercorn rent’, this reduces the rent you pay for the remainder of the lease.
Qualifying leaseholders have a right to apply for a lease extension of 90 years under the 1993 Leasehold Reform Act. The process can commence by approaching the freeholder informally or more formally through the service of a Section 42 Notice. In either case it is recommended the approach is made through a property solicitor as negotiations regarding values can become contentious and should the ‘Marriage’ value not be applicable, attempts may be made by the freeholder to delay or reject the application if it is not properly prepared.
If your lease is close to the 80 year threshold, it is strongly advised you involve a specialist lease extension solicitor who can progress the lease extension promptly, so that you avoid additional costs associated with the previously mentioned ‘marriage value’.
Call Holmes & Hills Solicitors today on 01376 320456 and ask for Keeley Livingstone. Keeley will give you free initial advice on the process, procedure, time scales and costs involved in extending your lease.
If you are unable to reach an agreement with the freeholder after exhausting negotiations and the statutory procedure, you would need to apply to the Leasehold Valuation Tribunal to decide the current premium. Our litigation department can assist with such applications.
It is possible to buy or sell a leasehold property with a short lease remaining. We recommend you talk to our lease extension specialist for expert impartial advice. Call us on 01376 320456 and ask to speak with Keeley Livingstone. Keeley will give you free initial advice.
Read our article ‘Buying or Selling a flat with a short lease?’ for more information on buying a property with a short lease.
At Holmes & Hills Solicitors, we provide specialist advice on all lease extension related issues such as:
In instructing Holmes & Hills' lease extension solicitors, you can be assured of clear cost effective advice, our leasehold specialists can:
Call Holmes & Hills Solicitors today on 01376 320456 and speak with Keeley Livingstone, our lease extension specialist.
Keeley will provide you with free initial advice on extending your property lease and answer any questions you may have about the procedure, costs and timescales.
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