LEASE EXTENSIONS – WHAT YOU NEED TO KNOW

At Inspire Property Management, our experienced lease extension surveyor works with both leaseholders and freeholders, valuing property and assisting with the complex process of lease extension in the West Midlands area.

If you currently own a leasehold property, it’s likely that you are already aware that as your lease gets shorter, its value decreases. While this does not necessarily pose a problem, a short lease can become problematical when the time comes to sell the property. Not Surprisingly, buyers are often wary of shorter leases, and certain banks will not lend against leases under 85 years.

The Leasehold Reform, Housing and Urban Development Act (1993) gives flat owners the right to extend their lease by 90 years, and a reduction of their ground rent to “a peppercorn” (zero). In our experience, the majority of lease extensions fall under this legislation, however we are also familiar with the Landlord and Tenant Act 1987 (the 1987 Act), which applies in certain circumstances. 

APPLICATIONS FOR A LEASE EXTENSION

To be eligible for a formal lease extension the occupier must qualify on the following grounds:

• Own a long lease (usually at least 21 years from when it was originally granted)
• Have owned the property for a minimum of two years
• Assignment of a lease extension process that was started when a former, eligible home-owner served notice.

There are a few exceptions, which include commercial or business leases, and if the property is provided as part of a charitable housing trust.

THE LEASE EXTENSION PROCESS

The process begins when the leaseholder serves a formal notice on the freeholder. This notice needs to include a proposed premium, so it’s important to obtain a lease extension valuation beforehand. A proposed premium that is too low can invalidate the notice, but if it is too high you may compromise your negotiations.

Once the notice has been served, the freeholder will typically serve a counter-notice that rejects the proposed premium, requesting a higher sum. The two parties then have to agree a settlement figure within a few months, or else the case gets referred to a Tribunal for determination.
This advice guide deals with a leaseholder`s statutory right to extend their lease. As an alternative, it may be possible to negotiate a lease extension with your Landlord on whatever terms you can agree.

CALCULATION OF THE PREMIUM

The calculation of the premium comprises two parts; firstly, the reduction in the value of the freeholder’s interest following the extension of the lease, and secondly, where the lease is shorter than 80 years, 50% of the ‘marriage value’.

The first part represents compensation for the freeholder’s lost ground rent, and for the deferring their ability to reclaim the property by another 90 years. The second part, ‘marriage value’, is the increase in the combined value of the freeholder’s and leaseholder’s interests arising from the lease extension.

The more time you have left on your lease the less it will cost to extend it, so it’s always best to act early. As marriage value can be a significant portion of the premium, it’s advisable to submit a lease extension claim well in advance of the 80-year cut off point.

WHY SHOULD YOU APPOINT A LEASE EXTENSION SURVEYOR?

The legal procedures surrounding freeholder compensation is complicated and will require the assistance of a good lease extension surveyor and a solicitor with experience in leasehold law.

Your surveyor is responsible for producing a valuation of the interest indicating how much the lease extension will cost, allowing you to make an informed decision about how to proceed. Each case will have a number of variables which tend to be debated between valuers, so appointing a surveyor that you trust to negotiate on your behalf is essential.

If you are looking to extend your current lease and would like advice and assistance from a qualified lease extension surveyor, Inspire are happy to discuss the details of your case and to provide a quotation for undertaking the work on your behalf.