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Extending Your Property Lease: Compelling Reasons

by Steve Gott on Jan 30, 2013

There are several compelling reasons to extend your property lease if you are eligible to do so. Although you may balk at the cost of a lease extension, in actuality, the price you pay to a solicitor to extend your property lease is ultimately a money saving move. You will be enhancing the value of your property, and you may no longer be obligated to pay ground rent.

Avoiding Property Devaluation

It is clear that a short lease almost always results in significant property devaluation. Of course, there are always exceptions. However, as a rule of thumb, the closer you are to a maximum lease limit, the closer your property value will be to the freehold value.

It naturally follows that if you have a short lease, extending it can avoid a serious devaluation of your property. While it is impossible to provide exact figures, a rough comparison is sufficient to illustrate this point.  For instance, a flat lease of 100 years has approximately the same value as a freehold. On the other hand, a lease of 60 years is only valued at approximately 60 percent of the price of a freehold.

Increasing Sales Value

Given a choice, with all other factors being equal, which property seems more valuable: a property where you are secure in long term residence, or a property for which you must expend time and effort to protect it from reverting back to the freeholder? While wealthy buyers who have access to lenders willing to approve mortgages with short leases may not be put off by a property with a short lease, many other buyers are scared off from such properties, no matter what other features they may have in their favour.

This is because many mortgage lenders set a minimum length for the lease, usually about 30 years from the end of the mortgage. This means that often, a buyer who wants to purchase your property will be unable to do so.  As a result, you may find yourself with a property that is impossible to sell.

Marriage Value

Marriage value is the difference between the value of a property with its current short lease and the value after the lease has been extended. Under the terms of the Leasehold Reform, Housing and Urban Development Act 1993 that uplift is divided equally between the landlord and lessee.
 

If you intend to purchase a lease extension, do so while the property lease has at least 80 years remaining as for properties with leases in excess of 80 years any marriage value is disregarded when extending.

Qualifying for a Lease Extension

To qualify for a lease extension, you must have owned the property for at least two years before you apply.  However, if you are purchasing a property, and you anticipate that you may want to extend the lease, ensure that the seller serves initial notice on the landlord before you finalise the sales contract. By doing so, you can receive the benefit of that notice without being subject to the two year ownership rule.  This creates a win-win situation for the mortgage provider and for you.

Author

stevegott99

Steve Gott

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