How many years are left on your lease?

Whether you’re a owner/occupier of a flat or maisonette, or a corporate investor with a portfolio of residential leasehold properties or freehold properties subject to long leases, you should never disregard the importance of regularly reviewing your lease.

As a leaseholder, you may not be aware that a lease with 80 or fewer years remaining on the term will incur an additional premium known as ‘marriage value’ when the lease is extended.  The issue of the length of the lease has also been affected by stricter lender criteria, with many lenders now requiring at least 70 years remaining.  If your lease was granted in 1982 for the term of 99 years, a potential purchaser may struggle to secure a mortgage and the pool of potential purchasers may be significantly reduced, i.e. cash purchasers only.

It is important to note that the term of the lease may not be same as the date on which you purchased the property.  Most leases in the 1980s were granted for 99 years and you may have been already some way into that term when you purchased the property.  The term should be easy to find in the lease but if in doubt you should seek advice.

If the leaseholder has owned the property for more than two years* they will be entitled to claim a lease extension under a statutory procedure, but even if the leaseholder has not owned the property for this period they may be able to negotiate a lease extension with the freeholder.

Under the statutory procedure the lease will be extended by 90 years in addition to the unexpired term and the ground rent will be reduced.  This right can be exercised even if the property is mortgaged or the leaseholder does not know the freeholder’s whereabouts.

If you are obtaining the lease extension outside the legislation you may be able to change the term and the ground rent to reduce the premium.  Many freeholders who own property subject to long leases have found granting lease extensions to be an additional stream of revenue during difficult times and a voluntary agreement with the leaseholder may result in more favourable terms than waiting for them to serve the statutory notice.  You may be able to secure a modern ground rent improving your portfolio.

To initiate a lease extension claim under the statutory procedure, a notice must be served on the freeholder. This will need to specify the premium you are willing to pay for the lease extension.  You should obtain advice as to the premium from a surveyor who is qualified and experienced in this specialist area.  The surveyor will also be able to assist you in negotiations with the freeholder.  If you have served the notice and an agreement cannot be reached, the Leasehold Valuation Tribunal can be called upon to determine the premium and any other points which remain in dispute.

If you are purchasing a leasehold property with a short lease and you are concerned about not meeting the qualification requirement, there is a procedure whereby the current leaseholder can serve the initial notice and then transfer the benefit of the notice when they sell the property.  The buyer can then complete the lease extension after the purchase and once terms have been agreed with the freeholder.  This procedure is very involved and complicated, and it is important that both buyer and seller instruct solicitors who are specialists in lease extensions.

Now is a good time to extend your lease, even if you are above the 80 year threshold.  Part of the calculations of the premium for a lease extension takes into account the property value, and as property values have fallen over the past few years, so have lease extension premiums.  Generally the premium will increase with the diminishing term of the lease, so it is best to act sooner rather then later.

*Other criteria apply and some properties may be excluded, please contact us for further details.