Published: 26/03/2019 By Peter BarryWe often receive enquiries from leaseholders who are planning to put their property on the market and have just discovered the implications of having a short lease.
In dealing with leasehold properties on a daily basis you become very aware of the effect a lease has on a property’s value. Even leases over the 80 year mark (the point at which marriage value takes effect) should be investigated and ultimately extended. A purchaser today who acquires a flat for £250,000 with an 85 year lease will have to wait 2 years until they can extend under the Leasehold Reform, Housing and Urban Development Act 1993 by which time an extension could cost up to £10,000 including professional fees.
So what do you do if you are looking to sell and find out that you need to extend your lease?
As a general rule as long as you have owned your flat for more than 2 years you will have the right to extend under the Act. Technically speaking you don’t actually extend your lease but acquire a new lease with a length equal to the existing term plus 90 years. The lease is typically on the same terms and the ground rent will revert to a ‘pepper corn’ or nominal rate.
Once you have instructed a surveyor to produce a report and value the cost of a new lease the next step is to serve notice on your freeholder and invoke the Act. The only negative here is that whilst the Act establishes timeframes for responses from the freeholder, the whole process is likely to take a minimum of 3 months and most likely nearer to 6 months to complete. Not a particularly helpful length of time if your property is due to be marketed in the near future or you have prospective buyers.
Thankfully you can assign the notice with your lease, meaning that you can serve the notice and sell the flat with the benefit of the application. The prospective buyers can continue the process after the sale. You must also serve the notice before you exchange contracts. They will request that the purchase price reflects the future costs they are likely to incur which including professional fees will be on the generous side to ensure they will not be at a loss. Whilst this is ultimately an issue for negotiation between the parties, your surveyor should include in his report the likely cost parameters of acquiring a new lease and therefore give you some idea of a reasonable discount.
If you own or are considering purchasing a leasehold property, please feel free to contact one of our experienced Leasehold Valuation surveyors who will be on hand to advise you on the best course of action.