Extending your lease – what does it mean to you?
Do you own a flat?
If you do, it is a major investment whether you live in the flat or rent it out. Changes in the market may send prices up or down, particularly in the present economic climate, but that is true of any investment. But leases are different – leases are wasting assets.
A lease gives you the flat for a fixed period of time – often 99 years but leases can be for any length of time. As time passes and the term of the lease gets shorter, its value will decline. If there is plenty of time left to run on the lease, the fall in value is barely noticeable. But once the term approaches 80 years the fall in value will affect you when you come to sell the flat.
Is there anything you can do about this?
Provided you have owned the flat for at least two years, you have a statutory right to extend your lease. You will have to pay the landlord for this and the amount you pay depends on the value of the flat, the remaining term, and some other factors. You will usually have to employ a surveyor to advise you on the appropriate payment and possibly negotiate with the landlords. You will also need to use a solicitor to serve the notices and deal with the conveyancing. The rules also require you to pay the landlord’s legal and surveyor’s costs.
It is sometimes possible to agree terms for a lease extension with your landlord without using the statutory procedure. If you do this, you can agree any terms you like. If you use the statutory procedure, you are entitled to an additional 90 years on top of the lease term that you already have, and usually your lease will then be long enough to ensure that the problem will not recur for a very long time.
When is it a good idea to extend your lease?
If there is 85 years or more to run on your lease, the need to extend the lease will not be pressing in most cases. But in all cases, it is a very good idea to extend your lease before the term drops below 80 years. This is because the legislation increases the sum payable to a landlord if the term has dropped below 80 years. If you want to get an idea of the amount you will have to pay, visit the website of the Leasehold Advisory Service at http://www.lease-advice.org/ where there is an online premium calculator.
There are some other ways in which you can preserve the value of your lease. Sometimes, if a landlord wants to sell the freehold of the building, he must first offer it to the leasehold owners. Also, a majority of the leaseholders can get together and compel the landlord to sell the freehold to them. That however is another story – another complex area of law – and will be dealt with in a later article in this series.
For more information and advice on your own particular case please contact Wiseman Lee on 020 8215 1000 or visit www.wiseman.co.uk
This article should not be taken as a full statement of the law. It should be regarded purely as guidance and is no substitute for professional advice. No responsibility for loss occasioned as a result of any person acting or refraining from acting can be accepted by Wiseman Lee LLP. © Wiseman Lee LLP 2013