Have you checked the number of years left on your Lease?
Do you own a flat that you either reside in or rent out? You may have owned your flat for some considerable time and not given much thought to the unexpired term of the lease, or perhaps are considering selling your property to buy a house or to reduce your property portfolio. If the unexpired lease term is 85 years or below then any potential buyer may be unable to obtain a mortgage due to the short lease and therefore you will be limiting yourself to a cash buyer. It may, therefore, become a term of any sale that the lease is extended.
There are two methods of extending a lease – statutory lease extension under the Leasehold, Reform, Housing and Urban Development Act 1993 (1993 Act) or non-statutory (informal) lease extension. A notice to extend a lease under the 1993 Act can be served if you have owned the property for 2 years and the benefit of that notice can be assigned to the buyer.
A premium is payable to the freeholder / landlord of the property for the lease extension. Where the lease term is below 80 years an additional ‘marriage value’ is taken into account when assessing the premium payable and the lower the number of years on the short lease the higher the premium will be. It is preferable to extend the lease before the lease term falls to 80 years or below for the reasons listed above.
If a notice under the 1993 Act is made to extend the lease term an extension of 90 years is added to the unexpired term of the lease and ground rent is reduced to a peppercorn. If the lease is extended on an informal basis then the freeholder / landlord is likely to retain an annual ground rent, the level of which could put off a potential buyer or indeed a lender. As a general rule though, the retention of a ground rent will mean that the premium is perhaps less than for the equivalent lease on a statutory basis.
If the notice under the 1993 Act is to be assigned to the buyer then complex drafting of the sale contract to include the lease terms and consent of the buyer’s mortgage lender may be required.
The leaseholder / tenant are liable to pay their own legal costs and the freeholders / landlords reasonable legal costs.
To summarise ideally a lease term should be extended before it falls below 80 years and prior to any sale of the property.
At Bennett Griffin LLP we have a specialist Leasehold Enfranchisement team and are happy to provide advice if you are considering extending your lease or indeed if you are a freeholder / landlord who has been approached to agree a lease extension or served with a notice under the 1993 Act.
Please feel free to contact Mary Wheatland firstname.lastname@example.org 01903 706958 to discuss.