Does Length Matter?
So, does length actually matter? When it comes to the length of your lease the answer is yes, absolutely!
As the length of your lease decreases the value of your property begins to decline. Not only does the length of your lease have an impact on your property value, it also affects the amount you will need to pay to have the lease extended. If you own a flat and you are unsure of the remaining term, your flat may be worth a lot less than you think.
Many long leasehold flats were granted with an original term of 99 or 125 years, which may seem like a long time. So why worry about extending the lease now? With each passing year the price of the lease extension increases. At first the figures will only increase by small amounts however the cost will start to rise rapidly once the lease falls below 80 years.
Why 80 years? When a lease falls below 80 years an additional fee known as marriage value becomes payable as part of the total lease extension costs. Flats with a short lease are worth less than those with a long lease so once the lease has been extended there is additional value added to the property. This additional value is known as 'marriage value' and is essentially the difference between the value of the flat with a short lease, in comparison to the value of the flat with a long lease. The leasehold reform, housing and urban development act 1993 stipulates that the total marriage value should be shared equally between the leaseholder and the freeholder, the freeholders share of marriage value is included in the total lease extension premium. Marriage value is only payable for leases that have an unexpired term of under 80 years so it is important to ensure you have made proper arrangements to extend your lease before it hits 80 years so that you avoid paying any unnecessary costs.
If you own a flat with an unexpired lease term approaching 80 years you should begin taking steps to extend the lease as soon as possible to avoid paying 50% of the marriage value realised from the extension. For those of you with unexpired terms below 80 years you should act immediately as an extension that may costs a few thousand pounds today could potentially cost you tens of thousands in the very near future.
The best way to demonstrate this is by example so I have created a chart below that will show you the average lease extension premium as the length of the lease expires. We will use a flat with an extended lease value of ￡200,000 and a fixed ground rent of ￡100 per annum. The example shows the average premium payable with an 85 year lease, a 75 year lease, a 65 years lease and a 55 year lease.
If you are thinking about extending your lease, need a valution or just need some advice, get in touch with us and we'll help get you started. We offer a completely free no obligation consultation that will help you understand the process and ensure you are fully prepared and confident before you make a decision.
Please feel free to email me with any question you have or just visit our website by clicking the link below.
Peter Rudd