Geoffrey Williams from local solicitors Wiseman Lee talks about lease extensions and explains why a government proposal that would reduce the cost of extending shorter leases may not come to fruition
If you own a flat or are thinking of buying one, you must check how many years are left on your lease. Why? Because as the remaining term – the number of years left to run – shortens, the value of the flat will fall.
If the remaining term is about 125 years, this isn’t too serious. If it’s around 90 years, you should do something about it.
Fortunately, if you have owned the flat for two years, you have a legal right to extend the term by 90 years, but you have to pay compensation to the landlord. How much you have to pay depends mainly on the value of the flat and the remaining term, so the shorter the remaining term, the more you will have to pay.
You would need to get a surveyor to advise how much you may have to pay. Don’t forget, if you do claim a lease extension, you will have to pay most of your landlord’s costs as well as your own. You can get a rough idea of how much you may have to pay by visiting the Leasehold Advisory Service website (lease-advice.org), where you will find a premium calculator.
There is an unpleasant surprise in store if your remaining term is less than 80 years. The amount to pay suddenly increases. This is because you then have to pay something called marriage value. There is a hidden value in the flat that neither the landlord nor the tenant can individually access. It can only be unlocked by uniting – marrying – the landlord’s and the tenant’s interests in the flat. Extending your lease does just that.
The rule is the landlord gets none of the marriage value if the remaining term is more than 80 years when the tenant makes the claim. If there are less than 80 years left, the landlord gets half of the marriage value.
The government announced last January that they intend to abolish completely the marriage value element of the compensation paid to the landlord. If this happens, there will be a big reduction in the amount tenants have to pay to extend shorter leases.
If you have a shorter lease, you may think you will be better off waiting until the law changes. You might be wrong, though. There is no timetable yet for changing the law. Also, the change may well be challenged by big freeholders, as it will slash the value of their property, so the law change may never happen. If it doesn’t and you delay extending your lease, the amount you will have to pay is almost certain to go up.
Wiseman Lee is located at 9–13 Cambridge Park, Wanstead, E11 2PU. For more information, call 020 8215 1000