There has never been a better time to extend the lease on your flat

17/07/2009

By John Spence, Associate in Dispute Resolution. Featured in The Kent & Sussex Courier.

The downturn in the housing market has hit all homeowners, but especially here in the South-east. The fall in house and flat prices since the Autumn of 2007 had been unabated until recently. However, figures from the second financial quarter up to the end of June showed the fall in prices has eased off. This has prompted many property professionals to start believing we might, just might, have reached the bottom of the market. If the consensus is correct, then there may never be a better time to extend the lease on your flat.

For residential leaseholders with older flats looking to add value or make their flat more saleable, one option is to extend the term on their lease. Flats that have a short term of 75 years or less are more difficult to sell. Solicitors acting for buyers will often want such short leases to be extended before their clients proceed with the purchase. Furthermore, most mortgage lenders are reluctant to lend to buyers looking to buy flats with short leases.

Under the Leasehold Reform, Housing and Urban Development Act 1993, leasehold owners who have owned their flat for a minimum 2 years can extend their leases by an extra 90 years. The flat owner has to offer the landlord a realistic price to extend. But importantly, for valuation purposes, the property values that are used in the subsequent negotiations are frozen at the date at which the leaseholder commences the extension process by first serving their Notice of Claim upon their landlord, called 'the valuation date'. In a rising market, it is advantageous for a leaseholder to be able to fix a valuation date at a time before property values start to climb.

It is especially important for leaseholders who have terms approaching below 80 years to consider extending their leases now. Where a lease has less than 80 years left to run, an extra layer of compensation becomes payable to the landlord called 'marriage value'. For some, this added compensation can make extending their leases prohibitively expensive.

In these current times, when money is still tight and there is less borrowing available, leaseholders must carefully weigh up the cost of extending their leases against the potential value it will add to their property. But for those who are able to, now is a good time to think about extending your lease.