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

02/11/2009

By John Spence, Associate in Dispute Resolution.

The fall in housing prices has been unabated in the South-East until recently. Figures from the second financial quarter showed the fall in prices has eased off.

This has prompted some property professionals to think we might have reached the bottom of the market. If the consensus is correct, then now is the time to extend the lease on your flat.

Extend the term

Residential leaseholders looking to add value should consider extending the term on their lease. Flats that have a short term of 75 years or less are more difficult to sell and mortgage lenders are reluctant to lend to buyers purchasing flats with short leases.

Fix the valuation date

Under the Leasehold Reform, Housing and Urban Act 1993, leasehold owners who have owned their flat for a minimum of two years can extend their leases by an extra 90 years. The flat owner has to offer the landlord a realistic price to extend. 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. In a rising market it is advantageous for a leaseholder to be able to fix a valuation date at a relatively low benchmark.

Extra compensation

Leaseholders who have terms approaching 80 years should consider extending their leases now. Where a lease has less than 80 years left to run extra compensation becomes payable to the landlord called 'marriage value'. This added compensation can make extending the lease expensive. When money is still tight and there is less borrowing available, leaseholders must weigh up the cost of extending their leases against the potential value it will add to their property. For those who are able to, now is a good time to think about extending your lease.