If you own the leasehold for your flat then you should investigate the options for extending the length of the lease to make the property more saleable when the time comes to move.
Beware of the 80-year trap
Where possible try to avoid allowing your lease to run down to less than 80 years. If you increase the value of the property by extending the lease when it has less than 80 years left, the landlord is entitled to half of the increase in the value – what is called a “Marriage Fee”. Increasing the length of the lease will usually add value to the property, but you risk losing half of that extra value you have put into the property to the landlord
Statutory Lease Extension
If you have owned your property for at least two years and the original terms of your lease were for 21 years or longer, you could have a statutory right to extend your lease for an additional 90 years at a peppercorn ground rent. You need to review your lease and obtain an estimated figure for the cost of the extension. There are lease extension calculators available online but it is always prudent to instruct a qualified surveyor to provide a formal valuation.
Be aware, however, you are liable for your landlord’s reasonable legal and valuation costs as well as your own. For example your landlord will probably engage a surveyor to value the property and a solicitor to draw up the new lease. Once you have established a baseline figure for extending the lease you should instruct a solicitor to serve Statutory Notice, setting out your offer.
The landlord has two months to respond but will possibly get in touch with you before then, either to request access to your flat to do his own valuation and/or request a 10 per cent deposit.
Your landlord may not entirely welcome the application to extend your lease. They may reply with a Counter Notice, acknowledging your right to extend, but disagreeing with the premium you have offered. You will then be required to negotiate an agreed sum. Once the premium is agreed, the new lease can be drafted, reviewed by your solicitor and completed.
Voluntary Lease Extension
Even though you have a statutory right to extend your lease, it is not always the best option. You could instead contact your landlord directly and start an informal dialogue to agree the terms of your lease extension. Your landlord is no longer permitted to include ground rent in any new lease.
An informal arrangement such as this could be a good option for people who have recently acquired their properties, because there is no two-year ownership delay.
When approaching a landlord directly, there’s a fair chance you’ll be given an inflated quote for your lease renewal and your negotiation skills will be tested. It may be prudent to instruct a valuer to negotiate on your behalf. You should be aware that all negotiations are subject to contract and your landlord could withdraw from negotiations at any point. If your lease term is close to the 80-year mark, you should ensure you serve a Statutory Notice, alongside any informal negotiations, because this will have the effect of freezing the valuation date.
For further information or help and assistance once you have completed your negotiations please contact Maxwell Green who will be pleased to help.