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Don’t Leave it Too Late to Extend Your Lease

Thursday, 4th June 2009 | by: Peter Barry

If you live in or are considering buying a leasehold property you will want to ensure that the unexpired term of the lease will not have a detrimental affect on the future marketability of the property.

Under the terms of the Leasehold Reform Act (as amended) 1993 all qualifying leaseholders are entitled to the grant of a new lease for a term of ninety years, on top of the present unexpired term, and all at a peppercorn rent (that is to say no rent). In most cases if you have owned a leasehold flat for two years or more you will qualify.

The length of the lease when you apply will have a significant effect on how much it will cost to extend. The compensation due to the Landlord for granting a lease extension is made up of three parts:

  • The diminution in the value of the Landlord’s interest in the flat; that is to say the difference in the value of his interest now with the present lease and the value of his interest after the grant of a new lease with the extra ninety years.
  • The Landlord’s share of the marriage value and
  • Compensation for the loss arising from the grant of a new lease.

The majority of the compensation is made up of the second part – the marriage value. The marriage value is the potential for increase in the value of the flat arising from the grant of the new lease and the Act stipulates that it must be split 50:50 between the Landlord and tenant.

The legislation also stipulates that where the unexpired term of the lease is greater than eighty years the marriage value will be taken to be nil.

So, if you are buying a leasehold flat the critical length is eighty two years as a lease of that length will give you sufficient time to extend before the unexpired term falls below eighty years. If you already own a leasehold flat consider extending the lease now if it is approaching the eighty year mark.

You are very welcome to give us a call should you require any advice on extending a lease or buying a Freehold.