The Benefits of Extending Your Lease in Good Time

Friday, 9th November 2012
Leasehold Valuations | Surveying

If you own a flat or maisonette it is almost certainly held on a lease. The original term of the lease is likely to have been 99 or 125 years and there will be provisions for the Landlord to collect ground rent every year at an amount that will normally increase throughout the term of the lease.

As the remaining term of the lease reduces so does the value of your investment but fortunately changes in the law over the last 20 years have provided a relatively low cost method for leaseholders to protect their investment; provided they do not leave it too late.

The critical point as regards extending your lease (technically you will be acquiring a new lease) is 80 years as this is the point that marriage value kicks in. Marriage value is the difference in value between yours and your Landlord’s interests before and after the granting of the new lease and the Leasehold Reform, Housing and Urban Development Act 1993 states that any increase in that figure should be split equally between the two owners.
The effect of marriage value is best demonstrated by comparing the cost of extending the lease on a property when it has an unexpired term of just over 80 years as opposed to an unexpired term of 79 years, our sample property will be worth £250,000 with a new long lease:

Now as a brief overview, the valuation is made up of 3 parts. The first arises from the fact that upon the granting of a new lease under the Act, the ground rent payable by the leaseholder will become ‘peppercorn’ or zero. As a result the Landlord needs to be compensated for that loss of income, so we need to establish the value of that right to receive ground rents for the remaining 79 and 80 years of the lease. The second part relates to the fact that if the lease were to run its course; the Landlord would receive a property worth £250,000 in both 79 and 80 years time.

Now in both instances these two elements result in very similar costs for the leaseholder but what makes a far more substantial difference is the third element of the valuation; marriage Value.
The cost of extending the 80 year lease is approximately £5,500. The 79 year lease, by contrast, would cost around £10,000 to extend. The value of the property with a 79 year lease would be in the region of 95% of its value with a long lease, hence the now apparent difference between the two figures.

If you own or are considering purchasing a leasehold property, please feel free to contact one of our experienced leasehold valuation surveyors who will be on hand to advise you on the best course of action.

Justin completed a level 2 survey plus valuation for us recently of a 1980’s 3 bed house. The report was provided promptly and gave us the detailed information we were looking for. Thumbs up also for Jaynell and Maianh for their courteous and efficient service.
We had a great experience with Peter Barry Chartered Surveyors. While their pricing was higher than other RICS Level 3 quotes we received, the depth and detail of their survey made it well worth it. They identified issues that are potential bargaining points in our property negotiations. A big thank you to our surveyor, Justin, for his thorough work, and to Jaynell for seamlessly facilitating the process.
We needed to get a party wall agreement very quickly to prevent works having to stop after our surveyor had to pull out due to illness. We contacted Peter Barry and were able to get a site visit and agreement wrapped up within two weeks. The service was excellent and we were able to start working on our property without delay. Would highly recommend
Bawor, Trina and Team have been amazing from start to finish with the Party Wall matter for my house. Bawor answered all my questions and kept me fully informed throughout the process. I had no worries and felt confident that everything was being handled properly and professionally. I never had to wait, as the team was incredibly responsive, whether by phone or email. Thank you to the team for all your hard work.
I am using Peter Barry to assist with my lease extension application. Although still very early on in the process, I am very happy with the service I have received to date
Every member of staff in this company dealt with our query in a professional,efficient,polite manner.Matthew Price ,the surveyor,
clarified all the issues around Party Wall Awards and we feel reassured that we have all the information required when the work begins.Highly recommend this company.
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