Leasehold valuation is a pivotal part of extending a lease on any residential property. Whether you are about to purchase a new home with a short lease, need to calculate the cost of extending the lease to your current home or are a freeholder entering negotiations with a tenant, our team of Chartered Surveyors have a proven record of securing the best deal for our clients.
Leasehold extension and valuation is a complex process and we are happy to help our clients navigate through the legal requirements and their obligations. We’ve put together a list of the questions we are most commonly asked by our clients below.
Estimate as to the likely costs of a lease extension under the Leasehold Reform, Housing and Urban Development Act 1993.
Under the Leasehold Reform, Housing and Urban Development Act (1993), the owners of a leasehold property can compel their freeholders to extend their lease by 90 years and eliminate their ground rent in exchange for a sum of money.
To determine this sum, a valuation will need to be carried out by a surveyor working in the interest of the leaseholder and a separate surveyor working in the interest of the freeholder. The valuation includes:
• Compensation for the loss of ground rent
• Compensation for the freeholder being unable to acquire the property for another 90 years
• Half of the “marriage value” created by the lease extension
If these two surveyors cannot reach an agreement, the case can be referred to the First-tier Tribunal for determination. For an idea about the potential costs of your leasehold extension, try our online leasehold calculator.
When you extend a lease its value increases and the value of the freehold is reduced. When that lease is short the uplift in the value of the lease will usually be greater than the diminution in the value of the freehold. That additional ‘profit’ is called marriage value. Under the legislation, when a lease has less than 80 years left to run, 50% of the marriage value is payable to the freeholder when the lease is extended.
If the property still has 80 years or more on the lease the marriage value is disregarded, and the leaseholder will not have to pay it. This is why it’s financially beneficial to start the leasehold extension proceedings before the remaining term falls below this point.
The First-tier Tribunal – previously known as the Leasehold Valuation Tribunal – is a sort of small court. At a hearing both surveyors submit their evidence and the Tribunal members make a determination based on that evidence. The Tribunal can determine the compensation payable to the landlord and/or the reasonableness of the costs incurred by the landlord that he intends to recover from the tenant.
If a leaseholder is seeking an extension to their term, there are two ways they can achieve this; by making a private agreement with the freeholder, or serving a formal notice, referred to as notice under Section 42.
This opens the legal procedure for compelling a landlord to grant a lease extension and the leaseholder must include a date at least 2 months in the future by which the freeholder must respond. If no Counter Notice is served by the stipulated date, you can apply to the County Court, who may grant you a new lease on the terms proposed in your notice.