Extend your lease and add value to your property

Leaseholders looking for the best investment for their money should investigate the chance to extend their leases - this is important added value for financial security.
Dekra
Leaseholders can get together and buy the freehold of a building, enabling them to sell space for development. Such as this penthouse at Wellington Court, St John's Wood, built by Dekra. Call Knight Frank on 020 7586 2777
Unwelcome chickens are coming home to roost for many people who bought flats on 99-year and 125-year leases during the 1970s and 1980s.

These leases are now getting worryingly short - and if they are not extended, leaseholders are likely to see a significant drop in the value of their property or find it difficult to remortgage.

“A lease is a diminishing asset, and problems arise when an owner wants to sell or remortgage,” says Genevieve Mariner of chartered surveyors Strettons. “Purchasers prefer longer leases, while mortgage providers are reluctant to lend on less than 70 years’ unexpired.”

The longer leaseholders postpone extending their lease, the more it is likely to cost them when they do extend.

Often, leaseholders view extending as an unnecessary expense but once the unexpired lease gets below 80 years, costs start to ramp up sharply. At this point, some owners may not be able to afford to extend, warns Mariner.

'By spending a few thousand pounds earlier rather than later, leaseholders can safeguard the saleability of their property and even boost its value'



Under the Leasehold Reform and Housing Development Act 1993, all leaseholders have the right to extend their lease by 90 years. There was big growth in sales of leasehold flats during the 1970s and 1980s because of a shake-up to leasehold laws.

Dekra
Dekra is a niche company that builds luxury penthouses on top of central London mansion blocks, by negotiating a price with the freeholder - such as this project at Wellington Court, St John's Wood (020 7586 2777)
By spending a few thousand pounds earlier rather than later, leaseholders can safeguard the saleability of their property and even boost its value, claim surveyors. The price leaseholders have to pay takes account of a formula known as “marriage value”.

This is a measure of the potential for increase in the value of the flat arising from the granting of a new lease, and it has to be shared 50/50 between leaseholder and freeholder. Marriage value is not a factor when the unexpired lease is longer than 80 years.

Taking a London flat worth £250,000 with 81 years unexpired, extending the lease would cost between £3,000 and £6,000. Survey and legal costs are likely to be about £2,500. Leaseholders also have to pay landlords’ costs, which in this scenario would be about £1,500. If the same property had 65 years unexpired, the cost of extending the lease would jump to between £19,000 and £24,000.

Leasehold law is riddled with complexity and appears daunting but often is simply a case of access to the right information, according to the Leasehold Advisory Service, a publicly-funded organisation which provides free advice. Call 020 7354 5380 or visit www.lease-advice.org.uk.

Increasingly, owners of flats at big developments, many built during the Noughties property boom, choose to “collectively enfranchise”, or buy the freehold. More than 200 residents at the Jam Factory, a fashionable loft scheme in Bermondsey, have gone down this route, paying about £5,000 per flat.

The advantage for residents is that they can control management of the building and limit service charges, a lucrative source of income for “absent freeholders”. There are also money-making opportunities for resident freeholders. For example, selling roof space for development.

Dekra is a niche company that builds luxury penthouses on top of central London mansion blocks. It negotiates a price with the freeholder and will often pay for upgrading work to common parts. Its latest project is a pair of penthouses at Wellington Court, St John’s Wood. Prices range from £3.75 million to £4.25 million. Call Knight Frank on 020 7586 2777.

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