Are You Sitting On A Depreciating Asset?

If you are an owner of a Leasehold Property, you should be aware that you have a right to occupy that property only until the end of the term of the Lease, at which point the property reverts back to the Freeholder and your right to occupation will cease. The value and marketability of such property will reduce year by year until the end of the Lease, when it will be zero. Many lenders will not provide a mortgage once the term remaining drops below 70 years, possibly limiting potential buyers of your property to cash buyers only.

Many people wait until they wish to sell or re-mortgage before they tackle this problem and are then faced with long delays in obtaining a Leasehold Extension, which can take up to 12 months, whilst a normal re-sale takes 10 to 14 weeks. It is therefore recommended to consider Leasehold Extensions at an early stage not only to prevent delays but also as the shorter the term becomes, the more expensive it is to increase.

Leaseholders who have owned a property for two years have a statutory right to a Leasehold Extension, which entitles them to add 90 years to the remaining term and to a peppercorn Ground Rent (£0.00). However, if you have owned the property for less than 2 years, you may still be able to extend the term either by entering into a Non-Statutory Voluntary Extension with the Freeholder or when you purchase the property, ensuring the seller assigns the benefit of their right to you. Although, a Non-Statutory Extension unlike the Statutory Extension allows the Freeholder more flexibility with regards to changes, such as escalating Ground Rent provisions, and only granting an extension back up to the original term of the Lease.

The premium for extending a Lease depends on the value of the property, the term remaining on the Lease, the Ground Rent, the value of improvements to the property by the Leaseholder and external factors such as expected rate of return on investments. It is an extremely complex calculation, which should be undertaken by a Valuation Surveyor, but is based on a formula design to compensate the Landlord for the loss of Ground Rent and the delay in receiving the property back at the end of the term.

In addition to the premium, there would also be legal and valuation fees, which may include those of the Freeholder, if proceeding with a Statutory Extension. There will also be a registration fee payable to the Land Registry. To keep costs down it is often worth extending on mass with your fellow Leaseholders, which would help to ensure consistency with the new Lease, and where you own a share of the Freehold, you could collectively elect not to charge a premium.

This process is also often of interest to Freeholders looking to raise some immediate finance who may opt to offer to Leaseholders a Non-Statutory Extension for a particular sum.

At Clutton Cox we are able to assist with all aspects of Leasehold Extensions, from acting for the Freeholder or Leaseholder to assisting with an extension down the Statutory or Non-Statutory route. For further information on how we may be able to assist, please contact us on 01454 312125 or email at info@cluttoncox.co.uk.