If your property is a leasehold, this means that you own the property itself but the building and land are owned by the freeholder. You purchase a lease from the freeholder for the right to live in the property for a certain number of years. Leaseholds are common for apartments that sit within a larger building and shared ownership houses. Check out our ‘What is a lease extension?’ blog for further information.
Lease lengths tend to start at 99-125 years. As time goes by, you need to consider extending your lease because it can be hard to sell your property or remortgage with a short lease length. You can extend your lease as long as you have lived in the property for more than 2 years. It can be an expensive and complicated process, so it’s best to get the advice of an expert. If you’re looking for lease extensions in London or the surrounding areas, Taylor Chartered Surveyors can assist with your lease extension valuation. Get in touch with us to discuss how we can help you navigate the complexities and negotiate a cost-effective lease extension.
When it comes to leaseholds, 80 years is the number you want to have in mind. If your lease drops below 80 years, it will cost you considerably more to extend your lease. It can be a time-consuming process, so strongly consider starting when you have 83 years remaining. Why is it more expensive at this point? Well, when your lease drops below 80 years, you will have to pay a marriage value on top of all the other fees.
What is a marriage value?
Your property will go up in value with a higher lease length. The marriage value is the amount of extra value a lease extension would add to your property. You will have to pay 50% of the property’s marriage value to your freeholder. So, if a property’s value goes up by £20,000 after the lease extension, you’ll pay the freeholder £10,000. You will still have to pay the lease extension cost and the professional fees too. Expensive, right? That’s why it’s so important not to let your lease go below that 80-year mark.
What happens when you obtain a leasehold extension?
When you apply for a leasehold extension, you get a new lease with an extra 90 years added on (or 50 years for a house.) it will have the same terms and conditions as your old lease but you will then pay peppercorn rent at a rate of zero. This then leaves the freeholder out of pocket as they won’t get rent from you anymore. So, in order to extend your lease, you need to pay the freeholder compensation for this loss of rent.
How much will a leasehold extension cost?
The cost of the lease extension can vary widely. It is worked out by assessing the financial loss that the freeholder will incur by granting an extension. This will depend on variables like the ground rent and market value of the property. It can be anywhere upwards of £5,000. The premium you pay the freeholder will need to be negotiated. You will also need to pay for the freeholder’s legal fees and valuation fees, as well as your own.
To give you an idea, the cost of extending a lease on a £200,000 flat at 90 years may cost £5,500 but if the lease only has 60 years left, it will cost £28,000. That’s a massive jump. What’s more, properties with a lease of less than 60 years are pretty much unmortgageable and unsellable. If the lease runs out completely, then the property reverts back into the ownership of the freeholder.
This demonstrates just how important lease extension is. Below showcases some estimates of the cost to give you a rough idea and to highlight just how important it is that you do not let your lease go below 80 years.
How do you keep lease extension costs down?
- Ensure that you extend before that 80-year mark.
- Appoint a specialist surveyor and solicitor.
- Do not go with an informal lease extension as an unscrupulous landlord may not add on the full 90 years.
The Government are trying to make it easier and cheaper to extend leaseholds but there’s no clear date on when changes will come into effect. So, for the time being, this is still the process.
Are you considering a lease extension? As we’ve discussed, it’s well worth extending your lease sooner to keep costs lower. If you’re looking for lease extensions in London or the surrounding region, Taylor Chartered Surveyors can help you to negotiate a lease extension valuation. Speak to one of our expert advisors to find out more.