If you own a flat you may have asked these questions.
- When is the right time to apply to the freeholder to extend your lease?
The market perception of what constitutes a low lease is continually changing, my view is that leaseholders should extend the flat’s lease before it drops below 85 years.
A leasehold interest is a diminishing property asset. As the unexpired term of the lease gets shorter the value of the property falls. When the lease expires the property will, in theory, revert to the landlord and it is, therefore, necessary to ‘extend’ the lease well before this happens.
Even if you were to acquire the freehold interest you would still hold a lease of your flat which would still expire and it is still recommended that the participants grant 999 year lease extension to each other.
- What is the best way to approach a lease extension and how is the cost of this calculated and agreed on?
There are two possible approaches
1. BY INFORMAL AGREEMENT
It can sometimes be worth exploring whether you can negotiate a deal with the freeholder. I would recommend the leaseholder seek professional advice before agreeing anything if they intend to conduct initial negotiations themselves with their freeholder. Informal deals can sometimes include agreement to revise the annual ground rent in the lease for agreement of a discounted premium.
2. USING THE STATUTORY PROCEDURE
A flat owner who has held their lease for more than 2 years can serve notice on their freeholder under the Leasehold Reform, Housing & Urban Development Act 1993, entitling them to a 90 year extension of the existing lease term. Under the 1993 Act the ground rent reverts to peppercorn (£0). This is a guaranteed process which can aid curtail a difficult landlord’s agenda.
The cost of the extension is calculated by reference to the subject’s flat’s long lease value, unexpired lease term and ground rent. My experience tells me that in more than 50% of cases the client is better off following the statutory procedure.
If more than half the flat owners in your building are interested in buying the freehold interest why not club together to buy the freehold.