Extending a lease and marriage value
Extending a Lease and Marriage Value
If you have owned a flat for more than two years, you are entitled to extend the lease for up to 90 years and any ground rent which you are paying now will reduce to zero.
The new lease will replace the old one and no lender’s permission is needed.
But there is a cost that you’ll have to pay to the freeholder (sometimes they are also referred to as “the landlord” with the leaseholder referred to as “the tenant”). And you will have to pay their costs too.
Most people instruct a valuer as a first step, though we found an excellent service for our group of flats from Leasehold Solutions – who took care of everything for us, the whole process! (See also: ALEP – the Association of Leasehold Extension Practitioners, who are the main body for this type of work and who will help you find a good firm near you).
Extending a Lease Under 80 years – Marriage Value
How much you have to pay will depend on a number of factors, including the remaining length of the lease, the value of your flat and what ground rent you are paying now and in the future. (Some ground rents increase over time, say every 25 years or so. Check your lease which will have this information in it).
Avoid allowing the time left on the lease to fall under 80 years as, after that time, the price you’ll have to pay will include something called “marriage value” – which is basically the enhanced value of the flat once the lease has been extended. This can add a lot to the cost.
Indeed, you should start thinking about extending a lease once it gets anywhere near 83 or even 85 years remaining, especially if you are thinking of selling it in the near term, as selling it will get harder as the lease nears 80 years left. (This is because potential purchaser’s mortgage lenders do not like to lend on shorter lease properties).
Law Commission Report on Extending a Lease and Marriage Value
The Law Commission has recently published a report on possible changes to the cost of lease extensions. Their report has three main options and seven sub-options for change.
The biggest possible change is around the issue of marriage value, but right now it is hard to guess which, if any, of the Law Commission’s proposals will be adopted by the government.
It’s likely that any big changes will be strongly opposed by freehold landowners and pension funds, who could see the value of their land holdings devalued.
These are some very powerful people and groups, including some of the biggest UK property estates like that of the Duke of Grosvenor. They are likely to fight very hard to stop things from changing too much.
Commonhold – A False Dawn
It may all turn out to be a false dawn – as was the case with Commonhold, which came in 2002. The take-up of commonhold has been abysmal with less than 20 commonholds created to date.
Even if change does happen, it could all take a long time. And if the law was to change, it is likely to be more years before any change comes into force in the way lease extensions are costed.
So, my advice is to not wait for change to come along, especially if your lease approaches 80 years remaining. Get on with it now to avoid paying marriage value!
There is a longer guide to the pros and cons of buying leasehold flats in my book, “Successful Property Letting” – click the link here or below.
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