I would like to extend the lease on my flat, but I have been told that it is quite expensive. How can I calculate how much it will cost me?

by The Chartered Surveyor

Question

I would like to extend the lease on my flat, but I have been told that it is quite expensive. How can I calculate how much it will cost me?

Answer

If you are entitled to claim a new lease under the terms of The Leasehold Reform, Housing and Urban Development Act 1993 (as amended) you will have to pay compensation to the freeholder (landlord) as the value of their interest in the property will be reduced. This is known as the ‘premium’ payable for the grant of the new lease.

The landlord is entitled to be compensated for the loss of ground rent, as the new lease will be at a ‘peppercorn rent’ and also for the reduction in value of the freehold interest, as the new lease will be for a period of 90 years longer than the existing lease.  If your existing lease has less than 80 years unexpired the freeholder will also be entitled to a share of the ‘marriage value’.

‘Marriage value’ is the difference between the sum of the freehold and leasehold interests at present and the sum of the freehold and leasehold interests when a new long lease has been granted.  For example, if we take a flat with an existing 70 year lease the combined value of the freehold and leasehold interests might be £250,000.  If the same flat were to be granted a new lease the lease term would be 160 years and the combined value of the freehold and leasehold interest might be £275,000.  In this example the ‘marriage value’ would be £275,000 minus £250,000 = £25,000.  The Act states that any marriage value is shred equally between the freeholder and the lessee, so in this example the freeholder would be entitled to £12,500 as their share of the marriage value.

The Act specifically states that no ‘marriage value’ is payable if the lease has an unexpired term of 80 years or more, so it will always be in a lessees interest to consider applying for a new lease well before this period.

Each individual claim has to be dealt with on its merits and will depend on the market value of the flat, the length of the lease remaining and the amount of the ground rent payable.  If you are considering extending your lease you should obtain a valuation from a Chartered Surveyor who specialises in leasehold valuation work so that you will be aware of the potential cost.

{ 0 comments… add one now }