My Freeholder has offered me an Extension to 99 years. Is this a Good Offer?

by The Chartered Surveyor

Question

My freeholder has written to me with an offer to extend my lease to 99 years, which currently stands at 79 years. How do I know if this offer is in my best interests?

Answer

It is not a coincidence that your freeholder has chosen to write to you at this time. The cost of extending your lease once it drops below 80 years increases substantially due to what is referred to as marriage value. This figure is based on the fact that your property will increase in value following the freeholder granting you a new lease under the terms of The Leasehold Reform, Housing and Urban Development Act 1993. From a valuation point of view it is stated that this increase is shared equally between yourselves and the freeholder.

Now that your lease has fallen below this critical level, the freeholder is in a strong position to offer you an extension outside of the Act, which your case is to 99 years. Despite having not seen the details I would be very surprised if the offer did not include a provision for increased ground rent which would have provisions to increase at the end of set terms (usually every 33 years).

Seen as your freeholder is likely to have been advised on how much he would be entitled to if you chose to acquire a new lease under the mechanisms of the Act, the offer he has put forward will certainly in the long term be far favourable to him than you. Not only under the Act would your new lease be equal to its existing length plus 90 years, your ground rent would also be at a peppercorn rate or zero.
There are some circumstances where extending outside of the Act are suitable; where you require a quick sale for instance. In your scenario I would recommend that you instruct an experienced leaseholder surveyor to produce a valuation under the Act and have him review the two opposing figures.