I am buying a flat with an 81 year lease. Do I have to wait two years to extend?

by The Chartered Surveyor

Question

I am buying a flat that has an 81 year lease. I am concerned that I will need to extend my lease, but solicitor tells me I will not have the right to do until I have owned the flat for two years. Is the cost of the extension likely to be a lot higher in two years than it is now?

Answer

Your solicitor is correct, insofar as in order to gain the statutory right to extend your lease under the Leasehold Reform, Housing and Urban Development Act 1993 (the Act), you need to have owned the property for two or more years.

It is very difficult to estimate what the cost of the lease extension will be in two years time, as it very much depends on what happens with property prices in the interim. However, all things being equal, it is likely that the extension will be more expensive, as not only will the lease be two years shorter, but critically, it will be below the 80 year point at which the legislation dictates you must pay marriage value as part of the premium.

Marriage value is the difference in the aggregate value of the freehold and leasehold interests before and after the extension is enacted. Under the Act a 50% share of this increase in value is payable to the freeholder where the unexpired term of the lease is below 80 years.

However, it may be possible to proceed with the benefit of the statutory right to extend. If the vendor is eligible to extend the lease (has owned the property for two or more years and meets the other criteria) he or she can serve notice under Section 42 of the Act, and assign the notice to you on completion of the sale. Notice is usually served in-between exchange of contracts and completion of the sale. In this way, it is possible to circumvent the two year requirement, and proceed with the statutory right to extend you lease immediately following your purchase of the property.