Me and my fellow residents are considering purchasing the freehold of our block. How is this different to a lease extension?

by The Chartered Surveyor

From a strict valuation point of view there is little or no difference in value when comparing a property with a newly extended lease and that same property with a share of freehold. When you extend your lease under the Leasehold Reform, Housing and Urban Development Act 1993 you actually acquire a new lease equivalent to it existing length plus a further 90 years. The ground rent you pay also reverts to zero.

The calculation for each individual flat is also relatively the same in comparison, the main consideration would be if say, only 12 of the 16 decided to participate in the freehold purchase, the 12 would have to cover the premiums of the non-participating 4 flats.

The reason for this is that the Act states that a concept called ‘marriage value’ is applied when a lease drops below the critical mark of 80 years. A flat with a long lease or share of freehold is worth more than one with a short lease and this difference/increase in value is shared equally between the freeholder and the lessee(s). So if for example each flat was worth £300,000 with a long lease and £285,000 with a short lease, the difference of £15,000 results in a £7,500 increase in the premium payable to the leaseholder. Above 80 years this would not be a consideration.

Either way you and your fellow residents wish to proceed , I would recommend that you act promptly to ensure that those involved extend or enfranchise before all of the all important marriage value can be applied.