Does Extending A Lease Add Value To A Property?

Nikka Sulton

Does Extending A Lease Add Value To A Property?

Extending your property’s lease can be a strategic move, not only enhancing its value but also improving its marketability. Thanks to the Leasehold Reform Act of 1993, the process has become more accessible for leaseholders, offering options like extending the lease by 90 years or purchasing the freehold through Leasehold Enfranchisement.

Timing is crucial in lease extension. It’s advisable to act before your lease drops below the 80-year mark, as this threshold triggers additional costs associated with “marriage value” payable to the landlord.

When considering lease extension, understanding the associated costs is essential. Following the statutory route entails payments based on a prescribed formula outlined in the Act. Utilizing resources like the Lease Advisory website’s calculator can provide estimates, covering expenses such as legal fees, valuation reports, Land Registry fees, and the landlord’s associated costs.

By navigating the process strategically and proactively, leaseholders can maximize the benefits of extending their lease, securing their property’s long-term value and enhancing its appeal in the real estate market.

How much will extending my lease increase the value of my property by?

Predicting the precise variance in value between a short-lease and a long-lease flat can be challenging. Typically, a long lease (over 100 years) is associated with an increase in value exceeding the cost of lease extension. Extending the lease of a flat with 70 years remaining often results in a value hike of approximately 10 to 15 per cent. This increase in value stems from the security and assurance a longer lease provides to potential buyers, reducing concerns about lease expiration and associated costs.

Moreover, if your flat has an onerous ground rent, addressing it through a lease extension and reducing the ground rent to £0 can further augment its value. Onerous ground rents, characterized by steep and escalating charges, can significantly devalue a property. By extending the lease and nullifying the ground rent burden, you not only enhance the property’s appeal but also alleviate future financial liabilities for prospective buyers. This strategic move can lead to a more substantial increase in property value, offering a lucrative return on investment.

Understanding the financial implications of lease extensions is crucial for leaseholders contemplating such actions. While the upfront costs of lease extension may seem daunting, the potential increase in property value often outweighs the initial investment. By securing a longer lease term and eliminating onerous ground rent obligations, you not only enhance the marketability of your property but also safeguard its long-term value. Consulting with real estate professionals and solicitors specializing in leasehold matters can provide valuable insights and guidance in navigating the lease extension process effectively.

It’s worth noting that lease extension can vary in complexity and cost depending on various factors, including lease length, ground rent terms, and legal considerations. Engaging with professionals well-versed in leasehold matters can streamline the process and ensure favorable outcomes. Ultimately, extending the lease of your property presents an opportunity to maximize its value, enhance market appeal, and secure long-term financial stability.

Ensuring your lease extension is a good investment

Here are some key considerations to ensure that the value added to your property through a lease extension outweighs the associated costs:

Opt for a formal lease extension rather than an informal one to avoid potential pitfalls. Informal extensions may lack clarity or legal protection, posing risks for both parties involved.
Evaluate the remaining term on your lease before proceeding with an extension. If you have over 90 years left, carefully weigh the cost of extension against the anticipated increase in property value. In some cases, the expense of extending may outweigh the potential appreciation in value.
Prioritize obtaining a comprehensive lease extension survey to accurately assess the fair price for the extension. This survey provides valuable insights into the property’s condition, lease terms, and market value, enabling you to negotiate a favorable extension agreement.

How to extend your lease – the Process

The typical steps involved in the lease extension process are as follows:

Consult with a knowledgeable solicitor experienced in lease extension matters, such as Bird & Lovibond property solicitors, and obtain a quote. While you might consider handling the process yourself, it’s advisable to seek professional assistance due to its complexity. Acting without legal guidance could potentially lead to higher costs and unfavorable changes to your lease terms by the freeholder. Opting for the statutory route offers greater protection in case of disputes.
Obtain a valuation from a surveyor specializing in leasehold extension. If needed, we can assist you in connecting with a qualified surveyor.
Once you have a valuation, your solicitor will discuss your willingness to pay for the 90-year lease extension. Subsequently, your solicitor will formally submit an offer to your landlord on your behalf by serving a Section 42 Notice, specifying the proposed amount for the extension.
Your landlord has a two-month period to respond with a Counter Notice, either accepting your offer or stating the desired amount.
Negotiations often ensue to reach an agreement on the payment to the landlord. Your surveyor will advocate on your behalf during these negotiations.
If no agreement is reached within two months, you have the option to request that your solicitor refers the matter to the First-tier Tribunal (Property Chamber). However, this route can be costly and is best avoided if possible.