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Extending your lease

Extending your lease

| Published on October 10, 2016

Extending your lease – Humphries Kirk Dorchester

Owning the lease on a flat with a short term left can be like holding a ticking alarm clock. Once the number of years remaining on the lease approaches 80 years, the value starts to depreciate rapidly and it can become hard to sell.

Fortunately, there are a number of ways that we may be able to improve your situation. Katharine Jones, Land Law Partner with Humphries Kirk in Dorchester looks at how you can optimise the value when selling a flat with a short lease.

Extending the lease

Fortunately, as a residential leaseholder you have a statutory right to extend your lease under the Leasehold Reform Housing and Urban Development Act 1993. Effectively, this allows you to add 90 years to your remaining term. The right to extend only applies to persons who have been registered owners of the lease for at least two years.

In return, as leaseholder, you must pay a premium. The amount will vary, but reflects the loss of value to the freeholder. However, if your lease has 80 years or less to run, the freeholder will also be entitled to half of the marriage value.

Marriage value is the difference between what your property is worth with its current short lease and the proposed extended lease. This can be a considerable amount. It is why a lease declines significantly in value as it approaches the 80-year mark. If you can, extend well before then. It will save you money and give you peace of mind.

At Humphries Kirk, we can advise you whether you qualify to exercise the right to extend, and the likely costs involved. We will serve the right notices to initiate the process, and keep it on track. The freeholder may try to use delaying tactics if the lease term is approaching 80 years, which we will look out for.

Buyer wants to extend the lease

Another option is to sell the flat with the existing lease term and to assign your right to extend the lease to the buyer. By doing this you can speed up the sale of the flat and negotiate a higher sale price in return. The terms will need to be carefully negotiated with the buyer and documented.

Buying the freehold

If sufficient leaseholders are interested, and the freeholder agrees, then you may be able to buy the freehold. It should make the property more attractive to buyers and depreciation will no longer be an issue. This gives the owners much greater control over the building’s structure, any common parts, the level of service charge and insurance, providing tenants can agree on these issues and who manages it all.

It is important, however, to regulate the responsibilities of all the flat owners properly. The new arrangement must meet your needs, the requirements of any lender and prospective buyers. We can advise you on how best to achieve this, for example, by setting up a specialist management company and granting 999-year leases.

Generally, you cannot compel your freeholder to sell the freehold. However, if you own a flat in a block, you may be able to exercise your right to collective enfranchisement with the other leaseholders. You may also have a statutory right to buy the freehold if the freeholder decides to sell their interest.

To find out more about extending a lease or if you are selling a flat, contact Katharine Jones, Land Law Partner in our residential property team.

Tel: 01305 251007

Email: kj@hklaw.eu

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