Carter Jonas property experts are urging owners of apartments and flats – whether owned as a primary residence or as part of a property portfolio - built since the 1960s, to dust down their legal documents and check the lifetime of their leases as many have now reached beyond middle-age and could do with a boost now that could benefit the owner in future.
While acknowledging that consideration of leases is the least glamorous side of home purchase or ownership, Carter Jonas is keen to point out the importance of a lease’s lifetime and the benefit of negotiating a lease extension now.
Many flats built in the 1960s, 70s and 80s – whether as conversions or stand-alone blocks – came with 99-year leases which have unexpired terms of only 50-80 years and could prove difficult to sell or re-mortgage.
Properties with leases under 70 years can be particularly difficult to sell because mortgage lenders generally like the security of a longer period on any property they are lending against.
As a result, they will be worth a lot less than those with long leases or freeholds.
Flat-owners in this position can exercise their right to extend their lease, especially if they are thinking of selling. To extend their lease on a flat, the owner must have owned the property – although not necessarily lived in it - for at least two years.
The extension process involves the granting of a new lease for 90 years longer - and in place of the existing one - at an agreed premium.
As the length of the remaining lease becomes shorter the premium will increase.
But if the unexpired term of the lease is less than 80 years, the premium payable can be much more because the law says that 50 per cent of this – called a ‘marriage value’ – is paid as part of the compensation to the freeholder.
Compensation payable to the freeholder also relates to the current value of the flat. Indications that house prices are climbing again give another good reason to undertake the process of lease extension now say experts.
Mark Hallam, a partner in the Cambridge office, who has award-winning expertise in this niche area of property law, advises:
“Generally speaking, when it comes to looking at the lifetime of your lease, property owners should do it sooner rather than later in order not to store-up any problems at the point of sale. The process takes a few months and owners should seek specific legal and valuation advice.”