A Leeds law firm is warning owners of flats and apartments to check and extend the leases on their properties to avoid wiping thousands of pounds off the face value.
Property law specialist Ison Harrison says that owners who let the lease run too low on their properties run the risk of being lumbered with a flat that becomes almost impossible to arrange a mortgage for.
There are over four million leasehold flats in England and Wales and it is the most common form of flat ownership.
Steve Neale, property partner at Ison Harrison believes that while a lease extension is not necessarily at the top of every home owner’s to-do list it can prove to be a shrewd financial step to take.
He said: “Letting a lease slip is a costly mistake as not only does it becomes more expensive to extend as the lease shortens but the property becomes harder to sell and worth less. Extending also means the owner is not limited to selling to cash buyers only.
“First and foremost, the key benefit of extending a lease relates to the marketability of the property. If you have extended the lease prior to placing it on the market, its value will be enhanced or at least maintained. It can be difficult to sell if only a short lease remains, as potential buyers find it impacts upon their ability to obtain a mortgage.”
Under the 1993 Leasehold Reform Act, most flat-owners are legally entitled to get 90 years added to their lease at a fair market price. To be legally entitled to extend, the owner needs to have owned the flat for at least two years. The shorter the lease, the more expensive it becomes to extend.
Steve Neale added: “Extending a shorter lease to a decent length can add thousands to. a property’s marketing value. The general rule of thumb is the shorter the lease, the lower the asking price so to maximise the property’s value, a lease extension is definitely worth the investment.”
A premium will need to be paid to the landlord for extending the lease (together with a request to cover any ‘reasonable’ legal costs incurred by the landlord.) There is also nothing preventing an informal approach outside of the Leasehold Reform Act to the landlord at any time during the property ownership period.
Whilst it is referred to as a “Lease Extension”, under the Leasehold Reform Act, owners of flats are actually granted a new lease with a term of 90 years (plus any remaining years at the time of the extension) – giving peace of mind during the ownership period and a solid starting point if the opportunity to sell arises.
Steve said: “My advice is that everyone – whether selling or not – should start thinking about extending once their lease gets to around 83 years. This is undoubtedly a complex, technical area of law, with a strictly defined procedure. It would be easy to just let the lease slip and potentially lose thousands in the process. A solicitor will check eligibility, prepare and serve notice on the landlord and deal with the granting of the new Lease.
“A critical factor to bear in mind is that there are consequences for an incorrectly followed procedure; an application can be declared void which prevents any new applications being made for a further 12 months. Using an experienced solicitor means there’s no need to worry about errors in procedure holding things up or having an adverse effect on the value of the property.”