Your lease, like many other large purchases you make, is a diminishing asset. You will want to avoid the depreciation in value of your property, and a lease extension reverses this process. At Rumball Sedgwick, our skills and specialist knowledge will ensure that your lease extension process is seamless.
Why do you need a lease extension?
Extending your lease on a residential property is important for a variety of reasons:-
- The value of the property decreases as the lease term shortens, which reduces the property’s market value
- It can be difficult to obtain a mortgage for a lease with less than 80 years left
- Once a lease drops below 80 years, it becomes more expensive to extend on an annual basis
When extending a lease, the lessee has the right to the existing lease, plus another 90 years. A valuation of the property will help determine the amount of premium the lessee will pay the landlord. When we calculate the value of the lease, we consider the relevant legislation and case law.
What does the valuation process include?
- The reduction in value of the landlord’s interest in the property
Reduction in value means the landlord’s interest (share) in the property will be worth less once the new lease is granted. The calculation includes compensation for the landlord’s loss of both the ground rent and the reversion (the value of the property when the original lease expires).
- The landlord’s share of the ‘marriage value’
Marriage value is the difference between the combined value of the lessee’s and landlord’s interests in the property with the existing short lease, compared with their combined interests with an extended lease. Under the terms of the Leasehold Reform Housing and Urban Development Act 1993, this profit must be shared 50:50 between the landlord and leaseholder.
If the existing lease has more than 80 years left, then the legislation states that there is no marriage value. Once it drops below 80 years, the landlord is entitled to 50% of the marriage value, which is why the 80 year renewal point is important.
- Any compensation payable
If a lease extension means that the freeholder loses development potential, he or she may be entitled to compensation.
If you require specialist advice or are extending your lease, call our experts now on 01727 519143.