Lease extension opportunity for flat-owners

ADVICE ON LEASES: Caroline Doman, Partner and Head of Residential Property at Blanchards Bailey
ADVICE ON LEASES: Caroline Doman, Partner and Head of Residential Property at Blanchards Bailey

A downturn in property values could benefit flat-owning tenants wishing to extend their leases, says a specialist at award-winning law firm Blanchards Bailey LLP.

Caroline Doman, Partner and Head of Residential Property, anticipates that the cost of lease extensions could well reduce commensurately with expected decreases in property prices during the current lockdown.

She says now is an opportune time for leaseholders to start considering lease extensions as long leases are often pivotal factors in achieving quick and successful flat sales.

Hugely experienced Caroline, who is based at Blanchards Bailey’s head office in Blandford, has two decades of involvement in residential conveyancing law, including all aspects of sales, purchases, transfers of equity and remortgages.

She said: “As recently as 10 years ago many long leases were granted for 99 years but you are now more likely to see 125 years. This is because a 99-year lease very quickly reduces to a level which requires owners extend the existing term.

“Lease extensions are often not considered until one comes to sell a flat or if they are considered, extensions can be expensive. This can make extensions only affordable from the sale proceeds with a sale and lease extension completing simultaneously.  

“Given that people mostly sell in a rising market it follows that a good time to extend a lease might be whilst the market is more dormant.”  

Caroline, who heads an expanding residential team at Blanchards Bailey, added that property values are predicted to reduce which may also result in the premium for buying a lease extension reducing proportionately.  

She said: “If you have owned a leasehold property for at least two years and you have between 80 and 90 years remaining on the lease, the coming months may be the most opportune time to extend, if you can afford to do so.  It is likely to cost less than leaving it until your hand is forced when you come to sell your leasehold property.

“By extending in the coming months, not only may you get a better deal when prices are lower but you will be ‘market ready’ with a longer lease at the time you come to sell, whether in a rising market or a declining one, in which case leasehold properties with longer terms will be preferred over those requiring extension.”

Caroline said anyone who has owned a residential leasehold property for two or more years is entitled to obtain a lease extension as a right, but the best way to achieve this is by amicable negotiation with the landlord to the mutual benefit of both parties.

She added: “If your current lease has anything less than 90 years left on it now and you are considering selling in the near future, then your property can be difficult to sell.  

“Although many lenders are willing to lend on leases with 70 or more years left on them, a lease that drops below 80 years remaining triggers what is known as the ‘marriage value’ which significantly increases the premium a landlord can command.”

Marriage value is the increase in the value of a property following the completion of the lease extension, reflecting the additional market value of the longer lease. Legislation requires that this profit be split between tenant and landlord.

Caroline said that leasehold properties that are put to the market requiring a lease extension find that the need to extend can seriously hinder the sale.  This is because they often take a lot longer to agree than the process of selling the flat – this can be a deterrent to buyers.  

If you have any questions relating to your leasehold property, please contact a member of the Blanchards Bailey residential property team on 01258 459361.

Eighty-strong Blanchards Bailey is a Legal 500 firm – making it one of the top firms in the South West – and is based in Blandford with offices in Poundbury, Shaftesbury and Weymouth.

The firm received unprecedented recognition in the UK's leading law sector directory, the Legal 500. The annual publication, The Legal 500 2019/20, mentions the firm in a record-equalling seven categories with eleven individual lawyers recommended.

Blanchards Bailey also won a hat-trick of titles at the 2019 Dorset Legal Awards: Law Firm of the Year (up to 99 employees), Company Commercial Team of the Year and Private Client Team of the Year.

 

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