Gardner Leader

In the midst of all the general economic gloom there was one recent surprise statistic from the Halifax, who recorded that the average price of UK homes rose by 1.9% in January from December's figure. However, a similar monthly survey by Nationwide suggested house prices fell by 1.3%.

Whichever is to believed, there is one positive to come out of the recent fall in property prices. Flat owners with long leases can take advantage of the lower property values and extend their leases as the value of a property is a very significant factor in determining the cost of extending the lease or even buying the freehold.

Extending your lease could make your property more saleable, and I would recommend that any flat owner with a long lease should contact their solicitor and look into the possibility, even if you are not planning on selling straight away.

As lenders continue to restrict lending, anyone wishing to sell a leasehold property may find it harder to sell, particularly if other flats in the block have extended their leases. Extending your lease is likely to assist in attracting more interest from buyers who stand a much greater chance of obtaining a loan. This is because most mortgage lenders will not lend on properties where the lease term remaining is less than fifty five years; some insist on seventy years.

So how do you extend a lease? Leasehold ownership of a flat is simply a long tenancy; the right to occupation and use of the flat for a long period, i.e. the 'term' of the lease. This will usually be for 99 or 125 years and the flat can be bought and sold during that term. The term is fixed at the beginning and so decreases in length year by year. So, if it were not for inflation, the value of the flat would diminish over time until the eventual expiry of the lease, when the flat reverts to the landlord.

A tenant is entitled to seek a lease extension once he or she has held the lease for at least two years. Assuming you qualify, the landlord is required to grant you a new lease on payment of a premium. The new lease is a substitution for the existing lease, but for a term 90 years longer. The entire term will be at a peppercorn (nil) rent. So if your existing lease has thirty years to run, you will be granted a new lease of 120 years - to begin immediately. The new lease will be on the same terms as the expired lease.

The tenant must give notice of their claim to extend the lease. Following receipt of this notice the landlord is entitled to have access to the flat in order to carry out a valuation. The landlord must then respond to the tenant by stating whether he admits the validity of the claim or not.

Where the landlord disagrees with the tenant’s claim is most often in the valuation of the premium.

The premium to be paid for the new lease is the total of:

·         The diminution in the value of the landlord's interest in the flat. Your new extended lease will begin immediately at a peppercorn rent. The landlord’s loss of income for the remainder of the original term is effectively added to the premium.

·         The landlord's share of the marriage value. The potential for increase in the value of the flat arising from the grant of the new lease - the Commonhold and Leasehold Reform Act 2002 requires that this "profit" shall be shared equally between the parties.

·         Compensation for loss arising from the grant of the new lease. Probably the only possibility here could be a claim for a loss of opportunity for redevelopment potential or for a reconversion of a unit of flats, back into a single dwelling house.

The calculation is a complicated one as valuation is not an exact science and will inevitably result in some degree of haggling between the parties or their respective valuers. It is very important to note that, if the existing lease has more that 80 years left to run, there is a rule which states that no marriage value is payable.

If you delay in extending your lease, then conversely when property prices go up and the length of time left on the lease has gone down, it will be more expensive to extend it.