Leasehold ownership, which governs a significant proportion of prime central London’s residential offering, is an ancient legislation, dating back to the writing of the Domesday Book when all the land in England was owned by the Crown.
Despite its legal longevity, leasehold properties continue to represent one of the issues around which our clients, hoping to launch a leasehold property onto the market, have the most queries.
The primary question with which we are most commonly faced is: “Is it worth it?”
In the vast majority of cases, we would certainly advise clients on the benefits of extending their leasehold. That is, of course, if they have the necessary funds available.
Experience has shown us that properties approaching the end of an existing leasehold (anything below 50 years) will lose the potential interest of around 60% of the buyer market.
As a result, the property’s saleability is significantly reduced, drawing in a narrow group of interested buyers, and, as a result, tending to stick on the market.
In contrast, by extending the lease when preparing to put one’s home on the market, one is making sure that the property will attract the maximum number of potential buyers, thereby helping to generate heat around the sale and push up the final sale value.
It is also worth bearing in mind that the longer the extension process is put off, the more expensive it will be. Not only does the price of the additional years increase with inflation, but it also becomes more costly as the end of the leasehold draws closer.
‘Marriage value’ dictates that a leasehold extension will vastly increase in cost once the remaining years drop below 80, as this is the point at which the lease becomes considerably more valuable to the tenant.
For example, were it going to cost £10,000 to add a further 90 years with 81 years currently remaining, once the 80 year mark had been passed, this cost could quite conceivably double. With this in mind, we encourage our clients to think about the extension process well in advance of putting a property on the market.
Our clients who have not previously undertaken the process of extending leasehold can tend to be anxious about the paperwork and bureaucracy involved. However, the transaction is very straightforward, eased, as in all matters of this sort, by the consultancy of expert solicitors and surveyors.
There are two ways in which one can extend a lease; either through a landlord offering to sell a further 30 years or by a leasehold owner claiming the further 90 year extension, for which they have a legal right.
In order to claim these 90 years, the leaseholder must have owned the property for a minimum of two years and the original term of the lease must have been more than 21 years. We are sometimes asked if it is possible to buy a 20, 30 or 40 years further lease, however, the 90 year time period is fixed and consistent across the market.
In terms of timing, we normally recommend factoring in six months to see the process through from start to finish. The first step is to get in touch with a solicitor, for which we would recommend researching members of the Association of Leasehold Enfranchisement Practioners (ALEP).
A surveyor will take in to account various factors, including location, ground rent, property value and length of leasehold remaining in order to produce a realistic offer the leaseholder is willing to offer to the landlord.
It is important to take specialist advice when putting together this figure as, if the offer is considered unrealistic, the claim could be rendered invalid, in which case, the leaseholder is unable to make another for a further 12 months.
Following the initial notice given to the landlord, they are required to make a reply within two months, ensuring the process does not drag out for an extended period of time.
In conclusion, increasing the number of years remaining on one’s lease is the key way in which leaseholders can improve the saleability of their property; representing a safe investment which we would advise to be taken should the capital be available.
*This article was written by Simon Hedley, director at prime residential property agency Druce Marylebone.