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Lease Extensions

Do you own a flat on a long lease?

Every year the value of your lease decreases at a time when property prices are increasing. Now is the ideal time to maximise your investment and preserve or even increase the value of your flat.

This can be done by joining together with the other flat owners in your building and acquiring the freehold of the building (collective enfranchisement) or by applying to the freeholder for an extension of your lease. The circumstances in which the freeholder can refuse your application for collective enfranchisement or for a lease extension are very limited.

Leases which have less than 80 years to run are now considered to be “short” and many commercial lenders will not lend where there is less than 80 years left to run on a lease. Also, when the balance of the term of the lease falls below 80 years the cost of acquiring the freehold or extending the lease increases by a greater amount each year.

Property prices in Central London are reported to be rising at the rate of 20% per year. Take the example of a property in Central London where the balance of the lease is currently 82 years and the value of the property with an extended lease is estimated to be £500,000. The estimated cost of obtaining an extended lease in 2014 would be in the region of £9,000-£11,000. Assuming a rise in property prices of 20% a year and taking into account the decreasing balance of the lease the table below shows the cost of obtaining a lease extension over the next 4 years.

 

Year Value of flat Estimated cost of lease extension
2014 £500,000 £9,000-£11,000
2015 £600,000 £11,000-£13,000
2016 £720,000 £35,000-£37,000
2017 £864,000 £45,000-£47,000

 

For a modest property in Central London with a lease of more than 80 years left to run, the cost of extending that lease increases by approximately £2,000 each year. However, in the year that the lease has less than 81 years left to run the cost of extending the lease increases by £22,000 to £24,000 in that year alone. Another year later and the costs increase a further £10,000.

If you do own a leasehold flat it is certainly worth considering collective enfranchisement or a lease extension sooner rather than later. A small investment now could lead to a considerable saving in the long term.