Over the past 10 years the issue of extending a lease in a converted house has become increasingly common. At Darlingtons, we get calls about these issues almost daily. So, why is this now such a big issue ?
The answer is there are 3 reasons why lease extension issues arise on sales :-
1. many more houses were converted into flats in the last 50 years than previously with leases of 125 years for each flat – whilst this is definitely a long lease, an increasing number are now reducing down to the 80 year mark.
2. the 80 year mark is very significant – once a lease has less than 80 years left, whilst it can be extended, it will cost significantly more since legislation then adds an obscure calculation to the value called, oddly, “marriage value”. Consequently, it’s important to extend before the lease gets down to 80 years.
3. Mortgage lenders for buyers have changed their policies towards lending on properties with leases which are generally 60 years or less, and a buyer doesn’t want to encounter a problem when he/she/they come to sell.
Many leasehold flat owners are completely unaware that the issue of extending the lease may become an obstacle and delay when selling. It can usually be resolved but often requires some negotiation and possibly delay and extra cost.
The solution to the problem is often :-
1. the seller must start the statutory process to extend the lease and serve notice on the freeholder – this is important because the buyer can’t do it – a notice can only be served by a leaseholder who has owned for 2 years.
2. the seller tries to agree a premium for the lease extension with the freeholder – it will then be a n issue of negotiation between seller and buyer whether the seller will reduce the sale price to take account of the premium the buyer will pay post completion to the freeholder.
3. on completion the seller will assign (transfer) the benefit of the notice served on the freeholder to get round the 2 year ownership issue
If you are a seller or possible buyer of a converted flat and want advice on leases or lease extensions, I can assist. I deal with these issues literally daily and Darlingtons offers cost effective solutions to these often unforeseen issues.
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