Tenants who currently own or are planning to acquire or sell a residential lease should be aware of the potential savings, and conversely potential losses, associated with the number of years remaining on their lease.
Long leases are a depreciating asset. A ninety nine year lease may seem a lifetime but extending, selling or financing a lease with less than eighty years to run often means the landlord can hold a tenant to ransom. This problem can be overcome by renewing the lease before it falls below the critical eighty year term.
A tenant with a lease of less than eighty years may experience problems re-mortgaging the property as mortgage providers are normally unwilling to lend against a property where the full value of the loan cannot be secured. Likewise tenants may also experience problems selling the property if the new buyer requires a mortgage.
What Can A Tenant Do?
The first option is for the tenant to negotiate an extension of their lease with their landlord.
This is the preferred route where the tenant has a good relationship with their landlord, or where the tenant is part of a company that owns and manages the freehold of the block of flats. However, direct negotiation with a landlord can sometimes be difficult, resulting in a high premium, increased ground rent or other undesirable changes to the lease terms, particularly if the tenant is looking to extend the lease to facilitate a forthcoming sale.
The other option is to use the Leasehold Reform Housing and Urban Development Act 1993, which allows tenants who have owned their flat for two years to extend the term by 90 years at a peppercorn ground rent. Furthermore if the current term is more than 80 years, no ‘marriage value’ is payable by the tenant, so the premium for extending the lease will be correspondingly less.
Due to the complexities associated with lease extensions (often involving complex and time-sensitive procedures) tenants are advised to seek legal guidance to maximise the benefits and avoid the pitfalls associated with extending a lease.
James Khakpour-Smith is a property lawyer at Taylor Walton Solicitors and heads up the Lease Extensions and Enfranchisement team based in our St Albans office. The firm has a dedicated and experienced property team which regularly represents tenants in extending their leases, either by compelling uncooperative landlords under the statutory procedures (including under the Leasehold Valuation Tribunal), or through “informal” agreements entered into with more cooperative landlords. James can be contacted on 01727 845245 or email firstname.lastname@example.org