How to make the most of your leasehold property – The Property Chronicle
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How to make the most of your leasehold property Blake Morgan's specialist in leasehold enfranchisement explains the complexities of the Section 42 Notice

Residential Investor

Close up of person signing a contract

When it comes to selling a property, everyone wants to make the most of what they own, whether it is by giving it a fresh lick of paint or sprucing up the garden. However, for residential tenants of long leases, there may be one further step they can take to improve the value of their property before going to market.

Lease length – why does it matter?

One of the key factors to be borne in mind when purchasing a leasehold property is how much longer the lease has left to run. Or putting it simply, how long until the keys must be handed back to the landlord.

It is easy to see how someone may be willing to pay more for a property where the lease has 200 or more years left to run, compared to a lease that has only 90 or less. For the latter, it is clear that it would be beneficial to increase the remaining length of the lease to make it a more attractive investment to potential buyers. Many buyers are hesitant to purchase a property where there are less than 85-90 years left to run on the lease. Additionally, mortgage lenders will often not lend on properties with less than 80 years unexpired.

From a valuation point of view, the “danger zone” for any lease is 80 years too. In crude terms, when a lease drops below 80 years, it becomes much more expensive to extend the term. The technical reason for this is that, at this point, an additional element is added into the valuation calculation, called marriage value.

Can a lease be extended voluntarily with the landlord?

It is certainly possible to extend a lease simply by agreement with the landlord. However, there is no certainty that a landlord will agree in the first place, and there is always the possibility that even if they do engage with the idea, it may never come to fruition. There is nothing that a tenant can to do to compel the landlord to sign on the dotted line.

What other options are there?

Fortunately, if a tenant has owned the property for at least two years (and provided all other criteria are met) they have a statutory right under the Leasehold Reform Housing and Urban Development Act 1993 (the 1993 Act) to essentially force the landlord to extend the lease. Think compulsory purchase!

A statutory lease extension adds an additional 90 years to the remaining term, and reduces the ground rent to a peppercorn (effectively nil). Both are positive selling points to a potential purchaser.

Residential Investor

About Caroline Wild

Caroline Wild

Caroline Wild is a Legal Director at Blake Morgan. Caroline works as part of the Residential property team in London. As an expert in leasehold enfranchisement, she heads the team’s specialism in this niche area of law. She was Finalist Young Professional of the Year at the Enfranchisement and Right to Manage Awards 2014.

Articles by Caroline Wild

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