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Property Owners Capitalise on Recession’s Silver Lining
By Christopher J Sherliker

The recession has been bad news for homeowners, as most have seen their property prices take a dive. If you are a tenant of a long lease, however, then the fall in property prices may not be such a bad thing. Partner John Abbott and Solicitor Asil Albayaty explain why…

If the unexpired term of your lease is approaching or has fallen below 80 years, then this is the right time for you to apply to your landlord to have your lease extended.

The calculation to determine the premium payable to your landlord is, amongst other things, dependant on the market value of the flat. Accordingly, it follows that if the price of the flat has decreased, so will the premium payable in respect of your lease extension.

The Leasehold Reform and Urban Development Act 1993 provides you with a right to extend your lease. This right is highly valuable, as it increases the value of your property and its marketability.

Are There any Qualifying Criteria?

The main criteria that you need to consider are as follows:

The flat must be held under a long lease, which was granted for a term of more than 21 years
The flat must have been owned by you for more than two years, though it is not necessary for you to live in the flat

What are the Advantages to Extending Your Lease?

  • Adds to the value of the property

    As the unexpired term of the lease decreases, so does its value. If the lease has less than 80 years unexpired when you seek to extend it, then, as part of the premium, you will have to pay what is known as the “marriage value”. This sum could be significant, which is why it is advisable to consider extending your lease prior to the 80-year mark.
     
  • Makes it more marketable if you sell the flat

    If your lease has an unexpired term of less than 70 years, you may find it difficult to sell your flat, as it would be regarded as unmortgageable by most lenders. This would mean you could only sell your property to a cash buyer, who again may have reservations in terms of the unexpired term of the lease.
     
  • The legislation allows you to add 90 years to the unexpired term of your lease.
     
  • The ground rent should be reduced to a peppercorn, meaning that no ground rent should be payable for the whole of the term (that is, the 90 years plus the present unexpired term).

There are clear advantages to extending your lease. The recession has just made it a little more cost-effective.

Added: 1st June 2011

Christopher J Sherliker is a partner for Silverman Sherliker LLP who provide legal solutions across a spectrum of requirements.  Find out more about Silverman Sherliker LLP.

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