If you own a leasehold property that you let, the length of the lease can become increasingly important as the years pass. A shorter lease can affect the property’s value, your mortgage or refinancing options and your plans for the investment.
Whether you intend to continue letting the property, refinance or sell, it is worth knowing how many years are left on the lease and what that could mean for your options.
Why lease length matters
The remaining term of a lease is an important consideration, particularly if you intend to keep the property as a long-term investment.
A shorter lease can affect the property’s value and your ability to refinance, as mortgage lenders have their own requirements around lease length.
The 80-year threshold
The 80-year mark is an important threshold when considering a lease extension. Under the current rules, marriage value applies when a lease has 80 years or less remaining. This can make extending a shorter lease significantly more expensive.
Marriage value reflects the increase in the property’s value that can result from extending a shorter lease.
The government is introducing reforms that will remove marriage value from the calculation, but these changes are not yet fully in force.
When should you consider extending?
The decision to extend will depend on what you want to do with the property.
An extension can be worth considering whether you plan to hold the property, refinance or sell. The remaining lease term, your plans for the property and the potential cost of an extension will all affect whether it makes sense in your particular case.
How much does a lease extension cost?
There is no fixed cost for extending a lease. The premium you pay depends on several factors, including:
- the remaining length of the lease;
- the property’s current market value and any improvements you have made that affect it;
- the estimated value of the property once the lease has been extended; and
- the ground rent payable under the existing lease.
Professional fees will also need to be considered, including the costs of a specialist surveyor and solicitor.
Because every lease extension is different, a specialist valuation is the best way to establish the likely premium for extending the lease.
Getting specialist advice
Lease extension valuations require specialist knowledge. They are typically carried out by an RICS-regulated chartered surveyor specialising in lease extensions and leasehold valuation.
A specialist surveyor will provide a valuation of the premium you are likely to pay, while a solicitor with experience in lease extensions will handle the legal process and advise on the terms of the new lease.
If refinancing is part of your plans, it is also worth speaking to your mortgage adviser about any lease-length requirements that may apply.
Whether to extend the lease will depend on how the remaining term fits with your plans for the investment, and whether an extension is worthwhile in the context of the property’s value and rental prospects.
At Jorgensen Turner, we can help you look at the property from a local market perspective, alongside the specialist advice needed on the lease extension itself. If you’re considering your options and would like to talk through your property, we’d be happy to help.
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