Leaseholds - A Health Warning

Leaseholds are, by their very natures, wasting assets and need to be approached with some care. If you have owned your lease for two years, you can make the Landlord grant you an additional 90 years and cancel any ground rent you may be paying.

Many leases, particularly in London, were granted in the 1970s and 1980s for 99 years and so will have dipped below the 80 year mark and may already be difficult to sell. More particularly, once under the 80 year mark the cost of obtaining an extended lease increases dramatically, even if it is one day after – see below.

If you are buying and the lease has less than say 85 years to run, you or your Solicitor should ask the Seller if they have owned the property for two years or more. If so, ask them to serve a notice requiring the lease to be extended. The benefit of the notice can then be transferred to you, so you can pursue the extension process. If you are selling a lease, you should be prepared for the Buyer to ask you to serve such a notice. This may also make the property easier to sell.

Many people delay thinking about extending their leases until they want to sell. This can cause additional stress at the time of a sale: our advice is to monitor your lease and start the extension process in good time.

There is a fairly arbitrary limit determined by statute that provides that once a lease has less than 80 years to run, it costs substantially more to extend and the price of the extension gets progressively higher as the lease gets shorter. It is therefore in your interest to review your lease sooner rather than later e.g., a lease of 82 years and a ground rent of £50 per annum could cost you £1,000 to extend. However, if the 80 year limit has passed, this could cost you £10,000 to £15,000 because of what is known as “marriage value calculation”.

There are costs which will be incurred, but these should be weighed against the benefits of the lease extension.