Selling Your Property With a Short Lease – the 80 Yr Rule

As Estate Agents and Chartered Surveyors in London, a city known for its wealth of leasehold properties, we have sold a fair few leasehold flats.  It is important to know the length of your lease when you are buying and selling your property as it could impact the sale price.

The basics – what is leasehold?

There are two legal states in which land can be owned.

  1. Freehold – where the land is owned outright
  2. Leasehold – where a lease is granted from a freeholder for a fixed period of time and the leaseholder has exclusive possession.

What are my rights to extend my lease as a leaseholder?

As a long leaseholder you have rights which apply to you under the Leasehold Reform Act (as amended) 1993 which entitles you to buy the Freehold of your house or if you own a flat, extend the lease by say, 90 years. It is important to understand the benefits of extending your lease in good time so that your asset’s value is not affected. The length of the lease will also affect the cost of extending the lease.

Under the Leasehold Reform Act (as amended) 1993 the freeholder is obligated to extend the lease or sell the freehold, provided the leaseholder and property qualify and a valid Notice has been served. To qualify for a lease extension you must be the owner of a long lease of at least 21 years and owned the property for a minimum of 2 years. If you are buying a property, the vendor can serve the Notice and this can be transferred to the purchaser.

Why is it important to extend your lease in good time?

Lease extensions involve complex calculations and we would always recommend you obtain professional advice as each individual case is different – there are many books written in this area of valuation and law. As an overview, here are some of the basics.

Compensation owed to the landlord for extending the lease is made up of several parts including, compensation for the loss of ground rent, compensation for the loss arising from granting a new lease and the marriage value. The most significant part of the compensation is made up of the marriage value. This is the value of the newly extended lease minus the value of the existing lease (of the landlords current interest), which is split equally between the freeholder and leaseholder. The leasehold Reform Act (as amended) 1993 states that this premium is only payable when there are 80 years or less unexpired on the lease.

If you own a leasehold flat, watch out for that 80 year mark and think about extending the lease before this. We can provide valuations for lease extension, enfranchisement or collective enfranchisement.

If you should need any further information please contact us on 020 7637 1066.

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