How to save money on a lease extension?
A lease is a legal document signed by the leaseholder as well as the landlord that allows the leaseholder to occupy the property for a particular time period, as specified in the lease agreement. This document includes certain essential terms and conditions – like ground rent payable by the leaseholder, responsibilities to be fulfilled by the landlord, etc. On the other hand, a residential lease is granted for a specific time period. At the end of this time period, the property reverts to the landlord. From the moment a lease is granted, the term immediately begins to get shorter, and therefore, it is necessary for you to get it renewed within time to enjoy uninterrupted possession of the property as well as to maintain the value of the property. After setting a clear understanding of the terms, rules, and conditions mentioned in the contract, both the parties show their consent by self-attesting the lease contract.
While talking about how to save money on the lease extension, the best and only way is to get it renewed before the lease length falls below 80 years. Though the request for the lease extension can be processed with a short time period left on a lease too, the cost will be very high in comparison to the cost that would be paid with the lease length above 80 years.
For Calculating the actual lease extension cost along with identifying the measures to save money on a lease extension, you can rely on the Leasehold Valuations’ team of qualified surveyors. Our experts have recently completed a couple of lease extensions where the type of property and the capital value were quite similar; still, the cost of both the lease extensions was dramatically different. The reason behind the difference was the lease length, where one property’s lease length was 81 years, the other one had only 63 years, and therefore, the cost of lease renewal for the first property incurred £5,000 and £18,400 for the second property.
“This scenario highlights the significance of lease renewal within the right time frame, especially when you want to sell the property in the near future and expect to receive the maximum market value.”
A complete guide for the lease extension
This guide of lease renewal will help you comply with the requirements under the Leasehold Reform, Housing and Urban Development Act 1993. In this post, you will get to learn about some basic tactics to follow in order to extend the lease while saving money. This act provides the right to the leaseholders to extend the lease by a maximum of 90 years in addition to the number of years left on the existing lease. The only key requirement you need to fulfill to avail the benefit of this act is you must have owned the property for more than 2 years and hold an existing long lease that was originally granted for more than 21 years.
Marriage Value – the 80-year rule
It is recommended to extend the lease as soon as possible because the delay will only result in increasing the cost. According to the Act mentioned above, once the lease period falls below 80 years, the cost for the extension starts increasing rapidly, thus, if you are planning to sell the property in the future and want the maximum return on your investment, you should get the lease renewed within the time frame. Moreover, the moment the lease period declines below 80 years, an additional marriage fee is payable which also increases alongside all other costs.
Furthermore, the lease is an instrument that adds value to the property if extended within the timeframe, otherwise, creates a negative impact on the property’s value. Therefore, if the lease on your property is below 80 years, then the landlord is entitled to half of the increased share of the property’s value. Marriage value is only applied to those properties whose lease falls below 80 years and this is the primary reason you should always look to renew your lease before it reaches 80 years.
Lease renewal procedure as per the Leasehold Reform Act
You should be aware that you are only responsible for reasonable costs like – legal fees and valuation costs incurred by the freeholder in addition to your own legal and valuation fees during the entire process. The calculation of a lease extension cost is a complex process, thus, you should consult with an expert to carry out the valuation on your behalf under the 1993 Act. The lease renewal cost is also known as the premium and it is calculated on the basis of what the landlord is going to lose after granting the lease extension. With reference to this factor, the surveyor you will appoint will help you design your opening offer premium while serving the Section 42 notice to the landlord. From there, formal proceedings start and the final premium is decided either through formal negotiations or failing an agreement through the Tribunal.
If your lease time period is also running low and it is going to fall below 80 years, you should take a step towards a lease extension. To find effective ways to save costs on the lease renewal, contact Leasehold Valuations today.