Ignoring property price fluctuations for a moment, it is a fact that a lease will cost more to extend the shorter it gets.

If we factor in current price movements in London, they are moving upwards. This adds further cost to the lease extension.

In simple terms, the value of the lease extension is based on the compensation that the freeholder is due for having to wait longer until the property reverts back to him (this is called the reversion).

Using the statutory route, where they will have to grant an additional 90 years on top of the existing lease, together with no more ground rent, they are also entitled to compensation for loss of ground rent.

These are not simple calculations, as you have to work out what is the present value of the property and what it is worth as an investment over time. In other words, if the property has an 80 year lease and is worth £300,000 today, with a ground rent of £100, how much would you have to invest today to get a return of £100 a year for 80 years and receive a lump sum of £300,000?

Marriage Value

A flat is worth more with a long lease than a short one. The marriage value is the increase in the total value of the property after a lease extension or collective enfranchisement. Under the Leasehold Reform, Housing and Urban Development Act 1993, there is no marriage value to be taken into account on a lease of above 80 years. Below 80 years, the increase in value is shared 50% between the leaseholder and the freeholder.

That is why it is important for leaseholders to take action before the lease falls below 80 years. The difference can be many thousands of pounds and is easily avoided. Via the statutory process, as soon as the leaseholder submits the formal notice to the freeholder, the valuation date is set and is unaffected by the length of time that it takes to conclude the transaction. So, even if there are long delays by the freeholder, you will not be pushed below the 80 year line.

For further information, please call 020 88750035.

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