Why conditions may be perfect for haggling for a Lease extension

Published 03rd Mar 2009

If the lease is ticking down, bargaining terms are in your favour

While property prices head swiftly south, one silver-lined cloud has formed for anyone with a short lease - the cost of extending it is also falling.

"How much you pay to extend a lease is linked to how much a flat is worth," says Lewes-based solicitor Philip Rowland of Adams & Remers. "If prices have gone down 20%, then it could be around 20% cheaper to extend the lease now.

"It's good if you want to protect the value of your flat and a lot of freeholders are cash-strapped right now, so they are negotiating far less aggressively."

As a general rule of thumb, says Rowland, if a property is worth £100,000 with a 50-year lease, it will be worth £150,000 once the lease is extended - and more in desirable areas.

He recently completed a lease extension for a client who owned an expensive maisonette in the West End. "They paid £300,000 to extend the lease, and by doing so increased the price of their property by £500,000 to £1.4m, leaving them with a £200,000 profit."

Roughly, the shorter the lease the more it will cost to extend. According to the Leasehold Advisory Service, a flat with 68 years on the lease, with a value of £150,000 and annual ground rent of £50, would cost £8,250 to extend by 90 years. On a lease with 35 years left, it may set you back £55,368.

Anyone wishing to extend their lease will need to seek the advice of a specialist solicitor and surveyor, then write to their landlord to let them know what they are willing to pay. The landlord's solicitor then writes back with what they think they should receive, and the haggling process continues until an agreement is reached. On the rare occasions that does not happen, it goes to a tribunal. Landlords have no option but to grant a lease extension if you have been in your property for more than two years.

"The first thing to consider when proposing a price is the existing length of lease," says Ed Mead of Douglas & Gordon estate agency. "The second is ground rent - which doubles every 20 years or so - and landlords are entitled to be compensated for the loss of this. "

Once the arguing is over, the lease is almost always extended by 90 years.

For desperate flat-owners with short- or medium-term leases, extending is not always the answer, says Mead. "Flats with short- or medium-term leases have been hardest hit in the market, because any property with a problem will fall in value faster than anything else - but it's not as simple as recommending people extend their lease first, then sell."

Extending leases, he explains, can be a long and unwieldy process: it can take a year and, if you wait that long to sell in this market, any profit you have made by extending the lease could be wiped out by the property's value going down.

Jill Christopher, a public relations consultant, recently paid £9,800 to her freeholder to extend the lease on her two-bed property in Tufnell Park, London. The process took a year. "For me, it wasn't to add value to my property, but to maintain value," she says. "If the time on the lease had gone below 80 years, my flat's value would have dramatically changed. Now seemed the time to go for it."

Source: ' The Observer '

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