If you are considering extending your lease then the following article will provide some good reasons for doing so. Even in the event that the reversionary interest of your property has fallen in value, you may wish to look to the future and an extension could provide the security that you need.
The cost of lease enfranchisement actually rises quicker than house prices themselves. Equally reversionary interests will also rapidly increase in value. As in many cases a valuation for extending a lease considers the value of this reversionary interest (see below) a recession is a good time to apply for an extension.
You must check your eligibility for a lease extension before applying. Although you need not have lived there during this time, you should have owned the lease for at least 2 years. You cannot apply for an extension if your lease has already ended, if you reside in a flat and the other leaseholders have applied for enfranchisement of the freehold interest or if the lease was originally granted for 21 years or less.
Consider the length of your remaining lease prior to the valuation for extension. Before permitting the extension, the landlord will request that the reversionary interest of the lease is valued. The valuer will consider the nominal ground rent paid and any reduction or increase in value of the freeholder's reversionary interest. If your lease has less than 80 years left to run then the value will also include a 'marriage value'. The marriage value is calculated using the valuation of the freehold interest, 50% of the figure is payable to the landlord as a premium. It therefore becomes more beneficial to apply for an extension as soon as possible and not allow your lease to drop below this 80-year boundary.
It becomes much harder to get a mortgage if your lease has under 40 years to run. Therefore finances should be assessed and a mortgage offer made before you apply for an extension.
A lease extension can bring extra value to a property if you are to sell. As discussed previously, it is very hard to obtain a mortgage for a short lease. Therefore an extension will open up your sale to a larger amount of potential buyers. This idea also applies to assignment of the leasehold interest.
Be aware of the costs of extending your leasehold interest. This is particular relevant if your lease has less than 80 years to run. The figures to consider are; the ground rent paid per annum, the current valuation of the freehold interest and the increase or decrease in its value. You may not only have to pay a charge for the extension, but also for any legal costs and valuation fees incurred. Mostly likely you will have to pay these not only for yourself but the landlord as well.
Always obtain advice from a specialist lease extension solicitor before starting the lease extension process. Your solicitor will advise you on whether you should apply for a lease extension.