This article was first published in CityAM, Friday 17 February 2017.
A longer lease has the advantage of being both more mortgageable and more attractive in the market. A leasehold flat whose term has significantly reduced (say to below 50 years) is a wasting asset, and extending its lease term is essential to preserve the value. The Government in the recent Housing White Paper states its intention to promote transparency and fairness for the growing number of leaseholders within the UK. There is an appetite to streamline the application for a lease term extension and possibly address unfair lease terms.
By law and subject to meeting the relevant criteria, for example owning your flat for two years, a leaseholder can, under the Leasehold Reform, Housing and Urban Development Act 1993 (1993 Act), apply to the landlord for a lease term extension. A leaseholder is entitled to 90 years in addition to the term left on the lease (in your case therefore 177 years), with no monetary ground rent payable. But in your case, there is an additional incentive, namely that a lesser premium is payable to the landlord for a lease term extension where the lease has more than 80 years left to run at the date when the claim is made.
Extending your lease ahead of selling your property or re-mortgaging will put you in a better position so that your landlord cannot take an unfair advantage and pursue a higher premium where a leaseholder is under pressure to raise finance or sell the flat. Recently a few lenders have amended their lending criteria to insist the remaining term of a lease is minimum of 85 years, it is important to keep your lease length topped up using the 1993 Act right.
You may have seen press coverage about the impact that a rising ground rent provision has on the premium payable to the landlord for a lease term extension. The amount of ground rent that a landlord receives under the terms of the lease forms part of the calculation of the premium payable for a lease term extension. As a result, particular attention should be paid to the ground rent payable under the terms of that lease. For example, a lease that contains an initial ground rent of £250 to double every ten years over a period of a 125 year lease, may on the face of it seem harmless but by the fifth or sixth rent review i.e. 50 to 60 years’ time passing ground rent is £8-16,000 respectively. The capitalisation of this rising income stream can significantly raise the price for an extended lease.
You can also, of course offer to explore with your landlord, the possibility of granting you a lease term extension on terms negotiated directly between yourself. One can often see 999 year leases granted in these circumstances.