Brexit vote may spell opportunity for flat owners to secure cheaper lease extensions

 

Press Release: 11 July 2016

Falling residential property prices in the wake of the ‘Brexit’ vote may be good news for the UK’s four million leasehold flat owners, according to leasehold enfranchisement specialists at Leasehold Solutions.

The company has called on flat owners to extend the length of their leases now, in order to protect the full value of their properties in the long term.

Indeed, Leasehold Solutions predicts that flat owners will be in a strong position if they extend their leases even as property prices continue to fall. Once a flat owner serves notice that they wish to extend their lease, the lease length of the property is frozen until the extension has been agreed.

Louie Burns, Managing Director of Leasehold Solutions, explained: “The difference between a property’s value when notice is served to when negotiations conclude is used to calculate the cost of a lease extension. So, when prices are falling, canny flat owners should serve notice to extend their lease now, because the cost of the lease extension will have fallen by the end of negotiations.

“We expect that the slowdown in house price growth will be a short-term blip, so once the property market recovers, these flat owners will benefit from the win-win of securing a cheaper lease extension and rising property prices.”

The value of leasehold flats and their marketability are affected by the number of years the lease has left to run. The underlying value of the flat declines as the lease length reduces, and drops significantly once the lease falls below 80 years, after which the freeholder is entitled to 50% of any uplift in the property’s value resulting from a lease extension (the ‘marriage value’).

Flat owners have a legal right to extend their lease by an additional 90 years and reduce the ground rent to zero if they have owned their flat for more than two years.

Burns continued: “Whatever happens in the housing market, lease lengths will continue to fall at the same rate they always have, and it will always be harder to sell a flat with a short lease than one with a longer lease.

“Extending the lease length now is a very sensible option. It helps to protect the value of the property in the long run by adding more years to the lease, and it makes the flat a more attractive option for potential buyers because they won’t have to extend the lease for some time.”