Evening Standard Homes and Property section 14 June 2006

Please Re-Lease Me

Buying the freehold is viewed as a no-brainer by many flat-owners: an ideal way to add value to your flat, avoid inflated service charges and extend a dwindling lease. But is it always the wisest move?

Suppose that you can’t persuade the required minimum of 50% of your block to agree to purchase, and meanwhile, the lease is falling below 70 years, making your flat hard to sell. You might be better off exercising your right to extend the lease rather than your right to buy the freehold.

The rules are simple: to have the right to an extension, you have to have owned a long lease for at least two years. By a long lease, the law means one that was originally for more than 21 years. You are entitled to an extension of 90 years, plus the current lease still unexpired, free of ground rent.

An extension should increase the value of your property and ensure it remains saleable in your lifetime. And you avoid all the hassles of owning the freehold. Property lawyer Paul Marsh, of Carter Bells, believes if your block is well managed and your landlord is no problem, a lease extension is a trouble-free option. “If your concern is purely that your lease is too short, you may be better off because you don’t have to worry about anybody else: no fellow leaseholders to organise, no freehold company to run, and no concerns about what happens if that company, through apathy or incompetence, gets struck off”, which, Marsh adds, “is not uncommon”.

Freehold purchase just does not suit some blocks, agrees Alex Greenslade of specialist Leasehold Solutions: “We don’t think one size-fits-all is the solution, often because of the absence of volunteer directors.”

Lease extensions are also a sensible choice if you can’t find the 50% agreement you need to qualify, can’t attract enough people to make the purchase financially viable, or you get bogged down in the decision-making process.

To extend your lease, you must serve a notice on your landlord and then agree a valuation. The services of a specialist lawyer and valuer are essential – the Leasehold Advisory Service (LEASE), which gives free advice to leaseholders, has lists of these specialists on its website and also gives valuation advice.

Good advice has become even more essential, says valuer Bruce Maunder-Taylor, since a Lands Tribunal decision last year linked valuations, not to the property market, but to government bonds, with the result that many central London landlords are demanding higher prices for freeholds and lease extensions.

“If you need a lease extension prepare for a fight,” he says. “Going on your own is expensive in terms of advice and the landlord has you over a barrel. If you can do it collectively you’ve got more clout.”

Alex Greenslade agrees: “It gives you extra negotiating muscle, and a freeholder is more likely to co-operate informally if you are not trying to get the freehold.” Greenslade’s Leasehold Solutions recently negotiated a bulk deal for nine properties in one 16-flat Belvedere, SE2, block after there was insufficient support to buy the freehold. Leases had dropped to 70 years and, according to catering entrepreneur Anthony Charles, who owns a £135,000 two-bedroom flat in the block, “There were properties that had been on the market for six months that weren’t selling.” Leasehold Solutions coordinated the project and provided legal and valuation services. “I can’t say it was painless,” recalls Charles, “but it was very smooth, it was an ideal way of doing it”.

However, Charles regards extending the lease as definitely the second-best option. He is frustrated that the freehold would have cost him only £1,000 more than the £7,000 129-year extension and would have liberated the block from an external landlord. “There is always someone else who controls what is being done,” he says. And Peter Haler, of LEASE, advises you to try for the freehold if you can: “You’re getting a great deal more, it should always be a better deal.”