If you own flat or apartment in North London, or are thinking of buying one, it is likely to be a leasehold property. In Islington, Stoke Newington and Newington Green they may include Victorian conversion flats as well as modern developments and mansion blocks. In fact, if you’re looking to buy an apartment anywhere in England and Wales, it’s likely to be on sale leasehold. Some houses may also be for sale on a leasehold basis.

 

What is leasehold?

Buying leasehold means that while you own your own property, you do not own the building, but are renting it for a fixed period. When you decide to sell the flat, the lease is transferred to the buyer.

It is important to keep track of the length of time on your lease, especially if you are looking to sell in the future, as this will have an impact on the sale price you achieve.

 

What if I have a short lease on my property?

A short lease will seriously reduce the value of the flat and could mean that you can only sell it to a cash buyer. This is because most lenders will not offer mortgages on properties where the lease is for less than 80 years.

If the lease on a flat you own, or are interested in buying, is getting close to that figure, don’t despair. Under the 1993 Leasehold Reform, Housing & Urban Development Act, flat owners are entitled to a 90-year extension to their lease at a fair market price, as long as they have owned the property for at least two years.

Extending the lease can be a costly exercise. The costs you incur may even be more than the rise in the value of the property after you extend the lease. However, if you are looking to sell, a long lease could be the benefit which persuades a prospective buyer to choose your property over another.

 

How to extend the lease on your North London flat

The legal process for extending your lease is called leasehold enfranchisement. A leaseholder, who has been living in the property for more than two years, can ask the freeholder to offer a lease extension. This is part of a formal process, known as serving a Section 42 notice under the Leasehold Reform, Housing and Urban Development Act 1993.

 

The marriage fee

You might have heard the term ‘marriage fee’ or ‘marriage value’. As the number of years left on a lease begins to diminish, the value of the property can be affected. When your lease has less than 90 years left, you should think about negotiating an extension.

A lease with less than 80 years remaining will become more expensive to renew. When such a lease is extended, the freeholder is entitled to half of the increase in the value of the property, as well as the fee for extending the lease. This is known as the ‘marriage fee’ – because it marries two costs together.

 

What does it cost to extend your lease?

The price you pay for extending your lease will depend on both the number of years remaining on that lease and the value of the property.

The cost of the extension is calculated by assessing the financial loss incurred by the freeholder in granting the extension. This will depend on factors including ground rent, other terms in the lease and the market value of the property.

It is difficult to provide an accurate estimate of the costs you will face when extending your lease, as these will vary dramatically according to your flat’s circumstances.

However, you can typically expect to pay a total of £6,000 plus costs to extend the lease of a flat valued at £500,000 which has 95 years remaining on the lease. The costs could rise to £9,000 plus costs if the lease has 85 years remaining and to £70,000 plus costs if there are only 60 years remaining. These figures are based on the Homeowners Alliance Lease Extension Calculator and assume a peppercorn ground rent is payable (very little or no ground rent at all).

The total cost will be made up of the actual cost of the extension, plus the professional fees involved and the land registry fees. You will have to cover your own legal and valuation fees and those of the freeholder.

 

Should you seek professional advice?

Negotiating the cost of a lease extension requires a complex calculation so you should definitely use the services of a valuation surveyor and solicitor, who both specialise in lease extensions, as soon as possible. Their expertise and advice could save you a great deal of money overall.

 

Can you buy the freehold?

You may instead be able to buy the freehold of the property. Under the Leasehold Reform, Housing and Urban Development Act 1993, leaseholders have the right to collectively buy the freehold of their building, provided they meet certain criteria.

You would then jointly own the property outright, but you will need the agreement of at least half of the leaseholders first.

 

If you’re looking to buy a leasehold property

Remember that if you buy a property, you will need to wait two years before you can apply to extend the lease. However, if the existing owner has started the leasehold enfranchisement process, you would be able to continue with it once the sale goes through.

If you are interested in buying property with a shorter lease than you would like, you could ask the vendor to begin leasehold enfranchisement as a condition of the sale.

Extending a lease is not simple and is likely to be costly. Before you proceed, it’s important to seek the advice of experienced professionals. This could help you avoid an expensive mistake and achieve the best possible deal.

If you are looking at leasehold properties in Islington, Newington Green or Hackney or have a leasehold property to sell, we’d be happy to advise you. Please contact us to find out more.