23 March 2020; the day the UK government took the unprecedented step of locking down the country. Millions of UK residents were ordered to stay home, schools were closed, and those of us that are able to do so were required to work from home. My daily commute disappeared over night – one day it was a 45 minute train journey, the next a trip of about thirty paces, down the stairs and into my home office.
It’s a date that many of us will remember forever, and if you are anything like me, when the announcement was made it felt as though the world had stopped spinning. But it hasn’t; time continues to march on, and leases continue to get shorter.
If you are a flat owner, that could mean that your lease is about to slip into the under 80 year bracket. When the unexpired term of a lease falls to below 80 years, you are likely to find that the value of your property falls and that extending your lease becomes more costly. In most cases, it will also become more difficult.
There are a number of factors that contribute to this. Firstly, a lease term with less than 80 years is more difficult to mortgage. Although lenders differ in their criteria most simply will not lend on a leasehold property if the remaining term is less than 80 years. In fact, a lease term of less than 125 years may be unacceptable to some lenders. If the impact of COVID-19 is leading you to consider refinancing, you will need to consider whether your lease term will preclude you from doing this.
Secondly, a lease is a depreciating asset. Therefore the more time that passes, the less attractive it will become to prospective buyers. At the moment, all we seem to have is time so while selling your flat may not be at the top of your to-do list right now, what happens when the lock down is over, you are looking to sell and you need to extend your lease to attract a buyer?
Thirdly, if your lease term falls below 80 years then your landlord is entitled to require payment of marriage value in addition to a lease extension premium. Marriage value is calculated as half of the increase to the value of the flat achieved by extending the lease, and can increase the cost of extending the lease term significantly.
The only way to prevent the passage of time impacting on the marketability or mortgagability of your lease is by agreeing to extend your lease with your landlord. Whilst you can try to do this on a voluntary basis, it is only by following a legal process that time will effectively stand still. The legal process involves serving your landlord with a notice of claim which "freezes" the valuation date for your flat. Provided that you do this before your remaining lease term falls below 80 years, you can rest assured that marriage value will not be payable on your lease extension.
Otherwise, there are no plans to stop the clock; leases will continue to get shorter, and we would suggest that all of us that own flats take a moment to check how long we have left on our lease terms. We have the perfect opportunity right now to take care of those annoying little "life admin" jobs that we have been putting off for years.
Should you need assistance with extending your lease, or just want to check in with us and be sure that you are not at risk of being caught out by marriage value, please contact Birketts' Leasehold Enfranchisement Team.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at April 2020.
Leah Veasey, Associate, Birketts LLP