Calling All Flat Owners!

Green shoots are finally appearing, with indications that the property market is moving in the right direction for the first time in over five years. However, owners of properties whose leases have fewer than 80 years unexpired must not allow this glimmer of hope to gloss over the importance of taking action to address such diminishing assets.

The length of a flat’s lease affects its underlying value for a number of reasons. When a lease falls below 80 years it can be difficult to secure a mortgage for the flat and it may also therefore be trickier to remortgage or sell a property with such a lease.

Once a lease falls below 80 years, it also costs more to extend it or purchase a share of the freehold (and subsequently extend the lease as part of that transaction) than when it has 80+ years. This is because of a valuation component known as marriage value, explained in more detail later on.

If you own a flat and you have less than 85 years to run on your lease, it is very important that you seek professional valuation advice sooner rather than later. It is important to appoint professionals who can demonstrate a track record in enfranchisement.

In basic terms, the valuation to calculate the cost (‘premium’) of extending your lease or purchasing your share of the freehold is a total of three elements that are each worked out by a complex set of calculations:

1. Ground rent: For most leasehold flats, ground rent is payable to the freeholder. When you extend your lease or purchase your share of the freehold, this is cancelled and the freeholder must therefore be compensated for this loss of income.

2. Reversion: After a lease has expired, the flat usually returns to the vacant possession of the freeholder. When considering the value of a premium, the freeholder must therefore be compensated for the loss of capital resulting from a lease extension or freehold purchase transaction.

3. Marriage Value: When a lease length falls below 80 years, the freeholder is entitled to 50% of the net uplift in value resulting from any lease extension or freehold purchase transaction.

Any ALEP surveying member firm will be able to give you a ballpark figure for extending your lease or purchasing a share of your freehold once they know the ground rent, the reversionary value and the marriage value (reversionary and marriage are affected by recent sales evidence in similar flats in the area). They may also need to inspect the flat to give a more accurate figure. The freeholder will also have a figure (and may also need to inspect the flat) and both parties’ valuers must then negotiate to agree a fair price.

Alex Greenslade is Honorary Secretary of ALEP, the Association of Leasehold Enfranchisement Practitioners.

For further information about ALEP, telephone 0845 225 2277 or visit www.alep.org.uk Find ALEP on Twitter at: twitter.com/alepofficial