If you decide to extend your lease, you are likely to come across the following costs:
The landlord’s own reasonable legal fees and valuation fees (you are able to challenge these fees in the Leasehold Valuation Tribunal should you feel that they are too high);
Your own legal and valuation costs and disbursements;
Your costs incurred in taking your claim to the Leasehold Valuation Tribunal in the unlikely event that you and your landlord cannot agree on the price to extend your lease (i.e. the ‘premium’) or on the level of the landlord’s reasonable costs payable by you.
The premium is calculated as follows, taking the aggrgeate figure of:
The diminution in value of the freeholder’s interest. This is the value of the freeholder’s interest now, compared with the value of his/her interest once you have extended your lease; and
The Marriage Value; and
Any other compensation payable to the freeholder.
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What is the marriage value?
The marriage value is a one-off fee that becomes operative once a lease has less than 80 years left to run. The marriage value is the increase in the value of your flat once you have extended your lease (generally speaking, a flat with a longer lease is worth more than a flat with a shorter lease). This ‘profit’ element is only achievable because the freeholder granted a lease extension and therefore he/she is entitled to 50% of the profit.
Given that the marriage value only kicks-in on leases that have less than 80 years to run, the sensible option is to extend your lease sooner rather than later, as this element of the premium continues to rise sharply the shorter a lease becomes.
Do I have to pay the price my landlord is asking to extend my lease?
No. You can get your own lease extension valuationdone and use this as evidence of what a reasonable premium would be for the extension. If your landlord unreasonably refuses to negotiate on price, then eventually you may have to refer the matter for independent determination by the Leasehold Valuation Tribunal (the LVT). You will, however, incur further costs in using the LVT and your surveyor will normally seek to exhaust all other reasonable negotiation techniques before going to the LVT. It’s worth noting that relatively few cases are referred to the LVT in the first place – and of those that do, a significant number actually settle prior to the hearing itself. Full LVT hearings are therefore relatively unusual in straightforward lease extension applications.
I’m selling my flat and want to extend my lease – can I pass on the costs to the buyer?
In most cases a buyer usually expects the seller to pay for the necessary expenses of a leasehold extension. However there is no reason why these costs cannot be negotiated as part of the purchase price. You are only able to assign the right to extend the lease after having served the Initial Notice. Provided you can find a buyer who wants to go ahead with the lease extension, and is prepared to pay to extend the lease, you may well find that having a shorter lease is not a bar to selling the property. This is particularly the case if your lease has between 80 and 82 years left to run – remember that the new purchaser will be unable to apply for their own lease extension without owning the property for 2 years – so the only way for them to obtain a cheaper lease extension (by avoiding the need to pay the marriage value), is for you to make an application before the sale of the flat (provided of course that you, have owned the flat for 2 years already). Your solicitor will be able to provide you with more information about this process – but if you’re thinking of doing this, it’s important that any conveyancing solicitor you choose has a detailed understanding and experience of lease extension work.
Will I have to pay rent for the extended years of my lease?
No. Normally the new terms of the extended lease state that ownership will be for a ‘peppercorn’ rent ie nothing at all. When negotiating an extended lease, you may also be able to renegotiate certain terms of the lease with your landlord eg maintenance costs and the right to sub-lease, although you are not entitled by legal right to such amendments.
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