Date Published 21 March 2016
Home owners beware, once the lease of your property falls below 80 years, the cost of a lease extension will increase significantly (more than double!), as a 'marriage value' will then be payable.
All high value properties need care and attention to keep their value, especially in central London. But with leaseholds, that includes not only maintenance but also keeping your eye on the lease. If you neglect to maintain your lease you may well be inadvertently reducing the value of your property – just by doing nothing.
Why does it matter?
The expense of extending the lease alone is cause to make you want to consider keeping track, especially if you're getting rental income from the property or are enjoying living in it, even if you intend to sell soon or to keep the property for the rest of your life and pass it on to your relatives.
All these factors may deter you from extending the lease. Nonetheless, a flat with a lease length of close to 80 years or less will continue to lose value as the lease shortens, particularly in a static or falling market. And this has serious knock-on effects. Additionally, the later you leave it after the 80-year watershed, the greater the cost of a lease extension.
Even if you've let your lease fall below 80 years, you should extend it as the cost of the lease extension will increase exponentially the longer you leave it.
Comparing before and after 80 years on household lease.
A good way to see the impact of marriage value on the cost of a lease extension is to compare prices either side of the 80-year watershed.
Assuming a flat is valued at £1.75 million on a long lease and has a current unexpired term of 79.9 years it will cost approximately £75,000 to extend the lease plus valuation and legal fees because marriage value is payable.
Meanwhile a leaseholder of the same flat whose lease has been extended 3 months earlier and therefore has an expiry term of over 80 years pays only a premium of approximately £35,000 plus valuation and legal fees, and thereby saves approximately £40,000, as marriage value is not payable.
The difficulties of selling with a medium or short term lease.
A property with a lease of less than 80 years will be harder to sell. Many potential buyers will not wish to take on the costs associated with extending the lease. Mortgage lenders are also reluctant to fund properties with shorter leases.
Who's most affected?
Many flats built in-between the 60s to 90s were sold with leases of 99 years or less and so are now well within, or entering, the period when marriage value is payable. If your flat was built then, you may want to double-check your lease length.