The price of London homes has been a bone of contention for many years, particularly for anyone who has been in the market to buy. Given the squeeze on available properties it’s perhaps not surprising that so many people are willing to pay so far over the odds for properties that in any other market might not be worth it.
A recent example of the way property is so sought after, no matter what its condition, appeared on the Metro website back in March of this year: a run down two-bedroom flat – complete with pink and blue paintwork – and with just 12 years left to run on the lease. Most leasehold properties with just 12 years left would be a highly unattractive prospect for any potential buyer but in this case the flat was located in one of London’s most prestigious areas – Grosvenor Square. The rather ‘lived in’ 1950s flat, complete with equally run down lease, had a price tag of £2 million and – believe it or not – the Metro reported that there has been considerable interest. In fact, between the time that the article was published and this blog being written it may even have been sold…
While it’s fairly easy to renovate a new property up to a contemporary standard, the real obstacle that most buyers would have had to overcome here would have been the short lease length. As any potential leasehold buyer (or seller) knows, the fewer the number of years left on the lease the lower you have to go for the asking price.
It’s also often the case that for a property with a lease that has less than 70 years left to run, mortgage rates will increase and where there are just 60 years left to run, the property is going to be virtually un-mortgageable.
So, how did the estate agents of the £2 million Grosvenor Square property suggest buyers got around the issue of the short lease length? By obtaining a lease extension. In this particular case, the extension for up to 90 years was estimated to be likely to cost around £2.7 million, however, for most properties this will be much less.
The 1993 Leasehold Reform Act entitles most flat owners to extend a lease by up to 90 years in addition to the remaining lease term at a fair market value and, thankfully, the process is a fairly easy one to navigate provided you have the assistance of specialist solicitor. A flat must be owned for two years before the lease can be extended like this so for anyone who is purchasing a flat with a short lease length, waiting until the purchase has been completed means that another two years will have to pass before the lease can be extended – it’s much better to organise the extension before the sale if possible. It is also worth mentioning that especially after the lease falls below 80 years, the marriage value applies and statutory calculations can substantially increase the price to be paid.
In terms of cost, the Leasehold Advisory Service recently estimated the total cost of extending a lease on a £200,000 flat. This started at £7,500 where there were 95 years left to run, going up to in excess of £26,500, where there were less than 60 years left on the lease. Of course this will vary dramatically depending on the property but, whether you are purchasing a £2 million property on Grosvenor Square or a much more modest abode, it is cheaper and simpler every time to obtain a lease extension sooner rather than later.