Is Your Lease Extension About to Become a Lot Cheaper?

he Court of Appeal is soon expected to deliver their decision on an appeal brought by a leaseholder challenging the traditional tools by which a leasehold premium is calculated.

Sloane Stanley Estate Trustees v Mundy [2016] UKUT 223 (LC) is a case that challenges the system of lease valuation, specifically the ‘relativity graphs’ used by surveyors and others in the property industry to calculate the value of the property following the increase in the lease. It is the position of the applicant that the existing models are currently too generous to the freeholder. In May 2017, the Upper Tribunal (Lands Chamber) ruled against a new relativity graph proposed by the applicant which would have reduced the cost of lease extension premiums for flat owners.  

Leases are known as ‘wasting assets’ as they diminish in value as they expire over time. Traditionally, mortgage lenders wouldn’t provide loans on leases below 70 years, although over the last ten years many lenders have increased this with some lenders requiring 85 years of unexpired term; 5 years beyond the point at which the ‘marriage value’ comes into effect. The marriage value is the additional premium on lease extensions paid to the freeholder that reflects the increase in the value of the property once the lease has been extended.

As a result of the increased lease extension premiums, many leaseholders who have allowed their leases to run down now face inflated costs when looking to extend. In some cases, the premium increases to the point where the property has to be sold at a reduced cost to allow the purchaser to immediately extend the lease at the same time as their purchase to obtain mortgage finance.

Whatever the result of Mundy v the Sloane Stanley Estate, here at Pinney Talfourd we advise all leaseholders to look into extending their lease long before it reaches 85 years. If you have allowed your lease to run down beyond this point, then it really is a ‘sooner rather than later’ scenario to make sure the property is marketable when you look to sell the property or extend the lease. If the legal challenge is successful, we expect changes to the way that leasehold premiums are calculated that could benefit leaseholders – but it may take time for any changes to come into effect.

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If you are thinking of extending your lease or want to discuss your options, please contact a member of our Residential Property team for impartial legal advice. Call on 01708 229444 or email us using our contact form.This article was written by Richard Collins, Solicitor at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of January 2018.