The True Cost Of Postponing A Lease Extension

For many people living in leasehold properties, the idea of applying for a lease extension seems unnecessarily costly and complicated. Combined with the fact that most leases are granted for periods of 99 years or more, it's not surprising that an application can slip down the list of priorities. Life is complex and expensive enough, after all! However, this can prove a serious and costly mistake. So what are the true costs of lease extension?

To begin with there are always basic costs incurred. Extending a lease is something that requires the expertise of a specialist solicitor. This is crucial if the application is done properly with the right result. Naturally, this means paying legal costs. However, these direct costs actually save money in the long run, since there are many hidden and indirect costs that can arise if the lease is not extended in a timely fashion.

Every property represents a financial investment. This can be seriously jeopardised if the lease is allowed to run down, since the property becomes much more difficult to sell. Most mortgage companies will refuse to lend on properties with a short lease, and most buyers see them as unacceptable risks. This has obvious implications for the value of the property. The more unappealing it is to buy, the less money you will get for it - a property which will not be taken off the market by a buyer is basically worth nothing at all.

Even if there is no intention to sell the property, postponing the lease extension only stores up problems for the future. These can become expensive problems. The length of most lease terms conveys a false impression of security. A large amount of that time will have already passed. Even if a property is bought at the upper end of the lease term, things start to get more expensive once the remaining term dips below 80 years - a situation that can be reached surprisingly quickly.

The cost of a lease extension is calculated by the change in the freeholder's interest once it is extended. When a lease term drops below 80 years, any extension will incur a 'marriage value'. This figure is worked out by looking at how much a possible increase to the value of the flat when a future lease is granted and 50% of this is owed to the landlord. What this means is that the leaseholder is responsible for 50% of a imaginary profit to the freeholder up-front. It is therefore much easier and cheaper to extend a lease before the "marriage value" applies.

Every day that an application is delayed increases the potential cost of the lease extension. With expert legal help, it's a process that can be accomplished quite painlessly, so it's definitely a decision that should be taken sooner rather than later.

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