Maximizing Property Value: How Leaseholders Can Benefit from Extending Their Lease during Economic Downturns

Mary-Anne Bowring, Managing Director of Ringley, one of London's leading Managing Agents, and a Governor for the Institute of Residential Property Management (IRPM) advises making the most of the economic downturn by adding value to a leasehold property. With property prices dropping and the credit crunch reducing the availability of mortgages, it may seem like a depressing time ahead for many. But it's not all doom and gloom: now is a brilliant time for leaseholders to start thinking about investing in their property as significant savings can be made. Extend your lease. Leases are getting shorter; in some areas of London, 40-60-year leases are now common. Therefore, taking advantage of your statutory right by extending your lease by an additional 90 years and getting the ground rent reduced to peppercorn makes good financial sense.

The qualification criteria for extending your lease have been relaxed; for example, you only need to own the lease for 2 years to qualify. Extending your lease in a falling market is much cheaper because the property value is considered during a lease extension valuation. By making this investment, your flat will become more marketable and increase in value. For example, the cost of a lease extension on a £198,000 flat with a short lease of 60 years would have cost approximately £26,900.

Understanding Lease Extensions: Financial Impacts of Market Fluctuations

Whereas the same flat after a 10% market fall to £180,000, the lease extension would now cost around £24,600, a massive saving of £2,300! The difference in cost is less on a flat where the lease has over 80 years unexpired, as there is no marriage value to pay. But there is still a saving. The cost before a 10% market fall based on a flat being worth £198,000 would have been £6,400, and after a 10% market fall and the flat being worth £180,000, would be £6,000, a £400 saving.

I advise anyone with a 99-year lease to watch out as the clock ticks, especially if the property was built in the late 80s or early 90s. Once the lease drops to 79 years, the premium will become higher. Buy the Freehold Buying the Freehold can benefit the leaseholder in many ways. It gives the block more control over the running of the property, but it also guarantees a 999-year lease (subject to a majority vote of participants to do so). In addition, the block can decide whether to manage the property themselves or outsource it to a managing agent. Owning the freehold presents money-saving opportunities as leaseholders can appoint best-value contractors, reducing the service charge rates. It can also generate income as the freeholders will receive ground rent from non-participating leaseholders and will also have the opportunity to sell them lease extensions.

Investing in Freehold: Unlocking Value and Management Control

As with investment, buying the freehold will increase the property's value and marketing potential. Now is a good time to start considering purchasing the freehold, as lease extensions and the property's value affect how much this process costs. This is a good time to invest if your block has enough qualifying leaseholders. Claim your right to self-manage If you buy. If buying the freehold is out of the question, there is another money-saving option that has no significant cash outlay. You can form a Right to Manage Company if 50% of the block agrees and two-thirds are held on long leases. This will give you more control over the running of the block and the opportunity to appoint contractors, such as gardeners and cleaners, of your choice.

Empowering Leaseholders: Strategies for Cost-effective Property Management and Smart Buying Decisions

This level of control means that best-value contractors can be sourced, reducing the service charge and making it more affordable. With this option, the leaseholders can decide to either outsource the management of the block or save money by managing it themselves, which will reduce the service charge rates on a property. Buying and selling those lucky enough to have a sustainable deposit to buy a property can afford to be more selective as there are more properties on the market, unlike the overheated market of summer 2007. So, any prudent buyer should check the property has a long lease or negotiate as part of the purchase that the seller serves a lease extension claim notice and then assigns their rights to you.

Understanding Lease Extension Costs: A Guide to Protecting Your Investment

This means you don't have to wait 2 years to qualify, by which time the premium would have increased. If this is the route you are going down, get your solicitor to draw up a document stating how much the lease extension will cost based on the valour’s advice. This amount could increase six months later if property prices suddenly start rising. If the eventual cost of the lease extension exceeds what is expected, the seller must fund the agreed portion of this.

Smart Property Investment: Ensuring Healthy Reserves and Service Charges

Lastly, look out for a healthy reserve fund and reasonable service charge: properties with a freehold share are good investments. If you plan to sell your property, now is the time to invest in your lease for the reasons previously outlined. This will increase the value of your property, and you will have a better chance of selling it. Be aware that if you are planning to move into a new building, negotiate with the developer to ensure that the first-year service charge is included in the cost of the flat. This is because, in the current climate, it's likely that the other flats in the block will not sell immediately, which means you have to pay higher service charges. For tactical advice on lease extensions, freehold purchase, right to manage, and block management beyond including step-by-step guides, visit www.leaseholdguidance.co.uk.