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Why you should start your Cotswolds lease extension


Why you should commence your Cotswolds lease extension today:

A Cotswolds leasehold property depreciates with the years remaining on the lease.

Cotswolds leases on domestic deteriorating in value. Where your lease has about 90 years remaining, you should start considering the need for a lease extension. Eighty years is a significant number: when the remaining term of a lease dips below this level then you start paying an additional element called marriage value. Leasehold owners in Cotswolds will mostly qualify for a lease extension; however a solicitor should be able check your eligibility. In certain circumstances you may not qualify. There are prescribed deadlines and procedures to follow once the process has started so it’s best to be guided by a conveyancer during the process.

Cotswolds property with a lease extension has roughly the same value as a freehold

It is conventional wisdom that a residential leasehold with over one hundred years remaining is worth approximately the equivalent as a freehold. Where an additional 90 years added to any lease with more than 35 years left, the residence will be equivalent in value to a freehold for decades to come.

Lending institutions may not lend with a short lease

Banks and building societies are tightening their criteria and many now want flats to have at least 60 if not 70 years remaining once the mortgage has expired. As a number of flats in Cotswolds were created in the fifties, sixties and seventies as a result many now need to be extended if they if they are to be mortgageable.

Lender Requirement
Accord Mortgages 85 years from the date of completion of the mortgage. Please ensure that you explain the implications of a short term lease to the borrower.
Coventry Building Society A minimum of 70 years unexpired lease at completion for all scheme types apart from Lifetime Mortgages (Equity Release), which require a minimum unexpired term of 80 years at completion.
Godiva Mortgages A minimum of 70 years unexpired lease at completion for all scheme types apart from Lifetime Mortgages (Equity Release), which require a minimum unexpired term of 80 years at completion.
Skipton Building Society 85 years from the date of completion of the mortgage

For Buy to Let cases:
- lettings must not breach any of the lessee’s covenants; and
- consent of the lessor to lettings must be obtained if necessary
The Mortgage Works Minimum unexpired lease term is 70 years with 30 years remaining at the end of the mortgage term.
Where the unexpired lease term is different to that recorded on the mortgage offer, the following clarifies if we need to be informed:

Second hand property:
- If the unexpired lease term on the offer is 85 years or more - only advise us if the actual lease term is less than 85 years
- if the unexpired lease term on the offer is less than 85 years – advise us if the actual lease term is different than reported
- For equity share applications - advise us if the actual lease term is different than reported on the offer

New build property:
- If the unexpired lease term stated on the offer is 125 years (flat) / 250 years (house) or more - only advise us if the actual lease term is less than 125 years (flat) / 250 years (house)
- For equity share applications - always advise us if the actual lease term is different than reported on the offer

Lease terms such as ground rent and event fees must be reasonable at all times during the term of the lease and adhere to our requirements below. If you’re unsure as to whether the terms of a lease are unreasonable or onerous, please refer the details to us in plain English for Valuer consideration. If the potentially onerous terms are in relation to the ground rent please include the current ground rent figure per annum, how often it will be reviewed and the price structure it will be reviewed against. See the guidance below.

SECOND HAND PROPERTIES

Unacceptable - advise Originations (Will be declined):
- Unexpired lease term less than 70 years
- Less than 30 years remaining at the end of the mortgage term
- Ground Rent greater than 0.5% of the property value
- Ground Rent doubles less than every 20 years (e.g. doubles every 5, 10 or 15 years) - acceptable if doubles every 20 years or more
- Ground Rent is compounded RPI
- Ground Rent review period less than or equal to 5 years

Refer to Originations (Valuer will consider any impact on valuation figure and marketability):
- Unexpired lease term is 70 to 85 years
- Ground Rent greater than 0.1% and less than or equal to 0.5% of the property value
- Ground Rent escalation is linked to any indices greater than RPI
- Ground Rent escalation is linked to the value of the building*
- Ground Rent review period is greater than 5 and less than 10 years
- Event clauses exist for normal use e.g. changing the carpet, installing a TV aerial etc
- Estate Rent Charges greater than £500 p/a (please provide details of what the charges cover)
- Service Charges greater than 0.5% of property value p/a (please provide details of what the charges cover)
- Anything that appears onerous, unusual or out of the ordinary

Acceptable (no requirement to advise Originations):
- Unexpired lease term greater than 85 years
- Ground Rent less than or equal to 0.1% of the property value
- Ground Rent review period greater than or equal to 10 years
- Ground Rent escalation less than or equal to RPI

NEW BUILD PROPERTIES (includes office conversions)

Unacceptable - advise Originations (Will be declined):
- Unexpired lease term less than 125 years on a new build flat or less than 250 years on a new build house
- Starting Ground Rent greater than 0.1% of the property value
- Ground Rent review period less than or equal to 5 years
- Ground Rent doubles less than every 20 years (e.g. doubles every 5, 10 or 15 years) - acceptable if doubles every 20 years or more
- Ground Rent is compounded RPI

Refer to Originations (Valuer will consider any impact on valuation figure and marketability):
- Ground Rent is linked to any indices greater than RPI
- Ground Rent is linked to the value of the building*
- Event clauses exist for normal use e.g. changing the carpet, installing a TV aerial etc
- Estate Rent Charges greater than £500 p/a (please provide details of what the charges cover)
- Service Charges greater than 0.5% of property value p/a (please provide details of what the charges cover)
- Anything else appears onerous, unusual or out of the ordinary

Acceptable (no requirement to advise Originations):
- Unexpired lease term greater than or equal to 125 years on a new build flat or greater than or equal to 250 years on a new build house
- Starting Ground Rent less than or equal to 0.1% of the property value
- Ground Rent review period greater than 5 years
- Ground Rent escalation less than or equal to RPI

* Where the Ground Rent escalation is linked to the value of the building, please provide the following:
- How is the value of the block/unit currently calculated and if the assessment relates to the block(s), how is the Ground Rent calculated/apportioned per property?
- The current valuation and Ground Rent for each unit
- What is the mechanism for future valuations of the block and how is the Ground Rent calculated/apportioned?
- What is the right of appeal? And is this a documented process within the lease?
- Who bears the cost of the valuation (and appeal) process?
- Confirmation the review period is not less than twenty years

Why use us for your lease extension in Cotswolds?

The conveyancers that we work with undertake Cotswolds lease extensions and help protect your position. A lease extension can be arranged to be completed to coincide with a change of ownership so the costs of the lease extension are paid for using part of the sale proceeds. You really do need expert legal advice in this difficult and technical area of law. The lawyer we work with provide it.

Cotswolds Lease Extension Example Cases:

Archie, Cotswolds, Gloucestershire

Last Christmas Archie, came seriously close to the 80-year threshold with the lease on his first floor flat in Cotswolds. In buying his property twenty years previously, the unexpired term was of no concern. Luckily, he noticed he needed to take action soon on a lease extension. Archie arranged for a lease extension at the eleventh hour in March. Archie and the freeholder in the end settled on the final figure of £6,000 . If he failed to meet the deadline, the premium would have escalated by at least £850.

Cotswolds case:

In 2009 we were approached by Mr P Cox who, having took over the lease of a newly refurbished apartment in Cotswolds in June 1995. The dilemma was if we could estimate the premium would likely be for a 90 year lease extension. Comparative residencies in Cotswolds with 100 year plus lease were in the region of £250,000. The average amount of ground rent was £50 billed quarterly. The lease ended in 2089. Given that there were 68 years unexpired we calculated the compensation to the landlord for the lease extension to be within £9,500 and £11,000 plus professional charges.

Cotswolds case:

Mr Joseph Gray bought a basement apartment in Cotswolds in July 2003. The question was if we could shed any light on how much (roughly) price could be to prolong the lease by a further 90 years. Similar premises in Cotswolds with an extended lease were worth £285,000. The average ground rent payable was £55 collected monthly. The lease came to a finish in 2100. Given that there were 79 years remaining we estimated the compensation to the freeholder to extend the lease to be between £13,300 and £15,400 plus professional charges.