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Why you should commence your Earley lease extension


Why you should commence your Earley lease extension today:

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

When it comes to domestic leasehold premises in Earley, you are actually purchasing an entitlement to reside in a property for a prescribed time frame. Modern flat leases typically tend to be for 99 years or 125. Even though this may appear like a lengthy period of time, you should consider a lease extension sooner rather than later. Accepted thinking is that the shorter the number of years is the cost of extending the lease increases markedly particularly once there are fewer than 80 years remaining. Residents in Earley with a lease drawing near to 81 years remaining should seriously think of extending it without delay. Once a lease has less than eighty years remaining, under the relevant Act the freeholder is entitled to calculate and charge a greater amount, assessed on a technical calculation, known as “marriage value” which is due.

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

Leasehold residencies in Earley with over 100 years left on the lease are often referred to as ‘virtual freehold’. This is where the lease value the same as a freehold interest in your premises. In such situations there is often little upside in purchasing the reversionary interest unless savings on ground rent and service charges justify it.

Lenders will not loan monies on a short lease

Lending institutions have specific criteria when loaning funds secured on leasehold property. Many will simply refrain from lending at all once the residual lease term drops beneath a specified unexpired lease term. Many Mortgage lenders will not consider property with a remaining below seventy years suitable security. In addition to this being important when selling, it is also relevant where you are seeking to remortgage your Earley property.

Lender Requirement
Birmingham Midshires Minimum 70 years from the date of the mortgage.
Lloyds TSB Scotland Minimum 70 years from the date of the mortgage.
Nationwide Building Society - Our minimum unexpired lease term is 55 years.
- There must be at least 30 years remaining at the end of the mortgage term (regardless of the length of lease at the start).

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 Issuing Office (Will be declined):
- Unexpired lease term less than 55 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 is less than or equal to 5 years

Refer to Issuing Office (Valuer will consider any impact on valuation figure and marketability):
- Unexpired lease term is 55 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 Issuing Office):
- 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 Issuing Office (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 (does not apply to Shared Ownership)
- Any lease which is subject to a Ground Rent (or Annual Rent) being charged which is more than on a peppercorn basis
- Any lease which is subject to a Ground Rent (or Annual Rent) being charged which is more than on a peppercorn basis

Refer to Issuing Office (Valuer will consider any impact on valuation figure and marketability):
- 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 Issuing Office):
- 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
- A lease subject to a peppercorn Ground Rent (Annual Rent) charges

For the avoidance of doubt, any New Build properties completed but not sold pre-30 June 2022 will only be acceptable if the Lease conforms to the above guidance.

* 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.

Lease Extensions

We require all Lease Extensions to be completed under the Leasehold Reform Housing and Urban Development Act 1993 and to meet the above criteria as a minimum. Where you become aware that it does not meet these requirements, please refer to Issuing Office.
TSB Minimum of 70 years at mortgage commencement, with 30 years remaining at mortgage redemption.
Royal Bank of Scotland Mortgage term plus 30 years. For a Lifetime Mortgage, the term must be no less than 150 years minus the age of the Borrower.

Get in touch with one of our Earley lease extension solicitors or enfranchisement solicitors

Regardless of whether you are a tenant or a landlord in Earley,the lease extension experts that we work with will always be willing to discuss any residential leasehold matters and offer you the benefit of their in-depth market knowledge and the close ties they enjoy with Earley valuers.

Earley Lease Extension Example Cases:

Dylan, Earley, Berkshire

In 2014 Dylan, came perilously close to the 80-year threshold with the lease on his studio flat in Earley. In buying his property 18 years previously, the length of the lease was of no importance. Luckily, he realised he would soon be paying an escalated premium for Extending the lease. Dylan was able to extend his lease just ahead of time in January. Dylan and the landlord eventually agreed on sum of £5,000 . If the lease had gone to less than 80 years, the price would have become more costly by a minimum £925.

Earley case:

Last April we were phoned by Mr V Green , who purchased a purpose-built flat in Earley in February 2009. We are asked if we could estimate the premium could be for a 90 year lease extension. Comparative flats in Earley with 100 year plus lease were valued around £184,000. The mid-range ground rent payable was £55 collected monthly. The lease lapsed in 2075. Given that there were 53 years as a residual term we approximated the compensation to the landlord to extend the lease to be between £28,500 and £33,000 not including legals.

Earley case:

Mrs Laura Martinez purchased a one bedroom flat in Earley in July 2006. The question was if we could estimate the premium could be for a 90 year lease extension. Similar flats in Earley with an extended lease were valued around £290,000. The mid-range amount of ground rent was £45 invoiced annually. The lease concluded in 2095. Having 73 years left we estimated the premium to the freeholder for the lease extension to be between £9,500 and £11,000 exclusive of costs.