SHOULD A LEASEHOLDER EXTEND THEIR LEASE NOW OR WAIT FOR THE POSSIBLE LAW CHANGE?

Here is an article that I hope will assist in answering THAT question all property lawyers have most likely been trying to answer on a near daily basis since THAT press release came out earlier this year. My view in a somewhat large nutshell? It is a question that leads to more questions and then boils down to a somewhat uncomfortable gamble for the owner using what is likely to be the most valuable asset in their possession.

Do they wait in the hope that the proposed changes are made quickly and in line with the existing proposals? Or, do they take the plunge now, future proof the value of their asset immediately but for less years than touted and maybe pay more for it?Firstly, the proposals are not law and when that is likely to happen is an unknown. It could come into being in the coming months, or it could take years. It is important to note that the proposals are the latest iteration of a raft of previous proposals that have been in the offing for many years and the fact is there is no definitive end date in sight. From that perspective therefore the advice should be easy. There is no alternative, get it done now on the statutory terms avaliable, or do nothing and continue to see the asset reduce in value to the point that it may affect marketability. There is really only one choice there.Secondly, there is no telling what the final piece of legislation will look like once it does finally go through Parliament. Will the touted 990 years be kept? Maybe. Will marriage value be abolished in the end? Possibly. Might other things be introduced to balance those changes in the landlords favour if they do? Could happen.

If the proposals as they stand are made into law then the difference to what the owner can get now (certainly to my mind) boils down to the following:

1. The client will get a 990 year extension on the term as opposed to 90 years.
2. Ground rent will continue to be reduced to a peppercorn.
3. The client may pay slightly less in costs and the premium if their term of years is over 80 years. If their lease is under 80 years then they may save a lot.

In my view, getting a 990 year lease extension as against a 90 year extension is just a number. It sounds great on paper but in reality will likely make little practical difference to the owner unless their lease is prohibitively short. For the vast majority of leaseholders, a 90 year extension will be perfectly acceptable and will ensure future marketability for a very long time. Remember, extending by 90 years is still the standard and will be perfectly acceptable to buyers and mortgage lenders alike. Extending now will also ensure the owner wont generally have to worry about doing it ever again, which is a large bonus.In terms of the ground rent, the proposals are identical to what a leaseholder is entitled to now, so there is no benefit to waiting here.Lastly, there is the value and I would defer to all the surveyors in the room for that one. From a legal perspective, my view is the owner should be very careful about holding off. If the term on the lease is already healthy to the point where really a lease extension is more of a want rather than a need to have situation, then it may be worth waiting as time will generally be on their side. If the term of the lease is over 80 years but getting close, my view is it should generally be done right away to protect the asset, avoid marriage value and ensure marketability. If the term of the lease is already under 80 years then the owner may wish to wait as the potential abolition of marriage value could save the client a lot of money, but again there is danger in making that decision. The lease term will continue to fall and therefore continue to seriously impact marketability. The cost of extending will also continue to spiral up in the interim whilst the leaseholder waits and hopes that the legislation is passed quickly by Parliament and in line with present proposals. It is a tough gamble and one that would be too rich for my blood.

If you would like more information or require assistance in this area then please contact Daniel Winslow, Partner and head of this firm's Leasehold Services department.