In 2018, the Ministry of Justice Law Commission was asked by government to review the process of extending or buying a lease and make it simpler, easier, quicker and more cost effective for leaseholders to achieve their goals.
One of the major issues will be to carefully balance enabling leaseholders to acquire or extend their lease whilst fairly compensating freeholder / landlords.
So, should leaseholders extend or buy their leases now – or wait until the Law Commission for England and Wales publish their conclusions?
Any leaseholder on a long lease is affected by leasehold enfranchisement legislation. The Law Commission says the enfranchisement law gives these leaseholders several important rights:
Current law surrounding this thorny issue can be difficult to unravel.
For instance, if there are fewer than 80 years left on a lease and a leaseholder wishes to extend, it will cost more to do so, but why?
Charles Oliver, Associate Director at Caxtons explains: "It seems obvious that extending a lease would automatically add value to a property. The Leasehold Reform Housing and Urban Development Act 1993 allows this to be done, but the freeholder / landlord is entitled to half of that increased value. The final calculation of cost is reached by valuing the property as it is (with, say, 79 years on the lease) for both freeholder and leaseholder, then valuing the property with an extended lease (eg: + 90 years = 169 years left) and adding half of the difference in value to the cost of extending the lease. This will be how much it will cost the leaseholder to extend the lease and is known as a Marriage Fee."
Charles gave one stark example of why it is important to take advice when venturing into leasehold law:
In 2006 a leaseholder unwisely agreed to a lease beginning at £1,000 per year and doubling every 10 years. When she asked the freeholder to extend her lease he asked for £120,000, even though the flat would only be worth £160,000 with a new longer lease.
He reduced his demand to £70,000 then, to avoid adverse publicity, to £40,000, which she reluctantly accepted. As the lease had more than 80 years to run there was no marriage value to add, but the price she paid was closer to that of a lease with around 30 years to run. For a flat with 93.8 years remaining, £10,000 should have been closer to the mark.
With the Law Commission's findings and recommendations still awaited, it is difficult to predict any outcome, or guess whether it would be advantageous to act now or, if there is time to spare (ie a few more than 80 years!), to wait for their conclusions before extending or even buying a lease.
As it is their stated aim to reduce the price payable by leaseholders to enfranchise, patience may in this case be a virtue. Whatever the result, it is still always advisable to engage an expert.
Charles' Simple Fact sheet:
Extending a lease on a leasehold property:
Collectively purchasing a freehold with other tenants:
Landlord and Tenant Act 1987
If there is no agreement over the price with either of the options set out, then it should be referred (within a six-month deadline) to First-Tier Tribunal – an independent adjudicator – who will fix terms.
Recent reports that buy-to-let landlords are leaving the market in droves have been reinforced with the news of specialist of buy-to-let lender, Magellan, closing its doors to new business.
Impending pressure from the government to tackle landlords and letting agents who, in their words, 'potentially discriminate' against some tenants, including those in receipt of benefits, has taken its toll. That, together with the squeeze on any return on investment in rental property, has made many reconsider their venture into the sector.
The general disarray caused by Universal Credit, where housing benefit is no longer paid direct to landlords but to the client, is just one named culprit. It has provoked reluctance on the part of some residential buy-to-let owners and their agents to rent to those in receipt of such payments. Denying potential housing benefit tenants the right to rent is justifiably seen as flouting equality laws - even though many landlords have resorted to these draconian measures only after finding themselves out of pocket due to DSS tenants not paying their rent.
Add to this, the government's Right to Rent scheme that
The property market in general and the buy-to-let market in particular is confused, and no wonder. Conflicting reports abound and scare stories do not stimulate confidence in the sector.
We believe, and always have, that property is a long term, slow burn investment that will reap rewards in due course – it is not for short-term quick return investors.
Our advice is to engage a good letting agent to guide you on how to maximise the potential rental income your asset might attract, and then to capitalise on that by introducing reliable tenants who will look after your investment.
In association with Caxtons, the Ashford Property Market Report is produced by Ashford Borough Council, and uses and updates Caxtons' earlier research from the Kent Property Market Report (2018) alongside newly researched data.
The report highlights that Ashford, one of the fastest growing towns in the South East, is currently enjoying a more positive property experience than other areas in the county.
With prime office rents at 25% above their pre-financial crisis peak; prime industrial rental growth of 38% since 2013; retail growth of 11% over the 12 months (to Q3 2018) and the average residential value up by 26% over the past five years Ashford is working hard and leading where others follow.
A recent Caxtons' retail update illustrates how Ashford, in particular, has seen falling town centre vacancy rates. The borough council's purchase and management of the now, near full, Park Mall shopping centre, together with activity across the wider town has seen positive and welcome results.
Caxtons is the major contributor to 'Kent Property Market Report', and seeks to provide intelligently gathered and useful information to those interested in the property market – whether local authorities, institutional or individual investors, commentators or property professionals.
Ron Roser, Caxtons' Chairman said "With our extensive knowledge of the Kent property market and history of researching and bringing to the fore vital information on the state of the sector across the county, we were delighted to collaborate on the new Ashford Property Market Report.
"By scrutinising the market annually then analysing, collating and publishing the results, we strive to deliver a barometer by which others can review and examine the property market, not only in Ashford and Kent, but also as a bellwether for the wider South East."
Recent key developments that have played in to the report's findings include the Commercial Quarter – the largest office block to be built in Kent for 20 years; the planned transformation of disused industrial buildings into The Coachworks, an inventive and inspirational mixed-use space; an expansion underway of McArthurGlen's Designer Outlet close to the Ashford International station, and at Victoria Point where a 120-bed hotel, apartments and retail units are being built all demonstrating that Ashford is a powerhouse of property investment and activity.
Furthermore Ashford is very accessible. High Speed-1 journeys to London take just 38-minutes and junction 10a of the M20 is due to open later in 2019, both of which add to the area's attractiveness for developers. This is resulting in exciting new schemes including a former railway works, due to become TV and film studios, upmarket homes and extensive green space.
To view the report visit Ashford Property Market Report 2018/19
(l to r) Ron Roser - Caxtons Chairman, Ross Murphy - Pagesuite, Tracey Kerly - CEO Ashford, Gerry Clarkson - Leader Ashford BC
The Ashford Property Market Report launch video
A short interview with Caxtons' Chairman, Ron Roser