Let’s look at leaseholds: Landmark legal challenge could spell big change


More than two million households in England and Wales could see costs slashed for extending leaseholds and buying freeholds, as a case comes to the court of appeal challenging a lease extension calculation of one of the UK’s richest men.

A flat in Chelsea, which is part of the multi-million pound Sloane Stanley Estate, has been the subject of a long-running legal battle surrounding the calculation of the cost of extending the lease, which has less than 23 years remaining.

Surveyor James Wyatt, who owns Parthenia Valuation, is challenging the way the lease is valued, and believes that the models used to work out lease extension costs in general are unfair and grant too much money to the freeholder.

He said: “In 1996 the Grosvenor estate commissioned [the surveying firms] Gerald Eve and John D Wood to draw up graphs of relativity to set the price for lease extensions and buying freeholds. No one has had the time, effort or money to challenge them since. It’s a much bigger scandal than the ground rents issue, and a real David and Goliath battle.”

The case, which goes to the court of appeal tomorrow, if successful could see the cost of extending a lease or buying a freehold cut significantly, which would have positive repercussions for swathes of leaseholders – although large, wealthy freeholders would be set to lose out.

A breakdown of leasehold and freehold

Generally, houses are bought on a freehold basis – meaning you own the building as well as the ground it sits on, with no time limit or extra charges applied. By contrast, flats and apartments are often, though not always, bought on a leasehold basis. This effectively means you don’t own the building, but have bought the right to live there for the full length of the term of the lease, often subject to service charges and ground rent payable to the freeholder who owns the building.

Lease lengths vary, but 90-year and 120-year leases are common, and they can even be as long as 999 years. On buying the property, the leaseholder will often have to agree to a number of terms, including clauses such as not being allowed to own pets or make any major changes to the property without permission. A breach of these rules could invalidate the lease.

As the lease term decreases, the value of the property diminishes too, as when the lease expires the home becomes the property of the freeholder automatically. Often, lenders will not provide mortgages for any leasehold property whose lease is 80 years or below, so owners can struggle to sell and therefore be forced to accept a much lower price for the property.

Extending the lease

Because the length of the lease directly influences the value of the property, many leaseholders will think about extending when it gets below a certain level – generally anything around or just above the 80-year mark. Legally in the case of flats, the freeholder must allow the leaseholder to apply to extend the lease by an additional 90 years on the existing term once they have owned it for two years.

However, at present, it doesn’t come cheap. If there are less than 80 years left on the lease, the freeholder is entitled to receive the half of the “marriage value” of the home, which is the increase in value achieved as a result of extending the lease – and on top of this the leaseholder must pay the cost of the extension.

The total cost varies depending on the value of the property and the number of years left on the lease, but Money Saving Expert demonstrates that for a £200,000 flat, extending the lease by 90 years when there are only 70 years remaining would incur a lease extension fee of around £14,000, plus £2,500 in professional fees – as well as around £13,000 for the “marriage fee” based on an estimated property value increase of £26,000.

In December last year, the Department for Communities and Local Government (now also in charge of housing) said it would be “working with the Law Commission to make the process of purchasing a freehold or extending a lease much easier, faster and cheaper”.

Jo Darbyshire of the National Leasehold Campaign added: “Over the last 12 months the National Leasehold Campaign has been pushing for reform to leasehold law and an end to the leasehold scandal. It’s time to see if the establishment are ready to listen to a logical, balanced argument and level the playing field for leaseholders.”

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Let’s look at leaseholds: Landmark legal challenge could spell big change


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