News | June 5, 2018

Jonathan Achampong responds to a readers’ question regarding lease extensions for retirement developments for Choice Magazine

Q: We live in a retirement development. All the flats have a 125-year lease from 1989. A few of the other residents are looking at possibly extending their leases, I gather to give their heirs a better selling price. They will be seeking legal help on this.

Most of us do not want this and we are worried that the negotiations might have some unforeseen consequences, to our disadvantage. We therefore feel we should also take legal advice to protect our interests but with a different firm to avoid any conflict of interest.

Can we, in law, require those seeking to extend their leases to pay our legal fees as well as their own?

A: A lease is a ‘wasting asset’, which means its value will erode as time passes. Ordinarily, an owner of a residential leasehold property should not allow the term of their lease to fall below 80 years as it becomes more expensive to extend after that point.

This is because after 80 years the landlord is entitled to half of the increase in the value of the flat arising from the lease extension.

This is known as ‘marriage value’. The difference in price could be substantial if you or your heirs seek to extend after the 80-year point, particularly with expensive flats.

As there are around 96 years remaining on your lease, the need for urgency has not yet arisen, but your co-leaseholders are correct to the extent that a longer lease is likely to be more attractive to prospective purchasers.

However, if they extend their leases and you do not, this could put your heirs at a disadvantage when they come to sell your flat as it may be less appealing to a purchaser.

Conversely, if you do decide to extend your lease, you should take legal advice on the implications of doing so from an Inheritance Tax/estate planning perspective. This is because extending your lease is likely to enhance the value of your flat and your estate.

Unfortunately, there is no legal mechanism by which you can compel the other leaseholders to pay your legal costs in taking independent legal advice, but this is a complicated area of law so I strongly recommend that you do so.

This article was originally published by Choice Magazine.