Householders in leasehold properties in Weymouth could be facing a looming payment time bomb according to residential property lawyers.
Battens Solicitors is advising people who bought leasehold flats in the property boom of the late 1980s to be aware that the costs of lease renewal can skyrocket as their lease grows older and the lease term declines.
Some high street lenders will refuse a mortgage application if the number of years left on the lease is too low, which can obviously affect the value of the property if the lease is sold on.
Any holder of a long residential lease has the right to extend it by 90 years but the costs rise markedly where the unexpired term falls below 80 years.
With many leases granted on a typical 99-year basis, those dating from the 1980s and early 1990s are now coming into this category.
Under the so-called ‘80-year rule’, once only 80 years remain any attempt to renew the lease – for example to optimise a sale price or negotiate a new mortgage – is subject to what is known as ‘marriage value’.
This is a legal term defining the potential uplift in the value of the property because of the proposed extension. The calculation is important because the landlord will be entitled to compensation for any loss of rent based on this figure plus payment for the freehold or the new lease.
Battens solicitor Sarah Ford, who advises clients in the residential property sector, said there were several areas in Dorset where property development in the late 1980s involved a growth in leaseholds. She said: “A typical location will be where large Victorian or Edwardian houses have been split into flats. There were many such property conversions by builders and developers in the 1980s in towns such as Weymouth and Bridport. There is a ticking timebomb here and many people only know they are in for paying a premium when they come to try and sell the property with fewer than 80 years remaining on the lease.”
Sarah said it was important for lessees to take appropriate legal advice when seeking to extend their lease. She explained: “Where the unexpired term is less than 80 years, we know that leaseholders seeking to buy the freehold or secure a renewal are being told by their landlords that because of marriage value the cost may run to thousands of pounds. Marriage value is calculated in a very formulaic and mathematical way as regards yield and interest. Without expert help, you won’t know if what the landlord or their management company is asking for in continuing rent or a freehold price is fair and reasonable. You could be in for a nasty surprise.”
Sarah added that tenants in multi-occupancy leasehold properties could negotiate voluntary schemes with their landlords under which they can share costs.
Battens is a Legal 500 firm with offices in Weymouth, Dorchester, Sherborne and Yeovil. For more information, contact Battens on 01305 250560.
