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Are the costs of lease extensions about to be cut?

Posted on 23 January 2018 by Janet Keirle

Are the costs of lease extensions about to be cut?

A landmark legal challenge with the Court of Appeal is due to be heard on Tuesday this week and, if successful, then the case could also benefit 2m households across England and Wales - with the costs of extending a lease or purchasing a freehold reducing as much as 50%.

With over 2.1m homes in England and Wales having leases where there are less than 80 years remaining, these costs could fall by an average of 31%, if the challenge is successful.

If a flat or house has a short term remaining on a lease, this can make the property difficult to sell, particularly as many mortgage companies will not lend where the remaining term is less than 75 years.

The challenge focuses on a long running legal battle of Mundy v The Sloan Stanley Estate and how the costs for extending leases are currently calculated. Behind the case is surveyor James Wyatt who has his own consultancy, Parthenia Valuation.

The case involves a small flat in Chelsea where the lease term has fallen to under 23 years but the freeholder is seeking £420,000.00 to agree an extension of the term.

At the heart of the case are the “relativity graphs” used by property experts when setting up the value of short leases relative to the freehold. These relatively graphs were drawn up in 1996 to set the price for lease extensions and buying freeholds. To date, no challenge has been made since they were set up.

Wyatt considers that the calculations currently in use wrongly award too much to the freeholder and even though this case focuses on a flat in Chelsea, there have been instances where many people simply cannot afford to extend their leases or purchase the freeholder. Wyatt states “I know where one lease extension should be £30,000.00 but the freeholders want £50,000.00”.

Wyatt also considers that leaseholders are being overcharged by £480m per year by surveyors and solicitors earning huge fees maintain the existing system.

Over the last 12 months, the National Leasehold Campaign have been pushing to reform leasehold law and are watching the case.

If the Mundy case goes in favour of the Leaseholder, then it is likely the case will go to the Supreme Court on appeal.

However, even if the case is unsuccessful leasehold valuations are expected to fall after a government review into the sector.

We await the results.


Posted in: Commercial Property