What will happen now for current pipeline leases extensions?

by Readers Question

8:42 AM, 8th January 2021
About 4 months ago

What will happen now for current pipeline leases extensions?

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What will happen now for current pipeline leases extensions?

Now with the announcement today of increasing the lease to 990 years at zero ground rent and abolition of Marriage Value which may take a year or two to become law.

What will happen now for leases extensions that have been agreed or in process of completion presumably many leaseholders will delay the extension or purchase of the freehold apart from those that need to sell the property?

Perhaps the leaseholder will go back to the freeholder and demand a reduction?

Jim

 

Comments

Gary Nock

9:34 AM, 8th January 2021
About 4 months ago

At the moment once a lease extension notice has been submitted, a strict timetable comes into effect:

The date of submission is considered to be the “Valuation Date”. So, however long the process takes, only the value of the lease extension on the valuation date will be considered as relevant to the application. It also freezes the length of the lease for assessing the premium. This fixed date is very important for leaseholders who want to avoid being on the wrong side of the 80 Year Rule. As long as you have submitted your application before the 80 Year deadline, you are safe. The premium is agreed.

You then have 28 days to complete the transaction or if the freeholder has a dodgy solicitor they will try and go beyond the 28 days so you have to start again. If it starts to look like that you have to make a County Court Application.

So it looks like under existing law you are stuck with existing values if you have started the process. The government has said that it intends bringing in the abolition of marriage value " in this parliament" so it may happen quite quickly. Of the three options given by the Law Commision, two of them reduce lease extension costs by between 35-40%. One of them keeps the same - but that will not happen. And freeholders have to pay their own legal and surveyor costs in the new proposals so thats another gravy train off the rails. I have been told that on my lease extensions of 53 years then the 17k should reduce to about 10k.

So in a roundabout way I think I am saying that if you have started the process you are stuck with the old system. You then have to weigh up the cost of withdrawal as against a cheaper and longer lease extension up to 990 years which will add value to the property.

Jim Littlehampton

10:19 AM, 8th January 2021
About 4 months ago

What about cases where lease premium has been agreed for the lease extension so presumably the leaseholder will now go back to the freeholder and renegotiate ?

Gary Nock

10:31 AM, 8th January 2021
About 4 months ago

You can try but most will not negotiate outside the valuation agreed. Your valuer will need to run the hypothetical numbers to see if it is worth withdrawing and reapplying - but bear in mind although marriage value will be abolished we don't know what formula will replace it.

Jim Littlehampton

12:02 PM, 8th January 2021
About 4 months ago

If the amount has been agreed between leaseholder and freeholder where the lease is less than 80 years and only lawyers selected then maybe in the leaseholder interest to delay the lease extension until it become law or maybe renegotiate the terms as this will reduce the amount payable by half plus saving on on lawyer fees ? Though if the leaseholder is selling the property then may have no choice but to go ahead on the original terms.

Steve Masters

13:00 PM, 8th January 2021
About 4 months ago

I'm in the process of extending the leases on three flats. They have 82.5 years left at the moment. I've had valuations done but not submitted the 'notice' yet so I have the option to wait and see and that is what I shall do.

BernieWales

14:22 PM, 8th January 2021
About 4 months ago

Advice in connection with yesterday's announcements must be given on a case by case basis. There are several factors to take into account - any of which will affect an individual situation differently; e.g.

> Is the current unexpired term more than 80 years and how close to 80 years are you? Marriage value is proposed to be abolished - so where you're extending and currently more than 80 years, then that element of the valuation remains unchanged. But if you're nearing 80 years marriage value may come into play if/when you trip over that line. Waiting may be a mistake.

> Is there a 'need' to extend now; e.g. for a sale or remortgage? If not, and if you're well away from the 80 year mark, then delaying and waiting for the new legislation might be worthwhile.

> The proposed +990 years is far better than the current +90 years. But the government also proposes to 'prescribe' deferment rates and other cogs in the valuation mechanism. We don't know what those rates will be - and there is the possibility that the bottom line figure may therefore be worse rather than better - especially if property prices generally rise between now and then.

> The governments priority is improving new build - either with zero ground rent leases, or commonhold. Those proposals have cross-party support and are likely to meet little or no opposition. They'll arrive soon...ish.
But the proposals to tinker with existing contracts (e.g. abolish marriage value) will meet with much opposition from wealthy freeholders, some of whom sit in the House of Lords. There might even be appeals and long drawn out legal objections. Thus those proposals may be signifiantly delayed in reaching the Queen's desk for signature. Can you wait that long?

It's a case of crystal ball gazing - and everyone's crystal ball will see differing things.

And apart from that - the devil will be in the details ... and we don't know the details. Watch this space!

Puzzler

15:24 PM, 10th January 2021
About 4 months ago

Ref the first comment about the timetable already started, in the ST today, the LKP is quoted as saying:
"If you’re midway through extending a lease, you can reserve the right to pull out of the process whenever you want, to wait for these reforms and extend under better terms — and for less money. “If you’ve got 82 years or fewer left, you might want to extend, but if you’ve more than that, you could wait for the changes to come in,” says O’Kelly."

Puzzler

15:34 PM, 10th January 2021
About 4 months ago

It also says -
"If you’re thinking of extending the lease before you sell to protect the value, your buyer may prefer to buy on the current terms and extend under better ones later."


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Queen's Speech 2021 - Leasehold Reform (Ground Rent) Bill