What Are The Benefits of a 999 Year Lease?

There are real benefits to extending your lease

Extending your lease not only provides tangible financial advantages but also enhances the marketability and attractiveness of your property, especially when contemplating a future sale. The significant benefits are underscored by the fact that a property with a generous 999-year lease provides the flat owner with a title that is ‘as good as freehold’—a characteristic that greatly appeals to prospective buyers and well worth considering if you are ever thinking of selling in the future.

The impact on property value is noteworthy, with industry consensus suggesting added value between 5% and 7% when holding a 999-year lease. This rise in value not only reflects the extended tenure but also underscores the property’s stability and desirability in the property market.

Case study:

A recent incident with one of our leaseholders highlighted the practical implications of lease length when it comes to property transactions. Despite having a lease with a substantial 102 years remaining, the leaseholder encountered a challenge during the sale of their flat. Surprisingly, the prospective buyer, along with their mortgage lender, hesitated to proceed with the transaction (and grant the mortgage) unless the lease was extended. This example underscores the evolving expectations in the property market, where even a lease with over a century left was deemed insufficient by discerning buyers and lenders.

How much did it cost? The lease was extended but at a considerable cost. There is usually a charge to extend a lease of £15,000 – £20,000.

Why go through the process?

Extending a lease not only influences the market value of a property but also involves a cost structure that is often tied to the concept of “marriage value.” This value represents the additional worth a property gains by having a longer lease, and typically, the cost of extending a lease is around 50% of this marriage value. So, in practical terms, when you extend a lease, you’re essentially investing in the potential extra resale value the property would command in the market with an extended lease term. This cost is perceived as a strategic investment, as it not only secures the property’s longevity but also contributes to its financial viability when it comes time to sell.

Put simply, acquiring a 999-year lease is akin to holding a title ‘as good as freehold,’ a distinction that will significantly boost the marketability of your property. Compared to properties with shorter lease terms, such as an 85-year lease, a 999-year lease adds a much greater level of attractiveness and security that will resonate with potential buyers and investors.

Beyond the financial aspects, the leases will also give the flat owners rights and obligations in respect of each other, which protects each other’s interests. For example, if a neighbour is committing a nuisance by playing music loud during the early hours of the morning, the lease would in most cases, prohibit this and, therefore, provide a cause of action and means of putting things right.

Furthermore, the process of extending leases often coincides with granting new 999-year leases when a share in a freehold company is involved. This dual action not only secures the extended lease but also provides an opportune moment for a legal review of existing leases. This comprehensive review ensures that the leases are brought up to date, rectifies any existing defects and aligns the terms with current legal standards. In essence, extending a lease becomes a holistic approach to enhancing the property’s value, protecting owners’ rights, and addressing legal considerations in a proactive manner.

To Summarise:

In a market where property decisions are increasingly influenced by long-term considerations, such as mortgage approval criteria, extending your lease emerges as a proactive measure. It not only strengthens the market offering of your property but also preempts potential hurdles in future transactions, ensuring that your property remains an attractive and secure investment for current and prospective owners.

Our recommendation

If you are ever offered the opportunity of extending your lease, do talk to your Block Manager.

Take the necessary time to carefully evaluate the long-term advantages and weigh them against the initial costs, including administrative charges, solicitor fees, and premium charges.