Lease Extension Valuation Update

Many clients have approached our team of lease extension valuation surveyors interested in knowing the implication for lease extensions by virtue of the Government’s recent announcement on planned changes to the existing legislation.

The Government has recently announced changes to the leasehold reform legislation in January 2021. The details are very scant and certainly leave more questions than answers, however most stakeholders and leasehold valuation experts in the lease extension and leasehold enfranchisement sphere recognise there is a need for change in how the legislation operates in practice.

The Government’s proposals principally concern changes to elements of the calculation, such as the potential abolition of marriage value and there are some suggestions of standardisation in the capitalisation rate and further changes to enfranchisement hope value/ development value. 

Of course, the 1993 Act, which deals with the enfranchisement and extension of flat leases is principally a derivative of the 1967 Act, which previously brought in the right of a leaseholder to acquire the freehold or extend the lease by 50 years of a leasehold house.

We, as surveyors at RES, consider that the proposals maybe missing the point somewhat.  For example, the abolition of marriage value seems somewhat misguided in that marriage value apportions the net increase in value of the lease extension or enfranchisement equally between the leaseholder and freeholder/ intermediate leaseholder.  In its fundamental nature, this is equitable and fair.  The crusade to level what is seen as an unfair playing field maybe slightly misjudged and coloured by the picture of the unscrupulous and unreasonable freeholder.  However, there are many freeholders who act with conscience and in the spirit of the legislation. 

Therefore, in making the legislation fair, it needs to be fair for freeholders, intermediate leaseholders and flat leaseholders and, it seems in the abolition of marriage value, the Government is trying to make it fair by making it unfair to one party which, in fundamental terms, means it is not equitable or fair at all.  This approach is driven by strong lobbying on behalf of leaseholders whom have long been adjudged in the public domain to be getting a bad deal, as it were.

We, as lease extension valuation surveyors at RES, consider that the quicker, easier and best route to effect change, and positive change for leaseholders, is to alter the part of the 1993 Act, and the 1967 Act, that is weighted against leaseholders, this being on the procedural side. 

Some of the procedural changes which would assist and make a lease extension, for example, more equitable, would be as follows:-

  • Make each party bear its own costs. As it stands, leaseholders pay for the valuation enquiry and legal enquiries of the freeholder and intermediate leaseholder in relation to any notice that is served.
  • Give the Tribunal greater discretion on awarding costs.  This is a big item in that freeholders can often act unreasonably during the lease extension.  Making each party bear its own costs would largely stop this practice as the freeholder would have an eye on costs in the same way a leaseholder has. 
  • In commercial rent reviews, under Part 36 of the Civil Procedural Rules, one party can make a financial offer of settlement to another party and this is marked subject to costs.  The principle is that if a party puts a reasonable offer forward and if this is ignored or rejected by the other party, and the final adjudication is close to the offer, then the Court or third party arbitrator or expert can award costs against one party where they are deemed to have acted unreasonably and costs have escalated, where they would not have done if the Part 36 offer was accepted.  This fundamentally equals the playing field on costs and also focuses minds at an earlier stage in the negotiation, which would be of extreme benefit to leaseholders.
  • It is inequitable that the leaseholder in serving a Section 42 or Section 13 Notice, for example, needs to act in good faith but there is no equal requirement for the freeholder to do likewise.  This situation seems inequitable by its nature and the two positions should be equalised. 

These simple procedural measures would be subject to very little controversy and are easy amendments without fundamentally changing the mechanics of the calculation. The calculation has effectively stood the test of time and we think it is less an issue with the calculation, but more procedures and costs of bringing the same to pass.

Another one of the Government’s proposals to extend leases to 999 years is simply a headline and has no significant or material difference to the calculation in most cases or eventual value.

RES Property Surveyors are very experienced in leasehold extension matters and leasehold enfranchisement matters and our experienced surveyors would be very happy to advise on your leasehold valuation.  We are adept and experienced in taking matters to Tribunal.

Another issue is often that leaseholders do not get strong and proper leasehold and valuation advice at the point of purchase. Buyers get legal advice and often building survey advice but largely rely on a mortgage survey which does not take into account the short lease position as it is assumed the flat has a long lease. This means that in some cases leaseholders have no idea that they are buying a short lease never mind the cost of extending the same. There is a void in due diligence.

Solicitors have the opportunity to recommend that a client seeks lease extension advice, and this is encouraged. If leaseholders buy a short lease at the right price and in full knowledge of the costs and implications, they are forearmed and are less surprised to learn of the implications once they have purchased or go to sell.

RES Property Surveyors – Lease Extension Valuation Surveyors in London, the South East and UK more widely. Our Lease Extension Valuation Surveyors would happily talk you through implications for your lease extension case.