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Add value to your home in a falling market

The good news is that the recent fall in housing prices, is not all bad news for leaseholders. Subject to meeting relevant criteria, The Leasehold Reform Housing and Urban Development Act 1993 provides a right for leaseholders to extend their lease or collectively acquire the freehold of the block in which flats are situate. So, if you are a qualifying tenant of a flat then the reduction in the value of your flat may be of benefit to you. A qualifying tenant is generally an owner of a flat subject to a lease which was originally granted for a term of greater than 21 years. If this sounds like you then you will be interested in the following actions that may be available to you:

Lease Term Extension

What it is?

As each year passes the number of years left on your lease reduces. The shorter your lease, the more you’re flat may drop in value on the open market. This is why a flat is often referred to as a “wasting asset”. An option open to you is to extend your lease.

Why extend now?

Colman Coyle have seen in recent claims for lease term extensions that the fall in value of flats has generally meant that the premium payable for a lease term extension has also reduced. Leaseholders should therefore explore their ability to make a claim to extend their lease, taking full advantage of the current market. As an example, a flat worth £350,000 last year has a current value of £300,000, with a fixed ground rent of £200 per annum and a lease length of 78 years. The leaseholder has been advised by his valuer that the current price payable for a lease term extension is in the region of between £10,000 and £12,000. This figure is approximately £3,000 less than if he had pursued a lease term extension one year earlier.

Enfranchisement / acquiring the freehold of your block of flats

What is it?

This action is when a group of leaseholders (minimum number 2) collectively force the landlord to sell them the freehold of the building in which their flats are situate. Those taking part in the action effectively buy, what is commonly known as a share of the freehold.

Why buy now?

As with lease extensions, the current market is also having a positive impact when it comes to calculating the premium payable for the freehold interest of a building in which your flats are located. Of course, the relevant criteria must be met before such an action can be progressed.

Right to Manage

What is it?

Lastly, if you cannot take advantage of the fall in market prices you could together take over the management of the building in which your flats are located; which generally your landlord is obliged to perform under the term of your leases.

Why start managing now?

The Commonhold and Leasehold Reform Act 2002 provides statutory rights for leaseholders to set up a Right to Manage Company. By taking over the management of the block, leaseholders can address for example, poor management and high service charges. Subject to meeting the relevant criteria, leaseholders do not have to pay a premium to takeover the right to carry out the landlords’ obligations to say insure the building or carry out major works under the terms of your leases. As a result the Right to Manage is fairly credit crunch proof.

Author: Hema Anand

Publication: Property Angel Magazine

Date: February 2009