Extending the value of your leasehold property

Owners of leasehold flats are often put off purchasing the freehold in favour of a lease extension when dealing with a short lease or looking to increase the value and marketability of their property. There are many reasons for this, the main one being not having the requisite 50% of flats participating for a freehold purchase. Another major factor is price, it is often the case that flat owners mistakenly believe pursuing a freehold purchase will cost a lot more than a lease extension, however this is not always the case.

Where a single flat lease is extended under the statutory regime, the price is determined by the value of the ground rent, freehold reversion and marriage value (joining of the leasehold and freehold interests). These same elements form part of the calculation for a freehold purchase. Where the freehold is purchased, you may be buying additional areas such as un-demised roof spaces or gardens and this can add to the premium you pay for a freehold. There is also the additional potential cost of funding non participant flat shares.

However, these additional expenses may not come into the equation making the overall cost of purchasing the freehold equivalent to a lease extension for each participant. Provided there are no roof spaces or additional areas such as gardens that are owned by the freeholder and not on the lease, the additional cost of purchasing the freehold over leasehold extensions will be minimal. In respect of non-participant flats, the participants in the freehold purchase will only pay ‘hope value’ to the freeholder for that share rather than the full value. This is a lower share on the basis of the freeholder’s expectation of a lease extension premium from that tenant in the future.

Another factor involved in calculating a freehold premium is the ‘development value’. This is the value that the freeholder may have in building on or around the property, for instance, adding a floor and new flat onto the roof of the premises. This factor is often subject to negotiation between the parties’ valuers, but would also be subject to planning permissions and rejections in the area as well as local policy.

It is therefore always worth considering whether purchasing the freehold or simply extending the lease is the best option for you if you want to maximise the value of your property.

If you have a short lease or are considering a lease extension or freehold purchase and would like further information please contact Darren Coleran (e) darrencoleran@boltburdon.co.uk in our leasehold enfranchisement team.