Extend Your Lease - Can you find a better investment?

Friday, November 18, 2011 by Douglas And Gordon

 

The process of obtaining a lease extension is frequently viewed with caution and the idea is often shelved on the grounds that it is likely to be too time consuming or complicated. But in today’s economic climate, it is an option which all leaseholders would be well advised to consider.

It is not difficult to persuade people that their own home represents one of the best investments they could possibly own. Although the property market may be subject to fluctuations in the same way as any other market, very little else offers the security and potential for growth as ‘bricks and mortar’. Indeed, within Central London, the Douglas & Gordon Property Index shows a 39% increase in values over the last two years and demand continues to outstrip supply, as reported by our 14 office estate agency network. It is easy to see why people are carrying out loft conversions and building extensions in order to further enhance the value of their most substantial asset. With interest rates on most savings accounts at rock bottom and other asset classes offering volatility, risk and often low returns, there are few desirable places left to put one’s cash.

The concept of a lease extension is one which is slowly gaining recognition and with good reason. The process itself can take time but so long as the lessee is properly advised, carries with it very little risk. Perhaps more importantly, it is likely that by extending your lease, you will add considerable value to your property and since the statutory entitlement is to a 90 year extension to your existing term, this ‘investment’ will retain its value for longer than a new kitchen or bathroom would!

There is another aspect to consider; one which is often ignored until the time comes to sell one’s property, by which time it is too late. As a lease gets shorter, it decreases in value. This effect becomes more pronounced the shorter the lease but lease length has a significant effect on leases of anything up to 90 years unexpired.

Although each case differs, this principle can best be illustrated by way of an example. A lessee of a flat in South West London recently sought to extend her lease, having bought her flat earlier in the year for £425,000. At the date of purchase, the property was held on a 74 year lease and following the submission of a statutory claim, a valuation being carried out and subsequent negotiations with her landlord, a 90 year lease extension cost her £13,500. The property is currently on the market and offers have already been received in excess of £450,000. The exercise has allowed the lessee to add over £25,000 to the value of her flat at a cost of only £13,500.

At the other end of the spectrum, a property in South Kensington which was valued at £2,876,000 on a 38 year lease. The lease was extended by 90 years to 128 years for £1,297,000 and the new long lease has now been valued at £4,425,000. By extending the lease, the lessee has generated a “profit” of £252,000 through investing in their own property.

The idea of entering into this process may seem daunting and in the first instance costly but it ought to be looked at as an opportunity to protect and enhance an investment. The figures speak for themselves and any of the valuation department at Douglas & Gordon would be glad to talk you through the process to illustrate how extending a lease represents one of the best possible ways to add value to your home.

James Hamand - Manager/Valuation Surveyor
T: 020 7591 8746
E: valdep@dng.co.uk