In today’s property surveying blogpost topic here at Stokemont we are going to be looking at property valuation. Property valuation is at the heart of the vast majority of the services our valuers undertake here at Stokemont.
Extending your lease can be easily put off, as a result a lot of homeowners and leaseholders put it off and don’t do it punctually.
News Flash! – This is one of the worst things you could do- Delaying the extension of your lease could be a major headache, not to mention a financial car crash, we’ll be looking at why.
The government announced that on the 7th January 2021, they were going to reform the law surrounding leases. Their plan was to introduce the right to claim a lease of up to 990 years, and get rid of ground rents entirely.
The government also announced plans to “fix” some of the rates leaseholders pay, known most commonly as capitalisation rates and deferment rates, which are used in the calculation process for lease extension costs. This is what we call a “premium”.
The End of Marriage Value?
Perhaps the biggest and most significant change is the government’s plan to abolish the “marriage value”.
Marriage value is important to understand because it currently forms part of your premium. When your lease has less than 80 years left on it, a marriage value can add a significant amount to the extension cost.
This might seem like good news at first, but it is likely to be challenged by landlords, as the government will remove millions in value from the property market.
There’s also strong evidence it will lead to conflict between leaseholders and landlords, as the latter will most likely attempt to prevent any substantial reduction.
In all truth, what we’ll most likely see is a retirement of the term “marriage value”. That specific part of the premium will probably get retired, and the calculations amended slightly, but it will probably endure nonetheless.
Capping Ground Rents
Something else which has been announced is the capping of ground rates.
This may prove to be somewhat controversial. Underneath the ground rent which is payable to the landlord as part of the basics of owning or leasing a building, the actual lease itself is a contract between you and the freeholder.
The government is often incredibly reluctant to interfere in contracts of a private nature, even if they are incredibly unfair to leaseholders, which is the person leasing the property.
Enforcing a cap on ground rent would potentially wipe millions out of property portfolios, as it will deny freeholders many significant income streams.
Whilst ordinary people might not care, and may even celebrate the fact, you can bet that the freeholders will challenge that significantly over the next year or so.
Stokemont’s Take on it
Whilst initially it may seem like the announcement by the government to make these changes is a good thing, in practice it may well generate issues for leaseholders and freeholders alike.
Whilst it is true that we won’t see any caps on ground rents or new leases before 2024, there hasn’t been any indication as to whether or not restrictions will be placed on existing leases.
Furthermore, there is no currently defined timeframe for introducing this legislation to abolish the marriage value. However, if legislation of this kind was introduced, there is no doubt it would be heavily debated in the walls of Parliament for quite some time before it became law. Even if it does become a legal statute, it will be contested heavily by landlords and their representatives for years to come.
Any leaseholder who needs to extend the lease may delay after hearing this news, because it might seem like the new changes will help them. However, the best advice that could be given at this point in time would be not to delay. It’s better to get in under the old rules and regulations, because an official timeline for changing existing leases has not been implemented yet. Ultimately, these new rules may impact your lease more than they would help it.
Finally, any leaseholder who is not in the categories that have been listed should think about extending their lease quickly.
As more time progresses, the premium that you have to pay for your lease will undoubtedly increase. As it is exceptionally unlikely that new legislation will come into play before the next five years, it’s proven that any possible benefits that might be gained by waiting for the new rules would be much less than the increase you’d have to pay in the premium.
Basically, it’s not worth waiting. There’s no telling how these new rules will impact lease extensions, so the majority of people would be sensible to simply renew the lease and not try their luck.
If you would like to discuss your property valuation requirements with our team of RICS Chartered Surveyors and RICS Registered Valuers here at Stokemont, give us a call today and we will be more than happy to assist and advise you.