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Leaseholders Paying More Than Expected To Extend Leases

9 August 2017

The Independent has recently reported on the release of information by the London School of Economics and Political Science (LSE), that property owners living in leaseholding homes are being asked to pay exorbitant prices to extend their leases. The LSE has examined data from over 8,000 homes with lease sales which showed how the sale varied depending on how much time the lease had left.

The cost of extending a lease is down to a concept called relativity, which describes how the value on a property decreases as the lease runs out. The lower the relativity, the higher the cost will be to extend the lease. With this concept, it can have an impact on the cost of leases, as it is expressed as a percentage, it’t the difference in value between a short lease and a home with a lease of 999 years and low, fixed rents. The lower the relativity is, the more it costs to extend the lease.

However, the article goes on to mention that the information gathered by LSE that the current practices underestimate the value of leases when they have less than 70 years left. This means that when leaseholders want to extend their lease on their properties, they could be paying thousands of pounds more than expected. The Independent welcomed comments from James Wyatt, one of the authors of this research as well as a chartered surveyors, who said: ”Our findings mean that many leaseholders may be seriously overpaying for lease extensions. Our alternative, evidence-based calculations could result in savings in the order of thousands of pounds for most leaseholders, and much more for owners of some of the most expensive properties.” All this follows scandals that have hit leaseholders in the past, including being overcharged, under-informed and even exploited.

As we live in an ever-changing economic climate, it is not hard to imagine that the housing sector will have its fair share of ups and downs in various areas, including the leasehold sector. Buyers of leasehold properties have been rocked by revelations that companies such as Taylor Wimpey had been adding clauses to properties with 999-year leases by doubling ground rent every 10 years, denoting that they incurred notable additional costs within a few decades, hving an impact on their sale value. Campaign groups have waded in and have forced Taylor Wimpey to act, announcing that it would pay £130 million to change the terms of doubling leases for some owners of newly built leasehold homes.

Another group has also warned about the dire situation of the leasehold sector. Home Owners Alliance (HOA) have remarked that this is exacerbating the nation’s home-ownership problem.They noted that there has been a ”widespread malpractice and lack of consumer understanding”, and that in its own research, have found that just 58% of leaseholders questioned knew the length of their current lease. Paula Higgins, head of HOA, vilified members of the property industry, saying: ”Unscrupulous and avaricious actors within the property industry are using sharp leasehold practices to line their own pockets and fleece householders. Developers and estate management companies rely on leasehold to bamboozle consumers, charge exorbitant administration fees, ever increasing ground rents and render properties unsellable.”

This revealing of what is happening in the leasehold market could help leasehold buyers closer scrutinize the conditions of their leases and prevent them from forking out more money than needed to extend their leases.