Buying, selling and letting - Friday, March 16, 2007

The government has announced that the Tenancy Deposit Scheme (TDS) will come into force on 6 April 2007. This means that if you receive a deposit after this date you must deal with it in accordance with the scheme. Otherwise, penalties can be imposed.

The scheme will apply to all Assured Shorthold Tenancies but not other kinds of tenancies. Alongside the TDS there will be alternative dispute resolution (ADR) to resolve disputes. Landlords will be obliged to join a statutory tenancy deposit scheme if they take deposits from their tenants; the idea is that this will safeguard deposits.

Critics of the policy claim that there has been insufficient time to prepare for this new regime, while many also question whether the government has put the necessary work into the system to make sure it is ready to go live in April. Below, the Residential Landlords Association answers some frequently asked questions regarding the scheme.

What is the Tenancy Deposit Scheme?

From 6 April 2007, all deposits taken by landlords under Assured Shorthold Tenancies (ASTs) in England and Wales must be protected by a tenancy deposit protection scheme. Landlords must not take a deposit unless it is dealt with under a tenancy deposit scheme. To avoid disputes going to court, each scheme will be supported by an alternative dispute resolution service (ADR). Deposits taken in connection with non-shorthold tenancies do not have to be dealt with under the scheme.

How does Tenancy Deposit Protection work?

Landlords will be able to choose between two types of scheme: a custodial scheme, of which there is one, and two insurance-based schemes.

In the custodial scheme the tenant pays the deposit to the landlord; the landlord then pays the amount of deposit into the scheme. The deposit has to be sent to Computershare Services Investor Plc who is administering the custodial scheme. Within 14 days of receiving a deposit, the landlord must give the tenant the prescribed information about the scheme being used. This is a prescribed printed form which must be used. Forms will be available in due course.

At the end of the tenancy, if the landlord and tenant agree how the deposit should be divided, they will tell the scheme, which will return the deposit divided in the way agreed by both parties. If there is a dispute the scheme will hold the amount until the dispute resolution service or courts decide the dispute.

The interest accrued by deposits in the scheme will be used to pay for the running of the scheme and any surplus will be paid on the amount refunded. The amount of interest has yet to be set. With insurance-based schemes, the tenant pays the deposit to the landlord, who retains the deposit and pays a premium to the insurer – the key difference to the custodial scheme. The same 14-day rule applies regarding the prescribed information about the scheme as with the custodial scheme, and a particular form must be used.

In the event of a dispute, the landlord must hand over the disputed amount to the scheme for safekeeping until the disagreement is resolved. If for any reason the landlord fails to comply, the insurance arrangements will ensure the return of the deposit to the tenant if they are entitled to it.

Returning Deposits

In each scheme, the deposit must be returned within ten days of the landlord and tenant agreeing how the deposit should be divided, or within 10 days following notification of an ADR/court decision.

Implementation

The government has awarded contracts to three companies to run its tenancy deposit schemes: Computershare will run the single custodial deposit scheme, with the Chartered Institute of Arbitrators providing the Alternative Dispute Resolution (ADR) service.

The Dispute Service Limited (which will also run its own ADR scheme) and Tenancy Deposit Solutions administer the insured schemes. The Chartered Institute of Arbitrators will provide the ADR service for Tenancy Deposit Schemes.

It should be noted that although the date for implementation is 6 April, it is understood that preliminary government legal advice is that where the deposit is paid before 6 April 2007 and the tenancy commences (i.e. the tenant moves in) after that date, the deposit will be subject to Tenancy Deposit Scheme. The RLA does not necessarily consider government view to be correct and further clarification is awaited.

For further information visit rla.org.uk

 

Letting specialist Zoe Serafimova of changing-home.co.uk offers advice to the would-be landlord

Buy-to-let is now one of the economy’s ten fastest growing sectors, ahead of both gold and the stock market, according to This Is Money. And as continuing price rises mean more find themselves renting rather than buying, the health of the market lettings market seems assured, at least in the short to medium term. The Association of Residential Letting Agents (ARLA) says that 48 per cent of its members believe there are now more tenants than properties available, which points to a boost in rental yield for landlords.

The circumstances in which people buy property to let are also becoming more varied. Some popular reasons for investing in rental property include: purchasing with a view to retirement in lieu of (or to augment) a pension; homes for their kids at university, with the choice of keeping on the property after the offspring graduate; letting a home due to a job relocation that is not expected to be permanent; or simply to generate income.

The buy-to-let market is not risk-free, of course, and increasingly tough legislation has meant more responsibilities for the landlord. Investment decisions, therefore, need to be taken very carefully. With this in mind, I present my list of seven things that buy-to-let purchasers should think about.

1 Think carefully about all the finances. Mortgage providers tend to look at gross rents of about 130 per cent to 150 per cent of the monthly repayments. Calculate the purchase, improvement and running costs and balance these against the realistic rental income and the increase in the value of the property itself.

2 Fit out the property according to your target market. Don’t skimp on spec if you intend to achieve a high rental yield from a professional tenant. On the other hand, college students are unlikely to demand top-notch specification.

3 Avoid void periods. Remember that letting it for less will bring in more money than not letting it at all. Be realistic about the rental yield you can achieve; you want to avoid having an empty property.

4 Legislation surrounds residential lettings and incorrect action can have consequences out of all proportion to the error or omission. Current health and safety regulations are strict, covering gas and electricity supply and appliances, furniture, fire safety, etc. Make sure you are fully aware of all regulations or have an expert advise you.

5 A lease must be drawn up, with a proper inventory and condition schedule.

6 The property will need checking regularly and any problems will need action to comply with the law and the tenancy agreement.

7 Finally, seeking advice from a professional or expert nearly always proves a money-saver – and in the end, money is what an investment is all about.

Zoe Serafimova is a member of the National Association of Estate Agents. Visit Changing-home.co.uk

 

Buying to let is one of the most popular and trusted forms of investment. Bill Sunner of Landlords Only gives his tips for wannabe landlords

Everyone is getting into buy-to-lets at the moment, but many do not fully appreciate that by entering this particular market they are starting a business – and a business has to make a profit to be worthwhile.

Firstly the buyer has to find the right property to invest in. Time and effort needs to be spent finding a property that can provide the best return. This means looking for a place in an area where demand for rented properties is strong and a property will rent for a good price.

Areas with lots of colleges and universities, industry and general opportunities for work provide the most buoyant letting areas – forget small towns and villages; they may look great, but unless they are near bigger towns and cities, they often have very low levels of letting activity.

Once you have located the desired investment property, financing is a stumbling block for most new landlords; but anyone who is already a homeowner can simply use the potential equity in their existing home to raise the deposit on their first buy-to-let property.

Before borrowing anything, it is essential that the buyer look into the projected rental income of their property. This can be compiled by researching others in the area and by speaking to local lettings and estate agents. This rental income figure acts as a financial forecast and will show the buyer how much money they can make from the property, as well as how much they can afford to pay on a mortgage and maintenance and preparation of the home.

These calculations are essential and will form the basis of the business plan of any buy-to-let venture. After all, there has to be some profit from the rent of the property once all of the outgoings are paid.

In most cases, mortgages will be the single largest outgoing of any buy-to-let venture and finding the right mortgage rate is crucial to profit – every part-percentage more a landlord pays on a mortgage is another chip out of any profit made. Buyers should find advisers that they trust and ask about their experience in dealing with mortgages for landlords, as this is a totally different market from owner-occupier mortgages.

This may seem complicated, but if buyers do their research and build relationships with independent estate and lettings agents and mortgage brokers the whole process becomes quite simple. Like most businesses of this size, smaller independent agents will offer buyers more free advice as they will be looking to build relationships with long-term investors.

And finally, once buyers find a property they like, it’s a good idea to find out what price it sold for previously (this information can be obtained on the internet) and negotiate the lowest possible purchase price.

Visit landlordsonly.co.uk

First-time buyers who are considering buying abroad should face reality, says Bill Sunner of Landlords Only

Buying abroad has become the latest trend for wannabe landlords, but those who are thinking of buying overseas should know that it is not for everyone.

Investing in a country which is being developed obviously allows more scope for capital growth – and of course there is the draw of the exotic sun and a change of scenery. However, emotions need to be put aside and the harsh realities of the practices and pitfalls of buy-to-let abroad assessed.

There are key defining qualities that make a landlord suitable for buying abroad, with experience being top of the list. This is paramount to success in overseas property development. First-time landlords are not ideal candidates because usually it is the novice investor who gets caught out by drawbacks they did not expect and were not prepared for. Because of this a landlord needs to be resilient and patient, as inevitably they are going to encounter problems.

Having capital behind an investment abroad is a must. Often a 30 per cent deposit is required to secure a property and it is essential that a landlord have enough money behind him to ride any storms which may come along.

Before embarking on an overseas investment, a landlord needs to be aware of the processes that are required of him. It is necessary to open a bank account in the country where the property is located; in fact, this is mandatory before any purchase goes ahead. It is normally this bank which provides the landlord with a mortgage, if required, and although similar structures to those in the UK are in place, landlords will find that there is less mortgage product choice than they will find domestically.

There are many risks to investing abroad, and as with any property investment the basic rules of economics apply. Landlords should check out the supply and demand of an area – they need to make sure that there are enough potential renters in that location to let the property and also that the market is not already swamped with landlords offering a similar service.

Buying abroad often means buying into a country where the laws, regulations, rules and even the language are different. This can broach many unexpected problems and learning how to ‘talk the talk’ in a new language is often the key to success.

At the moment, property hotspots seem to be Bulgaria and Croatia, mainly due to the low property prices. When buying a property to let in any country, landlords should look out for properties in resort settings, as these appeal more to renters.

Properties with good transport links and amenities are a good choice; renters look for facilities such as a swimming pool and a local golf course, and take note of how close local shops and restaurants are to the property.

If the draw of buy-to-let abroad is just too strong, landlords should make sure they take their wealth of experience, full pockets and a phrasebook to the best resort in Europe.

See landlordsonly.co.uk

Buy-to-let has become one of the ten fastest growing sectors of the economy, out-performing investments in either gold or the Stock Market.
 
Renting and sharing rented property is becoming more a matter of necessity than choice.  Life has become tougher for first-time buyers to get on the property ladder leading to more people wanting to rent property.  The Association of Residential Letting Agents (ARLA) says that 48 per cent of its members believe there are now more tenants than properties available helping to boost rental yield for landlords.
 
People are buying properties to let as investments for retirement, homes for their kids at university, to generate income, and many other reasons. Other people are forced to rent their homes for example to enable job moves. At the same time more and more people are looking to rent. 
 
The buy-to-let market does not come risk free. Tougher legislation means more responsibilities for the Landlord. Investment decisions need to be taken carefully. Management of rented property must be done professionally if good profits are too be made.

Looking for rented property is normally done through estate agents or newspapers. Going to a reputable letting agent will save a lot of time and legwork and removes much of the risk.
 
Letting specialist, Zoe Serafimova MNAEA*, at Changing-home.co.uk provides expert guidance on the important considerations of buying and letting property. She advises:
 
1.    Think carefully about all the finances.  Mortgage providers tend to look at gross rents of about 130% to 150% of the monthly repayments.  Calculate the purchase, improvement and running costs and balance these against the realistic rental income and the increase in the value of the property itself. 
 
2.    Fit out the property according to your target market. 
 
3.    Remember that letting it for less may well bring in more money than not letting it at all. You want to avoid having an empty property.
 
4.    Legislation surrounds residential lettings and incorrect action can have consequences out of all proportion to the error or omission.  Current health and safety regulations are strict, covering gas and electricity supply and appliances, furniture, fire safety, etc. Make sure you are fully aware of all regulations or have an expert to advise you.
 
5.    A lease needs drawing up, with a proper inventory and condition schedule. 
 
6.    The property will need checking regularly and any problems will need action to comply with the law and the tenancy agreement. 
 
7.    Finally, seeking advice from a professional or expert nearly always proves a money-saver, which in the end is what the investment is all about.
 
* Member of the National Association of Estate Agents.
          
 

Disputes likely to increase as buy-to-let boom creates generation of novice landlords

- Tribunal service highlights concerns, as buy-to-let households exceed one million in Britain’s towns and cities -

More than a million households in the UK now live in buy-to-let properties. This figure is set to rise by two-three per cent a year over the next decade, with the sector now contributing more to the country’s economy each year than all the pubs, hotels and restaurants in the UK, according to a recent report.

The study has also found that almost a fifth of landlords have only entered the residential letting sector in the past few years, with almost two thirds involved for less than a decade. In the light of these findings, the government sponsored Residential Property Tribunal Service is set to embark upon an awareness raising campaign amongst the growing number of novice landlords and tenants who may not know where to turn when common disputes arise.  

In addition to the growing number of first time landlords, changing lifestyles, affluence, employment patterns and financial circumstances have all combined to encourage more younger people to rent. At the end of the 1980’s, around 40 per cent of 20-24 year olds and roughly 66 per cent of 24-29 year olds were already owner occupiers. Now only 20 per cent and 50 per cent or these age groups respectively purchase. This is a considerable social change, with many people moving to owner occupation at least a decade later in life than people of their age used to.

Established to settle disputes on private rented sector and leasehold matters in the housing field, and operating in some instances as an alternative to the county courts, RPTS provides an accessible and cost-effective solution to residential disputes for landlords, tenants and lessees. In recent years, the service has undergone dramatic change, and in addition to its traditional work on rents and leasehold disputes, it now also has the ability to settle disputes on:

o    Service charges – the LVT has much wider powers to decide whether service charges are payable including decisions on whether the costs are reasonable, the standards of work are reasonable and whether the lessees have been properly consulted. 
o    The right to manage – a new right for lessees of flats to manage their own properties has been introduced.  The LVT can decide disputes between the landlord and the right-to-manage company.
o    Administration charges – the LVT can decide whether other charges under a lease (eg. a landlord’s costs associated with giving consent to sell the flat) are payable and/or reasonable.
o    Variation of leases – the power to correct defective leases, which was previously exercised by the County Courts, has been transferred to the LVT.

Since the introduction of the Housing Act earlier this year, RPTS can also adjudicate on disputes over actions taken by local authorities in relation to the new Housing Health and Safety Rating System, licenses for Houses in Multiple Occupation, the selective licensing of landlords in some areas and management orders, including those for empty homes.

The tribunal aims to be an efficient and user-friendly system, with a great deal of emphasis placed on ensuring that hearings are informal and accessible. Not all cases involve lawyers, with many parties choosing to represent themselves, and the service is cost effective, with application fees ranging between £50 and £500 depending on the nature of the dispute. Many sorts of application, including those in rent disputes, are free.

The RPTS is strictly impartial – it is available equally to leaseholders, tenants and landlords - and every case is reviewed and decided on its merits.  Hearings take place locally or at one of RPTS' five regional offices.  If applicants have mobility problems, panel hearings can even be held in their own homes.

Michael Ross, chief executive of RPTS, said: 'We were particularly interested in the report’s findings that almost 40% of properties were not bought explicitly to rent out and may, for example, be a bequest or more commonly the landlords’ own former dwelling. When combined with the significant number of people now choosing to rent instead of own their property, we are concerned that there is a new generation of novice tenants and landlords who, faced with a potentially stressful dispute involving their property, simply do not know where to turn.

'We are keen to highlight our ability to help in such cases and to reassure first-time users of the service that they need not be concerned about appearing before a tribunal, as our cost effective and user-friendly procedures and guidance materials are designed to help allay their fears.'

For further information, please visit the RPTS website at rpts.gov.uk. Alternatively, you can call the RPTS national helpline number on 0845 600 3178.

For most vendors and would-be landlords, interior design services are an expensive luxury and the DIY option can be risky. To help bridge the gap, forward-thinking interior design company Designs for All Occasions has launched a range of stylish, comprehensive 'ready to wear' interior design packages incorporating everything from fully assembled furniture through to the finishing touches.

‘In the rental market, a well co-ordinated, cleanly designed look can help speed up the letting process, attract a higher price and ensure that tenants treat the property with more respect,’ says Esther Bond, MD of Designs for All Occasions. ‘These packages have been cleverly created to ensure that everything is cost-effectively co-ordinated, down to the smallest detail.’
Whether you want to dress your property to sell or to attract quality tenants, the use of simple design can up your chance of success. Developers, too, have found the Designs for All Occasions range helpful. ‘They are moving towards compact living and innovative use of space,’ Bond says. ‘Our bespoke furniture packs provide an ideal solution for one- and two-bedroom apartments, where space can be cleverly used without compromising on style or finish. All of the packs are fully assembled for maximum convenience.’

The company has put its two decades of experience in creating interiors for show homes, hotels, rentals, commercial premises and private properties to use in creating the three ranges they offer. The Bronze range, which incorporates furniture, curtains, bedding and towels for the bedroom, kitchen, bathroom and living are, retails at £2,930 for a one-bedroom apartment. The included kitchen pack comprises a full dinner service as well as utensils, chopping boards and tea towels. Customers have a choice of colour co-ordinations and styles.
The Silver and Platinum ranges contain more furniture pieces, making them suitable for larger apartments. Optional finishing items such as lighting and mirrors as well as bathroom fittings and electrical goods are available at additional cost.

Contact 01276 691010 or visit dfao.co.uk to find out more.

London saw by far the biggest gains, with a 13 per cent rise in prices over the last year, according to Hometrack. Within London, the Land Registry has pegged price rises in the capital’s most expensive borough, Kensington & Chelsea, at a shocking 16.3 per cent. Other high-value boroughs, such as Camden (average price £437,540) and City of Westminster (averag price £494,471) also made big gains.

Very few counties saw prices stay the same or fall. The Isle of Wight, which has seen a virtual freeze in prices recently, had no price movement between January last year and this month. Other counties that stayed the same include Teesside and County Durham; the latter had been experiencing a sort of price surge until last year but seems to have stalled somewhat.

The Home Counties continued to perform well price-wise, with Berkshire showing a 9.3 per cent gain. Also strong were Hertfordshire at 6.5 per cent, Essex at 6.0 per cent, Surrey at 5.3 per cent and Kent at 5.1 per cent. Not the earth-shattering rises these areas saw in between 2001 and 2002 but healthy nonetheless.

London leads, most areas follow

T he latest figures from the Land Registry show a very strong performance price-wise from the capital, with high-end areas doing exceptionally well. The only London borough that experienced no monthly price movement in December was Bexley, while the 4.1 per cent growth seen in Barking and Dagenham counted among the lowest rises.
Only Greenwich slipped price-wise, with a fall of 0.3 per cent.
Nationally, the Land Registry figures show that the year 2006 ended with a solid rise in prices in England and Wales – indeed, the past year saw a greater pickup in prices than 2005.

Buying abroad gains in popularity

The number of British now owning a property abroad is 800,000 an increase of 45 per cent in just two years, according to recent figures from Mintel. This is set to double in the next few years.
‘We have been aware of the rapidly burgeoning overseas property market,’ says Steve Emmett, Chairman of the Federation of Overseas Property Developers, Agents and Consultants (FOPDAC), who calls attention to the fact that the overseas property scene is a ‘huge unregulated market’.
One country that is consistently popular with British buyers is Spain; the profile of the buyer of Spanish property has changed in recent years, with a growing trend towards younger buyers often in their thirties with families.
The Office of National Statistics says that more than £6 billion has been invested in Spanish property, accounting for 27 per cent of British foreign investment.

Tenant deposit protection unveiled

A new scheme for overseeing the deposits of tenants will be ready this spring. The Tenant Deposit Scheme (TDS), which will come into effect in England and Wales in April, will oversee deposits equating worth £1.2 billion, according to Communities.gov.uk.
The scheme will provide protection to both tenants and landlords entering into assured shorthold tenancy (AST) agreements by offering an independent and regulated means of dispute resolution.
The National Landlords Association (NLA), the sponsors of one of the two insurance schemes, will principally concern landlords and agents not belonging to RICS, ARLA or the NAEA. David Salisbury, chairman of the NLA, hopes the TDS can help to ‘nurture and encourage a professional private-rented sector’.

More landlords, more disputes

The boom in buy-to-let is likely to lead to a growing number of tenant/landlord disputes, according to the government-sponsored Residential Property Tribunal Service (RPTS).
As the number of households installed in buy-to-let properties exceeds one million, and that figure set to rise steadily, the government hopes to reach novice landlords with the message that the RPTS is best placed to adjudicate in the event of a disagreement.
A study by RPTS has found that almost a fifth of landlords have only entered the residential letting sector in the past few years, with almost two-thirds involved for less than a decade. In addition to the growing number of first-time landlords, lack of affordable homes and changing lifestyles have meant that people are renting longer and buying later. At the end of the 1980s, around 40 per cent of 20 to 24 year olds and roughly 66 per cent of 24 to 29 year olds were already owner occupiers; now only 20 per cent and 50 per cent or these age groups respectively purchase.
This is a considerable social change, with many people moving to owner occupation at least a decade later in life than people of their age used to.

What the buy-to-let crowd is looking at this week

Iconica

What Two-bedroom apartments with flexible layouts; gated development with allocated parking
Where Maidstone, near the centre
Who Both first-time and more experienced investors, as well as owner-occupiers and downsizers
Why The central location makes this a great base for London commuters. Maidstone is a very popular town, offering relaxed pace, an ever-improving riverside and good shopping. Investors in this area will find a good supply of quality tenants. Iconica itself presents an aspirational take on centre-of-town living, with its chic specification and minimal need for maintenance. Each apartment has Also, the price is conducive to a reasonably painless investor purchase; the apartments start at £204,950.
When The first occupations are expected anytime
Contact RPC Land & New Homes on 01622 691911 or agents Page & Wells on 01622 756703. See iconica-maidstone.co.uk.

Emporium

What One-, two- and three-bedroom ‘boutique-style’ apartments set around an enclosed courtyard
Where Buckhurst Hill, a short walk from the epicentre of high-quality shopping and good restaurants at Queens Road
Who Young professionals will be drawn to the spec and the location, so investors will get in there. With more buyers than property in the present market, such luxury is bound to be popular
Why These smart, contemporary apartments offer luxurious, modern spec. Kitchens are by Urban Myth and there are fitted wardrobes to principal bedroom. Each apartment has an allocated parking space, and Buckhurst Hill tube is just a mile away.
When First completions this spring
One-bedroom apartments are priced from £230,000, while two-bedroom apartments start at £270,000. Contact Higgins Homes on 0845 678 9799.

A step-by-step guide by Mary-Anne Bowring of Leaseholder Support

While your lease is probably the most valuable asset you own, the freeholder holds a stake in its value too. This is for three reasons: he receives investment income from it (the ground rent); he has the hope value of a premium from you if you buy a lease extension; and he holds the reversionary interest (i.e. the value of the vacant flat in a number of years’ time when your lease runs out).
While the prospect of extending your lease may seem like a daunting task, it is feasible and you can do it yourself, thus adding value to your property. Here are seven steps you’ll need to take.

1 Establish if you qualify for a lease extension

In 1993 leaseholders were given statutory rights under Section 56 of the 1993 Act to claim a 90-year lease extension at a reduced ground rent of £1/peppercorn if demanded. legislation has changed,  making it increasingly easier for leaseholders. For example, you now only need to own the lease for two years, do not need to live in the property and can own it through a company.

2 Get your papers together

The lease is likely to be required by the valuer to calculate your future ground rent commitments, and by the lawyer to confirm title searches prior to serving a Section 42 ‘Notice to claim your rights’. Find your last ground rent demand to be sure who you are currently paying ground rent to. Don’t worry if your freeholder has long disappeared; there is a procedure called a Vesting Order which ensures that you can still get your lease extended.

3 Get advice on a ‘reasonable premium’

Fees will be well spent if a valuer with appropriate expertise is selected. Speak to the person that might take on your case and ask them some difficult questions. Check that the report will include the calculations to show you how the premium is made up, a commentary/explanation of the methodology and comparable market transactions/case law evidence on which your valuer is to relay. This level of detail will give you confidence to make key decisions and an understanding of which parameters affect the end figure. How else how can you decide your opening negotiation position?

4 Serve a notice or open informal discussions?

A difficult question! There is no downside to asking whether your landlord will entertain informal discussions. However, don’t give up if the answer is ‘serve a notice’ as it is the notice that secures the freeholder’s ‘reasonable’ costs in dealing with your claim, even if you give up. If you are proceeding informally you will need to ensure that the freeholder is quite clear that it is your Section 56 rights you are negotiating about (see step 1, right). A claim notice fixes the valuation date (at date of notice) and establishes that you are claiming your Section 56 rights.

5 Agree the ‘premium’ to be paid for the lease extension

Our research suggests that about half of premiums are agreed informally, and of the half negotiated after service of a claim notice only about five percent end up at the Leasehold Valuation Tribunal. There are 13 valuation variables to be agreed and three components of the valuation to be established. Some variables are fact, for example, the ground rent; others are based on property and financial market evidence or caselaw such as the long and short lease values and yield rates.

6 Prepare the Supplemental Lease and Deed of Variation

This is the legal instrument that extends your lease. The lessee’s rights are to vary two terms of the lease: the ground rent and the term. The freeholder cannot force you to agree to changes to other clauses, although many try, and your old lease does not get ripped up. It is sometimes here that leaseholders who went down the informal route become unstuck when the freeholder suggests that while the premium is agreed, they do not agree to the ground rent being reduced to £1/peppercorn. If you have a mortgage it is necessary to obtain your mortgagee’s consent to the lease extension as they too have an interest in your leasehold title. This is just a formality, as we cannot imagine a situation where a mortgage company would refuse to approve a deed that increases the value of their security.

Register your lease extension to increase the value of your flat

The Supplemental Lease and Deed of Variation is a document that is usually executed by deed. It needs to be registered at HM Land Registry to become part of your properties title. There is a nominal registration fee and stamp duty land tax form to be filled in.

Mary-Anne Bowring is managing director of the Ringley Group and founder of Leaseholder Suppor. For further information on this and other property issues see leaseholdersupport.co.uk

Three things every leaseholder should know:
If you have a short lease, have owned the flat for two years and want to sell up, you can serve a claim notice and sell your flat with your lease extension rights so the new purchaser does not have to wait two years to qualify, during which time invariably the price of a lease extension will be rising.

Since July 2003, if your lease has more than 80 years unexpired you do not have to pay marriage value. Marriage value is the difference between the freeholder’s interest prior to the lease extension and his interest after, which otherwise is shared 50:50.

Your claim notice could be invalid if the price served does not pass two key tests: the bonafides test and the realistic test. The principle of bonafides can be established if you have sought professional valuation advice. The principle of realistic accepts that the notice might not need to reflect your best offer, as it is accepted that valuations and the eventual premium agreed are a matter for negotiation. In this test, the Court’s approach would be to review the variables of the valuation and, for example, to exclude marriage value or development potential could invalidate your initial notice.