The 80 year ‘cliff edge’ increases the premium to extend by 222.5%

Recently I was asked to advise a client over a landlord’s license to alter issue on her flat. On reading her lease, I noticed it was about 83.5 years unexpired. As a consequence, I advised her to ensure that she served a s42 notice for an extended 90 year lease before the lease drops to 80 years or less to save her paying a considerably higher premium to include half of the (additional) released marriage value that the landlord would receive.

In carrying out the exercise, I looked at the likely premium payable for an 80.1 year unexpired lease compared to that of one of 79.9 years for this ‘normal’ flat of just over 1000 sqft offering 2 bedroom 1 bathroom accommodation. The additional cost in extending the lease the moment it drops to 80 years or a day under increases by 222.5% from around £36,000 to £80,000.

Conversely the increase is less marked at 190% if the flat was a house due to the lower 0.25% deferment rate adopted of 4.75% adopted.

It is even more important for lessees to be aware of this ‘cliff’ if they have recently acquired the lease without taking an assigned notice from the vendor as the 2 year ownership rule will apply before being able to serve notice in one’s own right.