SDLT Relief? Should I Buy that Leasehold Property?
Given the recent new relief on Stamp Duty Land Tax (“SDLT”), which is in place until 31 March 2020 on properties up to a value of £500,000, you may think that now is the time to look at buying.
If you are looking at buying a leasehold property you may want to bear in mind the length of the lease. Has the seller already extended the lease? Are they in the middle of a lease extension? Of is the lease getting close to having 80 years or less left? As part of your negotiations, you may want to consider whether it is worth asking the seller to take the first steps in claiming a lease extension.
If a lease drops below 80 years it can be quite expensive when it comes to extending the lease. This is because “marriage value” is triggered. Ideally, you want to ensure that the lease you are buying has more than 80 years left to run.
In order to claim a statutory lease extension under the Leasehold Reform Housing and Urban Development Act 1993 you need to have been the registered owner of the lease for at least two years.
Although the Law Commission have now published their “Leasehold home ownership: buying your freehold or extending your lease” report which, amongst other things, recommends including abolishing the two-year ownership rule, this is just a recommendation at this stage. We do not know whether this recommendation will go any further and, if it does, when that would be.
So, at it stands, if you are buying a leasehold property and there are 81 years remaining of the term, the lease could drop below the 80 years (therefore meaning you’ll pay marriage value) before you have the statutory right to claim a lease extension.
But fear not, this is not the end of the road. You may be able to ask the seller (assuming they have owned the lease for at least the last two years) to start the statutory process for a lease extension for you.
This would involve you and the seller agreeing to instruct a valuer to carry out a valuation report so you have an idea of the value of the lease extension. The seller will then serve the relevant Section 42 Notice of Claim.
However, at the time of the purchase, the seller will simultaneously enter into a Deed of Assignment with you which will then assign the benefit of the Section 42 Notice of Claim to you so that you can then continue with the lease extension process.
This can be a complicated area of law with serious consequences if it is not carried out correctly which is why the Law Commission have made their recommendations. However, at the moment the consequences of not assigning a claim correctly will usually fall on the buyer if the contract hasn’t been appropriately prepared.
This is why at Brethertons, our Residential Leasehold Team work closely with our Conveyancing Team to ensure that the process is followed correctly.
If I can help you extend the lease before you purchase your property, or if I can help you begin the process when selling your property, I would be more than happy to do so. Please contact me on:-
Tel: 01295 661458
Mobile: 07805 823764
Email: danigreen@brethertons.co.uk
Dani Green is a Senior Associate at Brethertons within the Residential Leasehold Team. Dani has worked within the leasehold property sector since 2011 and qualified as a Solicitor in 2016.