My home has 47 years remaining on the lease: Should I use savings to extend it by 99 years or renovate the flat instead?

I am in a conundrum about what to do with my leasehold flat. There are 47 years remaining on the lease.

I have a bit of cash to spare and I'm wondering whether to put that money to work by extending the lease or doing it up.

The flat is in desperate need of modernisation and I've always held off doing it due to the disruption and cost but now feel the time is right.

But equally I am worried about the length of lease and feel it might be a better investment to extend it first. 

It's more a case of one or the other, rather than being able to afford to do both sadly – at least for now.

I'm just wondering which one would make the most sense from a financial perspective. 

I am also concerned that renovating the flat to a good standard might increase the premium I will pay for a lease extension further down the line?

The flat is in London and I have noticed that similar really nicely done properties with long leases fetch amazing prices while stuff that looks like mine doesn't seem to sell at all and is worth almost half of the done up versions.

Ed Magnus, of This is Money, replies: Extending a lease can be an expensive business, and you are wise to be questioning all of these charges. 

If you extend your lease now you'll be liable to pay something known as marriage value, which becomes payable on homes with leases below 80 years, and is based on the increased value that will occur as a result of a lease extension.

Put another way, it's the financial benefit that results from merging part of the freeholder and leaseholder interests, hence the term 'marriage'.

The marriage value must be split 50:50 with the freeholder. In practice, this means the leaseholder pays 50 per cent of the marriage value to the freeholder, as part of the premium payable for the lease extension.

On top of marriage value, you also need to budget for buying out the remaining ground rent on the lease, and for your own legal and valuation fees, and those of the freeholder – which under current law, you must also pay.

The tricky bit about this question is that marriage value could be abolished in the near future, under the Leasehold and Freehold Reform Act, which is being implemented in stages and proceeding very slowly.

If marriage value is removed or reformed it could make extending your lease cheaper, meaning there may be some merit in waiting a few years before trying to extend the lease and opting to do the renovations first.

This is a risk, though, given your lease will only become shorter and more expensive to extend if the current Government fails to follow through on the Leasehold and Freehold Reform Act 2024.

In terms of boosting your flat's value, the 47-year lease will only be an option for cash buyers as it will be very hard to get a mortgage on a property with such a short lease.

A flat with a long lease needing work should have wider appeal. However, it may be that you live somewhere where a freshly renovated flat with a short lease might have more appeal. This can sometimes be the case in parts of central London, for example.

It would be worth speaking to some local estate agents to see if they can give you a steer on what option might be a better investment.

For expert advice we spoke to Alero Orimoloye, senior legal adviser at the Leasehold Advisory Service and Vanessa Griffiths MRICS, leasehold reform & litigation consultant and member of the Association of Leasehold Enfranchisement Practitioners.

Should they extend the lease now? 

Vanessa Griffiths replies: The lease extension itself is not as straightforward considering the current ongoing reforms and the length of the unexpired lease in question. 

At 47 years, marriage value is payable and depending on the ground rent and the anticipated long lease value, could make up the majority of the premium payable.

Before the reforms, I would have recommended, at this unexpired term, to extend the lease by the statutory 90 years (90 years on top of the 47 years). This would stop the lease diminishing below this length which in turn would increase the premium payable.

However, LAFRA abolished marriage value. The uncertainty arising from this, is that this part, along with other valuation aspects of the Act are not yet effective. 

The situation has become more complex with the introduction of the Commonhold and Leasehold Reform Bill. We also now have the consultation on the capitalisation and deferment rates which will be adopted, and this consultation is open until October 21. 

We have no timetable for when this uncertainty will be given any closure. And it is for this reason why providing advice and giving a clear answer has become so difficult.

If you are not looking to sell the property in the immediate future, it may be worth waiting to see whether and when marriage value will be abolished to ensure you are able to capture that saving when extending the lease. 

You would also, under the new legislation, be granted a 999 year lease extension instead of 90 years and would not be liable to pay the freeholders recoverable costs, as you would be at the moment.

Alero Orimoloye adds: Under the current law, because your lease has fewer than 80 years remaining, the price of a statutory lease extension will also include marriage value. 

However, major reforms are on the way. The LAFRA is intended to abolish marriage value, increase statutory lease extensions to 990 years and, in most cases, mean leaseholders no longer pay their freeholder's legal and valuation costs. 

Those changes could make extending a 47-year lease cheaper than it is today. But they are not yet fully in force and important valuation rates still need to be finalised, so the eventual saving cannot be guaranteed. 

However, if you have no immediate plans to move, there may be a case for holding off on a lease extension and seeking specialist advice based on your circumstances. 

The following free lease extension calculator can give you an estimate of the likely cost under the current system. 

What if they plan to sell the flat? 

Alero Orimoloye replies: A lease this short can make a property more difficult to sell or remortgage. If you need to sell or remortgage soon, waiting for reform may not be practical.

Vanessa Griffiths added: If you are looking to sell the property, and have the funds to extend the lease prior to that sale, you would likely encourage more buyers to view the property v a property with a 47 year lease and it puts you in a stronger negotiating position.

I would recommend that you seek independent advice from an experienced valuer who would be able to provide a number of scenarios based on what we do know and what might happen in the future so that you are well informed and can make the best decision for you.

Could a flat renovation make it more costly to extend the lease?

Vanessa Griffiths replies: In regards to improvements having an impact on the cost of the lease extension, this is addressed within the Leasehold Reform, Housing and Urban Development Act 1993, which states that improvements are to be disregarded. 

In other words, a leaseholder should not be penalised for improving their property. 

Anything that goes above and beyond the repairing requirements under the lease would likely be considered an improvement.

Alero Orimoloye disagrees: I would treat the renovation question separately, as whether improvements affect the eventual premium will depend on the particular valuation.

It would be sensible to avoid carrying out any significant refurbishment works to the flat before extending the lease. 

Although improvements are disregarded under the current legislation, carrying out such works beforehand could make the valuation of the premium unnecessarily contentious.