Earn your flat a new lease of life: Ian Hunter explains how a tenant can negotiate an extended term

FINDING a mortgage for a leasehold flat can be difficult if there is less than 99 years to run on the lease.

But sellers can make their flats more attractive by extending the lease before they put them on the market. New legislation published last week gives leaseholders who are excluded from the right to buy, the right to a new lease which runs for 90 years longer than the existing one.

Abbey National insists that a residential lease must have at least 70 years to run before it will consider granting a mortgage. Cheltenham & Gloucester insists the unexpired lease must be at least 40 years longer than the mortgage term. Woolwich looks for 30 years to run after the end of the mortgage term. Nationwide asks for a term of 99 years, but leaves branch managers with the discretion to consider requests for mortgages on properties with shorter leases.

The legal position is that when the lease comes to an end, the property must return to the landlord. However, landlord and tenant can negotiate an extension of the lease.

Andrew Scott, a partner with the London surveyor Lane Fox, points out: 'The first matter to address is what sort of tenant you are. Most people who live in smaller properties are subject to protection under Part I of the Landlord and Tenant Act 1954, and this gives that person rights of continued occupation after the expiry of the lease. This continued occupation does not give the landlord a reasonable yield on his investment, and therefore he is much more inclined to wish to extend the lease and, in these circumstances, upon terms which may be more favourable to the lessee.'

At present there is no statutory procedure for assessing the price of a lease extension. Mr Scott explains: 'The lease extension premium payable is generally a division between the short and long leasehold value. If a one-bedroom flat is worth pounds 100,000 on a 50- year lease and pounds 130,000 on a 99-year lease, the lease extension premium should be a portion of the pounds 30,000 differential. In the vast majority of cases, particularly with large landlords, the premium requested for the lease extension will often be 100 per cent of that differential.' Before deciding to try to extend the term of a lease, tenants should first establish the average length of lease in their area. Mr Scott says: 'It would be perfectly sensible to buy a 36-year lease in Belgravia, as this is characteristic of that area. However, to buy that lease in South Kensington, where there are very few 36-year leases, would, on the other hand, be extremely unwise.'

Peter Toben, a senior partner with the estate agent Raymond Bushell, comments: 'Clients start to become concerned when a lease has under 75 years to run. They start to believe that they could be buying a depreciating asset.'

Mr Toben cautions against paying to extend a lease in the belief that failure to do so will affect the property's marketability. 'In my experience, if you have two properties, one with a 90- year lease and one with an 80-year lease, the length of the lease will not influence the buyer's decision.'

The tenant should try not to appear too eager in negotiations. Mr Scott says: 'Small landlords are likely to be considerably more flexible and eager for a transaction to be completed. Under the present system a tenant is doing extremely well if he pays only 80 per cent of the differential value.'

Paul Goward, a partner with the City firm Druces & Attlee, says this can be an opportunity to address areas of contention in the lease, such as repair clauses or service charges.

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