How Lease Length Affects the value of an Apartment

Leasing is the process by which an individual or company can obtain the use of certain fixed assets like property, land or any other form of fixed asset, for which they have to pay a series of contractual, periodic, tax deductible payments. Different property owners will lease out their property for a certain number of years, that they choose it can range from 5 years -100 years it depends on the agreement between the property owner and the client leasing the property.

When there is less time left on a lease the property is then valued lower. If the lease has an unexpired time of 100 plus years then this has very little effect on the price of the property. When the lease is 100 years or more then the value of the property will basically remain unchanged. It is a fact too that when the lease is longer, it is considerably longer that what many people live to be so then the issue of value will not be applicable to the mortgage lenders.

When the lease length is below 90 years then the value of the apartment will fall much faster as the years go by, however this may also be a gradual process without scaring the apartment owners. If the unexpired length reduces gradually to zero then at this point the apartment can be taken over by a freeholder. The advantage with this is that this is very unlikely to happen, and one may be required to pay for an extension of the lease on the apartment to avoid this from happening.

For example an apartment with a lease of 80 years left before the lease ends may be valued at 5% less than an apartment with a lease of over 100 years. This is only a guide, the rates can differ depending on other factors concerning the apartment. When a lease period drops below 80 years then the marriage value comes into play(this becomes incorporated in the professional value of the apartment). This is what the surveyor will use to come up with how much the lessees pays for a longer lease.

At 60 years the value of the apartment will start to drop drastically and many solicitors will advice the client not to acquire the apartment with a lease that is this short. Because if such an apartment is put on the market for sell the value will begin to fall gradually pulling the value downwards. Before one takes on any lease they should be well informed of the implications involved at the different periods of leases. It is important to make a decision on a lease based on an informed point of view.