A lease extension is when a leaseholder extends the terms of their lease by paying a premium to the freeholder. Leaseholders are legally allowed to do so in order to improve their chances of selling or remortgaging their homes.
Should I extend my lease?
A lease is a depreciating asset. As the number of years left on the lease reduces, it can decrease the value of your flat. Furthermore, as the lease decreases, the cost of extending it increases. It can be difficult to sell a property with a short lease. Mortgage providers can be reluctant to lend against a short lease term and typically want leases to have more than 70 years left on the contract.
When should I extend my lease?
Generally, people extend their lease between 80 and 90 years. Usually, because they may be looking to sell in the future and want to make sure the property is mortgageable. We strongly recommend extending your lease before it drops below 80 years. This is because if the lease term is below 80 years, then the cost of extending the lease increases significantly as an additional marriage value forms part of the premium calculation.
What are the steps to extending my lease?
You need to check you are eligible, value the premium then serve a section 42 notice.
Am I eligible to extend my lease?
Due to the Leasehold Reform, Housing and Urban Development Act 1993, a qualifying leaseholder has the right to extend their lease by 90 years with no further ground rent payable, by paying a premium to the freeholder.
Who qualifies for a lease extension?
Certain criteria must be met and this is as follows:
- You must have owned the property continuously for the last 2 years. This doesn’t mean you have to have occupied the flat, just owned it for this period of time.
- The lease must have been granted for more than 21 years at the time of the initial contract. (Most leases are granted with 99, 125 or 150 years.)
- Your landlord cannot be a charitable housing trust.
- It cannot be a business of commercial lease.
How do you lengthen your lease?
There are two ways to approach this:
- You serve notice to your freeholder in order to extend your lease.
- You informally approach the freeholder in order to agree terms.
The informal route is supposedly cheaper and quicker. You may agree on a premium between yourselves. However, the freeholder may only increase your lease by a small number of years meaning you’ll have to do it again in the future. Discussions may become contentious and you may end up with an unfair deal.
We recommend employing lease extension surveyors in order to formalise talks and advance the process. Taylor (expert RICS surveyors) can negotiate a cost-effective lease extension. We have considerable experience and comparable sales evidence. Contact us if you want to discuss your lease extension.
How is the lease extension valuation calculated?
The premium will be decided upon:
- How much ground rent the freeholder will lose out on.
- The cost to the landlord (or heirs) of the deferment of possession of the property.
- Half of the marriage value.
- The amount of compensation that is due to the landlord.
How long is a lease extension?
If successful, it will add 90 years onto a flat and 50 onto a house lease. You’ll add extra value to the property and you won’t have to pay ground rent for the duration of the extended lease.
Why should you use a lease extension surveyor?
Getting a professional leasehold valuation can be critical for the success of your lease extension. They have experience in leasehold law.
A lease extension surveyor will:
- Advise on what the offer in the Tenant’s Notice should be.
- Frame the response should the landlord give a section 45 Counter-Notice.
- Help negotiate and agree on the freeholder’s final price.
- Provide advice on the state of the structure of the property, what its repair condition is and how this will affect future service charges.
- Produce a lease extension report that will include the premium and details of how this was calculated. They will give you the best- and worst-case scenarios so you can go into negotiations fully prepared.
- Negotiate on your behalf and represent you in the First Tier Tribunal in the unlikely event that you can’t agree on a premium with the freeholder.
You need someone with experience because if the premium is unreasonable then the notice can be invalidated. You then won’t be able to serve another notice for 1 year. This means another year less on your lease. For this reason, we recommend hiring professional lease extension surveyors to provide a realistic premium in the first instance.
If you want to discuss a lease extension on your property, Taylor are professional RICS surveyors that can help. We can ensure you get a fair deal for your lease extension.