Why extend my lease?
Anyone who owns a leasehold property or is considering purchasing one should be knowledgeable regarding the laws and rights of lease extension.
At first glance there may not seem to be too large of a difference between owning a property outright (freehold ownership) and leasing a property. They are often similar in many ways, including the price of the property itself.
Nevertheless there are crucial legal differences between the two and it is vital to ensure that as a lessee you are well informed when it comes to how to extend a lease on your property.
If you own a property with a lease of less than 80 years, its value will decrease and you will struggle to sell it. Most potential buyers will struggle to secure a mortgage on a property with a lease of less than 70 years, and although this may be possible through specialist lenders the price you get for your property will still drop to reflect the difficulty and expense of the new buyer’s future lease extension.
Therefore in order to maintain the value of your property and ensure that it is at its most sellable, it is highly recommended that you keep your lease term at a length of at least 80 years.
What is a statutory lease extension?
Under the terms of the Leasehold Reform, Housing and Urban Development Act of 1993, a lessee is entitled to extend their lease by 90 years. This period of time is added to the unexpired term of their lease.
After the owner of a leasehold property completes a statutory lease extension, the rent they pay is automatically reduced to peppercorn (i.e. nil).
In order to qualify for a statutory lease extension, you must:
- Have owned your flat for more than two years
- Own a flat with a long lease. Any lease initially granted for a term of more than 21 years is considered a long lease
You will not qualify for a statutory lease extension if your property:
- Was leased to you on a business rather than residential lease
- Was provided by a charity and is the property of a charitable housing trust
- Is within the official grounds of a cathedral
- Is built on lands belonging to either the National Trust or the Crown
How much does it cost to extend a lease?
An important factor to take into account when considering how to extend a lease is the cost of the statutory lease extension itself.
The cost of a lease extension is unique to each lessee and depends on several factors. The most significant is the length of the current lease term.
In order to extend a lease of less than 80 years, the lessee must pay a sum of money (known as a premium) to the freeholder. The premium payable increases with time, proportionate to the decrease of the lease term in years.
For instance, when researching how much to extend a lease by 20 years this will be a far smaller sum than a lease extension for a longer time, such as the full 90 years.
This means that if you are planning to extend your lease it is best to do so sooner rather than later, as the shorter the existing lease term is the more expensive it will be to extend.
How to extend a lease: legal expertise
In order to extend your lease, you will need to hire two experts in leasehold enfranchisement. These are:
- A valuer. They will inspect your property thoroughly and provide an estimate of the cost of the planned lease extension and advise on the premium. They will also represent you at any tribunals if you and your landlord cannot agree on a premium
- A solicitor. They will check whether you qualify for a lease, draft the lease extension notice for the landlord, negotiate your lease terms with your landlord and generally protect your rights
Your valuer and solicitor are invaluable when considering how to extend a lease. They will advise you in all the necessary steps you must take in order to secure the best possible terms for your statutory lease extension.