Lease Extension – what is it?
The Leasehold Reform, Housing & Urban Development Act 1993 gives residential tenants the right to extend their lease.
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Why should I extend my lease?
A lease is a deteriorating asset, gradually losing value. As the number of years left on your lease goes down, so does its value and it often becomes harder to sell. It may also become increasingly difficult to raise a straightforward mortgage as the term of the lease reduces. The Leasehold Reform Act 1993 gives many tenants the right to extend their lease for a further 90 years.
Extending a lease is certainly something you should think about if your lease has less than 90 years to run. Beware that when the remaining lease term lease drops below 80 years, the cost of extending a lease can rise substantially.
Who can apply for a Lease Extension?
A residential leaseholder must own their flat for at least two years and the lease must have had an original term of at least 21 years.
Lease Extension – What do I get?
If you decide to exercise your right to extend a lease:
- You can add on a further 90 years to your lease
- You will not have to pay any ground rent for the rest of your lease
The criteria for being eligible to extend your lease are:
1. Your lease is residential, not commercial. Leases on commercial property can’t be extended, so you can only extend your lease if you are living in a residential leasehold property.
2. The original lease was for more than 21 years. This kind of lease is commonly referred to as long leasehold in recent years, most long leases are originally granted for either 99 or more commonly these days, 125 years.
However, if your lease was originally granted for less than 21 years, then you simply don’t have the legal right to extend it. Unless you’re a weekly or monthly tenant, renting rather than owning a lease, it is very unlikely that your lease was granted for such a short period – but when you are thinking about extending your lease you should double check to make absolutely sure.
3. You must have owned the lease for at least 2 years. In order to extend your lease, you don’t need to have lived in the property for 2 years, but you must have owned the lease. This means that if you own a leasehold property and rent it out, you are still eligible to extend the lease even if you have never actually lived in it yourself.
Are there any exceptions to this 2 year ownership rule?
Yes, there are broadly two exceptions.
1. So, for example, if you’re buying a flat, then, provided that the seller has owned that flat for at least two years themselves, they can apply for lease extension and then assign the benefit of that application to you on completion of the sale of the flat – so you don’t need to wait two years, but can crack on with extending your lease as soon as you buy the property.
2. A similar exemption works for probate .If the deceased person owned the property for two years, and the property has been left as part of their estate, then again, subject to certain restrictions, the executors can broadly apply for a lease extension without having to wait for the two-year ownership period to expire.
Properties which are not eligible for lease extension
If one or more of the above criteria does not apply, then your property will be automatically barred from leasehold extension. Apart from the criteria discussed above, there are some other rare cases when a leasehold extension cannot be granted. These are:
1. Properties which are within the boundaries of a Cathedral.
2. When the freehold is owned by the National Trust.
3. The property concerned is owned by the Crown.
4. The property is owned on a shared-ownership basis , e.g. jointly owning a flat with a housing association. You can only apply to extend the lease when you take full ownership of the property.
But bear in mind there are estimated to be around 4.5 million leasehold residential property in England and Wales. And each of those is going to require a lease extension at some stage.
Can my Freeholder refuse to extend my lease?
Legally, a freeholder can only refuse to allow you to extend your lease if one of the following circumstances apply:
• They are planning to demolish the property in the near future
• They have proved that you are not eligible to apply to extend the lease [for one of the reasons set out above].
• They can prove that you, or your solicitor, have not followed the proper process. This might involve missing strict deadlines or not providing the right information in the Initial Notice.
There are however other factors which can cause disputes or delays between the leaseholder and the freeholder, including arguments about whether or not your freeholder’s own legal and valuation fees are felt to be reasonable. That’s because as the leaseholder making a formal or statutory application for lease extension, you are liable to pay the freeholder’s own reasonable legal and valuation fees as part of the process, and this can some cause problems.
The importance of appointing a specialist extension law firm
It is important to remember however that both the law and procedure in leasehold extension is complicated. That’s why it’s crucial that you have the services of a law firm with specialist lease extension solicitors who have plenty of experience in extending leases, and are able to guide you past the pitfalls.and we are specialists. Our expert 6 strong leasehold team deal with nothing but lease extensions, freehold purchase and the right to manage. This makes them possibly the largest, most specialist team of its type in the country.
And our team deal with around 500 lease extensions each and every year. Over the last 25 years we have helped many thousands of leaseholders, just like you, to successfully extend their lease.
But don’t just take our word for it. We are the only solicitors recommended for lease extension and enfranchisement work by the HomeOwners Alliance – the nations largest campaigning organisation representing the U.K.’s homeowners.
And click here to read what some of our our enfranchisement and lease extension clients and referrers think about us.
When should I extend my lease?
Wherever possible, you should get a lease extension when the lease is anything lower than 85 years unexpired, and you should not let it drop below 80 years. That’s because the moment your lease drops below that critical 80 year period, your freeholder is entitled to charge you more for your lease extension – is something called “marriage value” applies to all leases below 80 years.
So, our team’s strong advice is to get your lease extended as soon as possible – before the costs of doing so increase.
Why? That’s simple. Failing to extend your lease now means your being hit by a double whammy. With rising property prices, the cost of your lease extension is significantly dependent on the market value of your flat – and so if your flat’s value is going up, it’s only going to get more expensive to extend your lease.
And the 2nd factor that affect the value of your lease extension premium is the length of your term. In short, the shorter your lease term, the more you’re going to have to pay to extend your lease.
The problems in selling a flat with a short lease – and the importance of a lease extension
And what’s more, if your lease has less than 65-70 years to run, your property will become increasingly less appealing to buyers. In particular many mortgage lenders have clear policies either to refuse lending against flats with such short leases or if you’re lucky to get someone to lend to any potential buyer, the lender will offer less favourable terms.
And if your prospective purchaser can’t get a mortgage, that restricts the potential purchasers to just cash buyers who are likely to push for a much lower price. So if you’re thinking of selling a short lease flat, don’t be shark bait. Make sure you get your lease extension sorted well in advance of putting your property on the market.
So the advice from our specialist lease extension solicitors is simple – if you want to extend your lease, don’t delay. It is simply going to become more expensive.
In probate, are the executors required to have owned the lease for two years of more prior to an extension application?
Yes, if a leaseholder qualifies for an extension yet passes away prior to making an application for a formal or statutory lease extension, executors of the estate of the deceased are legally entitled to do so. They will have a period of up to two years to exercise such right, which can then be transferred to the beneficiary ie the person bequeathed the property under the will.
How much does Lease Extension cost?
When it comes to extending a lease, a tenant will usually have to pay the following:
- Your own Lease Extension Solicitor’s costs and disbursements;
- Your own formal valuation costs (a valuation should be prepared by a suitably qualified surveyor/valuer)
- The reasonable leasehold valuation costs and legal expenses of your freeholder -you can challenge a landlord’s costs at the Leasehold Valuation Tribunal.
- The ‘Premium’ (i.e. the money payable to your landlord for him actually granting the lease extension). This is made up as follows:
- The reduction in the value of the freeholder’s interest. Put simply, this is the value of the freeholder’s present interest compared with the value of his interest once you have extended your lease; and
- The Landlord’s share of the marriage value. The marriage value is the increase in the value of the flat after the lease extension has been completed (a flat with a shorter lease is, generally speaking, worth more than a comparable flat with a shorter lease). This ‘profit’ element is only achievable because the freeholder has agreed to the lease extension and so he/she is entitled to 50% of the profit, called the ‘marriage value’; and
- Any other compensation due to the landlord.
Want to know roughly how much your total bill for extending your lease is likely to be?
Our team can give you a FREE ESTIMATE of how much your lease extension is likely to cost you – which not only includes both the valuation and legal costs, but, if you wish, can also include a rough estimate of the premium that you will need to pay to your freeholder.
My Lease Extension – What should I do first?
It’s important to make sure you are prepared when planning a Lease Extension:
You should first contact a specialist solicitor to help with the legal documents. Bear in mind that very few law firms handle lease extensions on a regular basis. We do. Our highly specialist leasehold team have helped approximately 10,000 people extend their leases.
You will usually then need to appoint an experienced chartered surveyor to value the proposed leasehold extension. Again it’s important to appoint someone who specialises in Leasehold Extension valuation work. Our team regularly work with surveyors nationwide who specialise in extending leases and can assist you select the right valuer.
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Thinking about extending your lease? Contact our Lease Extension Solicitors
Extending a lease is complex and it is vital to have specialist advice. Wherever you live, whether you are a tenant or a freeholder, you can rely on the expert lease extension advice from our Solicitors.
Contact us today for a FREE initial no strings attached phone consultation from an expert Lease Extension Solicitor – just
- call our specialist team for a FREE initial phone consultation on FREEPHONE 0800 1404544 or
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