Buying a leasehold property means you are investing in the right to live in the property for a set time period – rather than in the property itself forever. As your lease gets shorter, leasehold property starts to steadily lose value.
When you should consider an extended lease
Once the unexpired part of your leasehold dips below 85 years, you should really think about extending your lease. In particular the price of the leasehold extension is likely to increase significantly once you have less than 80 years left to run. If the unexpired part of your lease therefore is nearing just 80 years and you are interested in extending your lease, our advice is to act swiftly and contact us straight away.
If the remaining lease term is shorter than that, extending a lease is something that you should deal with sooner rather than later. The reason for this is that once a lease drops below 70 years owners can experience difficulty in selling their flat as the shorter lease term can have the effect of making flats un-mortgageable and increasingly hard to sell.
Mortgage lenders have brought in more and more strict requirements about the minimum length of a lease that they will consider lending on – and many refuse to lend even if as many as 70 years remain on the lease.
Once a lease has dropped just one single day below 80 years, the premium payable to the freeholder rises sharply, because your freeholder is then entitled to charge an additional premium – called the marriage value. The overall premium continues to rise dramatically as your lease gets shorter.
So by acting now in extending your lease, you are likely to save yourself a significant amount of your hard earned cash in the long run.
Who is eligible for an extended lease?
To be eligible to extend your leasehold:
You must have owned your flat for at least 2 years – even if you have not lived there throughout the period.
You must be a residential tenant.
The original term of the lease must be at least 21 years.
What do you get?
If you choose to go ahead in extending your leasehold, you can:
Increase the term of your lease by 90 years on top of your unexpired term.
Avoid paying any ground rent for the remaining term of the lease (although you will still have to pay any service charge)
The first steps in extending leasehold
If you are eligible for an extended lease, the first thing you need to do is contact a specialist solicitor to deal with all the legal documentation in extending your lease.
You will normally then need to appoint someone to value the lease extension – normally a chartered surveyor. Again it’s important to appoint someone who specialises in extending leases. Our team regularly work alongside experienced specialist surveyors up and down the country and can help you choose the right valuer.
Your solicitor will then serve an Initial Notice on your landlord offering a price to extend your lease. Your landlord then has a minimum of two months to respond. Commonly, however, at this stage negotiations take place between your solicitor, surveyor and your landlord in an attempt to agree a price acceptable to everyone. However the law around extending leasehold property is complex, and there are a number of strict time limits – so it’s important that your solicitor fully understands this specialist area of law.
Your Extended Lease – how much does it cost?
A tenant will normally need to pay the following costs when extending a lease:
Your own legal costs and disbursements;
Your surveyor’s costs in preparing a for a leasehold valuation report;
Your freeholder’s reasonable legal and valuation costs incurred by your landlord in extending your lease (although if you feel that these are unreasonable then you are able to challenge these in the First Tier Property Tribunal – previously known as the Leasehold Valuation Tribunal );
The premium payable to the freeholder for the lease extension. This is calculated using the following formula:
The drop in value of the freeholder’s interest. 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. This is the increase in the value of your flat once the lease extension has been completed (on average, a flat with a longer lease will be worth more than a comparable flat with a short lease). This ‘profit’ element is only achievable because the freeholder has agreed to grant a lease extension and therefore the freeholder is entitled to 50% of this profit.
Any other compensation due to the landlord.
If some of the other tenants in your block are considering extending their own leases, it’s well worth trying to work together as this can help to keep your costs down – in particular you are likely to create an opportunity for substantially reducing the cost of a formal valuation.
You may also want to consider grouping together and buying the freehold (a process known as freehold or collective enfranchisement), if there are a sufficient number of you that are willing to join in.
How long does extending a lease take?
If the freeholder quickly agrees a price for extending your leasehold, the whole process can be completed in as little as two or three months. However extending your lease will commonly take longer – in particular most landlords spend time trying to negotiate the price up. In the worst case scenario, if you cannot agree a price with the freeholder, you may need to apply to the First Tier Property Tribunal to set a price for an extended lease which can extend the whole process to a year or more – fortunately this is unusual.
Thinking of a sale or re-mortgage?
As the process of lease extension can take months, if you are thinking of selling or re-mortgaging your flat it is well worth starting the lease extension procedure early .
Thinking of an extended leasehold – contact our specialists today
The laws and regulations concerning extending leases are complex and it is important to get expert legal advice. Wherever you live – our specialist solicitors can help. Contact us now
- call us free on FREEPHONE 0800 1404544 or
- email us using the contact form below
Comments or questions are welcome.