Own a leasehold property? Extending your lease is a way to raise its value and present a more attractive sales incentive.
If it sounds easier said than done – here’s a guide that explains it from start to finish.
Know Your Rights As a Leaseholder
Leasehold properties are found all over the country, most common for flats and apartments in a shared block. The freeholder has certain responsibilities, including maintaining the property and keeping it in a good condition.
In return, the leaseholder must pay service charges – and an annual ground rent. For some leaseholders, spiralling charges have caused what’s become known as the leasehold scandal.
But, for many, owning a leasehold property is problem-free, and leaseholders have rights on:
- Knowing who the freeholder is – including name and address
- Challenging certain charges (in specific circumstances only)
- Getting information about service charges and running costs
- Getting information about insurance
- Being consulted about maintenance
Why Extend Your Lease?
Essentially, if you own a leasehold, not a freehold property, you effectively ‘rent’ for a certain period of time. When that time’s up, ownership goes back to the freeholder. You have the right to live there – but you don’t own the building or the ground it sits on.
Note: this applies to England and Wales. Scotland and Northern Ireland have different rules.
Extending the lease can significantly add to your property’s marketing value. We’re talking thousands. If your lease has less than 60 years on it, it could be unmortgageable, meaning you’ll struggle to remortgage the property, and also find it extremely difficult to sell.
Who Can Extend?
It’s important to check if you’re eligible for a lease extension. To be legally allowed, you must have owned the property (with a long lease) for 2 years minimum. A long lease is one that had an original term of 21 years or more. How long currently left on the lease is irrelevant.
Under the 1993 Leasehold Reform Act, most leaseholders are legally entitled to a 90-year lease extension at a fair price. Bear in mind that for short leases, the cost may go up significantly.
Bear in mind you likely won’t qualify for an extension if it is a business or commercial lease, or your flat is provided by a charity.
Leasehold houses are much less common, and legislation is different and more restrictive. You usually only have the right to extend your lease by 50 years.
Always Check How Long Is Left
If you’re wondering whether you should extend your lease, always check how long it has left on it. Extending a shorter lease can add significant market value. But, if you have 90 years or more remaining, the value-added can be less.
That’s not to say you shouldn’t do it – it’s just a factor to consider carefully before going ahead. After all, if selling is your goal, this may provide a greater incentive to potential buyers. You can get the ball rolling and pass rights of the lease extension to a potential buyer. But, if they wait until after completion, it will be 2 years until they’re eligible to extend the lease.
Essentially – if you have 80 years or less left on the lease, it’s probably a good idea to extend. You’ll not only add money to its market value but find it much easier to sell or remortgage should you need to.
Why 80 Years?
Letting your lease drop to 80 years or less is generally not advised. This is because after that, you’ll pay 50% of the property’s ‘marriage value’, on top of the cost of the lease extension.
Marriage value is the amount of extra value a lease extension adds to your property. It reflects the fact that a longer lease adds additional value. You must pay your landlord’s share, as the extra value must be shared equally. This value is calculated by a surveyor, using local knowledge and experience regarding lease extensions for similar properties.
What’s the Cost to Extend a Lease?
How much you’ll pay depends entirely on the value of the property itself and how long is left on the lease.
The less time left on the lease, the higher the charge will be – but the greater the potential added value. Extending short leases could likely cost tens of thousands.
There are other costs to factor in, including:
- Stamp duty (only if the cost of the lease extension is more than £125,000)
- Legal fees
- Freeholder’s reasonable costs
- Valuation fees, carried out by a surveyor (the price of which will depend on your flat’s value)
Looking for a surveyor? Get survey quotes for free below:
Step-By-Step Guide to Extending Your Lease
Let’s break this down. Top tip: lease extensions can take longer than anticipated. So, if you want to sell, make sure you start the process early.
1.Get a Solicitor
Finding a solicitor is an essential step, guiding you through a complex process. Ensure you try and keep things moving and maintain clear communication throughout. If your freeholder tries to drag things out or slow them down, the higher your legal fees will likely be.
2. Get a Professional Valuation
After you have a solicitor on board, it’s time to value the lease. As mentioned above, you’ll need to get a professional surveyor for this.
3. Contact the Freeholder
In the unlikely event you have trouble tracking down your freeholder, you can inspect the Land Registry on the entry regarding the freehold.
Your solicitor can approach the freeholder informally, or serve a ‘tenant’s notice’ if they’re not up for extending the lease. This will inform them of the extension.
Alternatively, if you’re really having trouble locating the freeholder, your solicitor could apply to the county court for a lease extension order. You’ll have to be able to prove you did your best to find the freeholder, however.
4. Start Negotiations
You’ll have to pay a deposit to the freeholder of 10% of the lease cost – or £250, whichever is greater.
If all goes to plan, this is the stage where the freeholder will accept your offer. If they come back with a counteroffer, your solicitor can take on the negotiations.
Should you need to, you can escalate things to a tribunal.
Is Buying the Freehold Better?
It’s important to be aware that a lease extension isn’t your only option.
Known as collective enfranchisement, many leaseholders choose to club together with their neighbours and buy the freehold. This can be costly and brings with it a number of responsibilities – including management of the building. However, for some, not having to pay ground rent, along with gaining more freedom over their properties, far outweighs this.
It’s an option to consider – as the cost of buying the freehold will roughly be the cost of extending the lease for 90 years.
But, not all neighbours will be eligible and at least 50% of them will have to want to take part.
Need a Solicitor?
Whatever option you choose, good legal advice is a must. A solicitor will be able to navigate a complex process and provide valuable advice, particularly for those with very short leases.
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