Take this opportunity to extend your lease
According to UK Government statistics, at the start of 2020 there were 4.3 million leasehold homes in England of which 69% were flats. For some of those flat or maisonette owners there may well be an opportunity to increase the value of your home by extending your lease. This article explains whether you should consider extending your lease, what the benefits are and what options you have to do so.
The Case for Extending your Lease
As the original term of your lease runs down, you should consider whether to extend your lease. You have a legal right to do so if you qualify or you can make a voluntary arrangement with your landlord. It is especially important to consider a lease extension if the term remaining is between 90 and 80 years and essential if the term falls below 80 years.
Once below 80 years the following will apply:
- You will be liable to pay an additional “Marriage Value”. This is the increase in the value of the property after extension of the lease takes place. Legislation requires that this is shared equally between your landlord (usually the freeholder) and yourself. In short it becomes more expensive to increase the term of your lease once you go below 80 years and that amount will increase the longer it is left.
- It gets harder to obtain a mortgage on leasehold properties with a term of 80 years or less. Indeed it is almost impossible to obtain a mortgage below 60 years and the value of your property may fall.
Buyers are likely to look elsewhere if your lease term is too short and even if you can negotiate a lease extension as part of the sale it can delay the transaction, which can sometimes lead to the sale falling through.
Table: Summary of the Implications of your Remaining Lease Term
Two Routes to Your Lease Extension
As a leaseholder, you have two options to extending your lease:
You can make an informal approach to your landlord and attempt to negotiate an extension and we can do this on your behalf. There are no rules if you use this route but it tends to be faster with less onerous legal fees. The premium can be negotiated and ground rents altered, however, the landlord can refuse to extend by this route or can offer unfavourable terms. If that happens, then you can use the Formal Statutory Route below.
Formal Statutory Route
A qualifying leaseholder has the right to add 90 years to what is left on the current lease and reduce the ground rent to a peppercorn rent under the Leasehold Reform Housing and Urban Development Act 1993 (as amended). That means that you no longer will pay ground rent; important for those who see it as currently unacceptably high. Unlike the “informal” route, there is a fixed timeline to the process.
With either route we would always recommend a valuation is carried out but it is only required for the Formal Statutory Route.
If you wish to pursue the formal route there are some qualifying criteria to be met. You must be a long leaseholder (that is, in excess of 21 years when first granted) and have owned the property for at least two years. Residence is however, not a necessary qualification.
If you own a leasehold flat or maisonette that has a term of less than 90 years then the financial case for extending your lease becomes compelling. Your property will become harder to sell as the term decreases and it is recommended you take action, if possible, before the term has reduced to 80 years or less. If your lease is now less than 80 years you should take action now.
To do so, contact our experienced Burley Geach property team and we will provide you with a free 30 minutes consultation on the best route for you.