What is a lease extension and why would you need one?
Qualifying leaseholders of residential property are legally entitled to a lease extension. The lease for a leasehold property sets out the number of years which you legally own the property. After this, ownership reverts to the landlord. Extending your lease will allow you to own the property for longer. This also makes it easier to mortgage and sell.
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What is a Lease Extension?
Simply, a lease extension is an extension of the lease of a property.
If you own a Freehold property, you will own the entire land for as long as you like. However, if you own a leasehold property, you will own the property for a term of years specified by the lease. You will not own the land it sits on.
When a lease is granted, the lease will only be granted for a term of years, it is not indefinite. Therefore, the Lease must be extended, or this will eventually expire.
What is a standard Lease Extension?
A standard lease extension simply replaces the current Lease with a new one. The current lease will come to an end and the new lease will come into effect. This is a legal agreement which takes place between the owner of the freehold (known as the freeholder) and the owner of the leasehold (known as the leaseholder).
A lease extension allows the lease to continue, and a new lease is granted.
Why would you extend a Lease?
If you wish to sell your property, you cannot sell this with a short lease. If your lease has less than 90 years remaining, then it is advisable to extend the lease. You will almost certainly need to extend if the lease falls close to or below 80 years.
Is it worth extending leasehold?
Yes, as this will increase the value of your property.
If you tried to sell your property with a lease that is fewer than 80 years, it is unlikely that the buyer’s solicitor would proceed. Instead, they would likely request an extension is granted first, at the seller’s cost. Most mortgage lenders would refuse to lend money on properties with such a short lease. This is because their security could be jeopardised if the lease expired. Without an extended lease, you would be limited to cash buyers.
What are the disadvantages of extending a Lease?
The lease extension process can be long and there are costs involved.
However, this will increase the value of your property long term. Consequently, in most cases, the advantages of extending your lease will outweigh these factors.
This is something to carefully consider.
Who qualifies for a Lease Extension?
You are legally entitled to extend your lease if you have been the leaseholder for at least 2 years.
This is stated in the Leasehold Reform, Housing and Urban Development Act 1993.
Who is a qualifying tenant?
A qualifying tenant is a tenant who holds a lease for a term of more than 21 years.
What are the two types of lease extension?
- Informal lease extension
- Formal (statutory) lease extension
An informal lease extension allows flexibility with regards to the nature of the lease. This includes flexibility for provisions such as the length of the lease term and ground rent. This can be decided between the leaseholder and freeholder. However, you will need to obtain the consent from your mortgage lender if you extend your lease by way of an informal extension.
Under a statutory lease extension, the leaseholder (provided they have owned the property for 2 years or more) can extend the lease by a further 90 years for a premium with ground rent at a nominal value (essentially zero). The premium should be assessed by a professional valuer.
What is the process?
The qualifying tenant must serve notice on the landlord notifying them that you wish to extend the lease. The landlord will then be able to accept, reject or counter propose the notice.
Once the terms are agreed, a contract between the freeholder and leaseholder is entered into, extending the lease (by granting a new lease) and terminating the old lease.
What is the minimum lease extension?
If you are extending your lease by way of a formal lease extension, the minimum lease extension is 90 years.
If you are extending your lease by way of an informal lease extension, there is no minimum requirement. However, the current lease must have a term of 21 years or more.
What is the maximum lease extension?
You can extend your lease up to a maximum of 999 years.
Is the process difficult?
The process can be long and complex which can be subject to negotiation, so it is important that you have a legal professional to assist you throughout the process.
What is a section 42 notice?
This is a document used by the tenant to notify the landlord of their right and wish to acquire a new lease (i.e lease extension).
The landlord will then accept, reject, or negotiate the terms of the new lease.
It is common practice for the tenant to pay the landlord’s reasonable legal costs as well as the tenant’s own legal fees when extending a lease.
What is the new law on lease extension UK?
The Leasehold and Freehold Reform Bill was introduced to Parliament in 2023 to improve home ownership for leaseholders including:
- Increasing the formal (statutory) lease extension term to 990 years from 90 years.
- Removing the requirement to own your leasehold for at least 2 years before extending the lease.
- Reducing delays by setting a maximum time and fee for the provision of management information.
- Ban the sale of new leasehold houses to ensure that all new houses will be freehold.
These are just some of the changes that the new law will introduce which should make ownership of leaseholds fairer and cheaper.
How much does it cost to extend a lease UK?
Lease extensions can be costly. This includes your own legal costs and fees, the landlord’s reasonable legal costs and fees and the premium of extending the lease.
You can use the following lease extension calculator from the Leasehold Advisory service to get an idea of the costs of extending the lease of a flat.
Lease extension valuation
A reputable surveyor will advise on the valuation for your lease extension. We can put you in touch with a local and reputable surveyor to assist with this.
Do I need a solicitor?
Yes, extending a lease is a complicated area of law. It is a complex and time critical procedure with many pitfalls. Therefore, you should most definitely seek assistance from a legal professional.
We are solicitors specialising in lease extensions in Welwyn Garden City, Hertfordshire. At Crane & Staples we are happy to assist our clients with lease extensions, working closely with local and reputable surveyors to provide a fully-rounded service.
We can assist with the process of extending the lease of your property either via the statutory route (from initial service of notices through to Tribunal applications), or, by an informal procedure, with the co-operation of the landlord.
We also act for landlords and managing agents assisting with the statutory procedure initiated by the leaseholder, or alternatively, setting up a scheme by which leases can be extended which is mutually beneficial to both the landlord and leaseholder.
You can also find out more about the process on the government website here.
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Article by Amy Tapping