A leaseholders guide to residential lease extensions

Leaseholders-guide-to-lease-extension-Kempton-Carr-Croft-.jpg

A leaseholders guide to residential lease extension

The Leasehold Reform, Housing and Urban Development Act 1993 gives the leaseholder – also known as the tenant or lessee – the right to extend their lease by a further 90 years, without a ground rent.

The freeholder is legally obligated to comply with this request, depending on three criteria:

  • The property must be a flat
  • The leaseholder has owned their flat for at least 2 years
  • The lease has an original term of at least 21 years

In a snapshot, leaseholders should remember that:

  • You can extend your lease at any time
  • You have the right to extend your lease by 90 years
  • If you have less than 80 years on your lease, you need to act now. 

Extending your lease can be a complex process, so ensuring you have the right legal and valuation advice is imperative. To help you gain a better understanding of the process, we’ve answered some of the most commonly asked questions below.

What is a lease extension?

A lease extension gives the leaseholder (also known as the ‘tenant’ or ‘lessee’) the right to extend their flat’s least by a further 90 years.
This is enabled by the Leasehold Reform, Housing and Urban Development Act 1993, and the Commonhold and Leasehold Reform Act 2002. The freeholder (also known as the ‘landlord’) is legally obligated to comply with this request.

Who can apply for a lease extension?

The leaseholder must have owned the property for at least 2 years, and the lease must have an original term of at least 21 years. You do not need to have lived in the flat at any time.

Should I extend my lease?

Yes. The fewer the number of years remaining on the flat’s lease, the less valuable it becomes. With a reduced value, it will be harder to secure a mortgage and the flat will become more difficult to sell.

What happens if I have less than 80 years on my lease?

Most lenders require at least 70 years remaining on the lease, with some requiring as much as 85 years. If the lease is below this figure, you are restricting the market to cash buyers without a mortgage, and they will likely require a discount from your expectations. The longer you put off extending your lease, the flat will become less valuable, increasingly difficult to sell, and the cost of a lease extension will increase.

When should I consider extending my lease?

Put simply, there is no better time than now. The process only becomes more expensive as the lease shortens. One important milestone is when the lease falls below 80 years. Once this occurs, the cost to extend your lease now includes the addition of a ‘Marriage Value’, which increases the premium substantially. Marriage value is the amount of extra value a lease extension would add to your property. Therefore, all leaseholders should be wary of this event and ensure action is taken well in advance.

How long will I be able to extend my lease for?

Your lease will be extended by 90 years, in addition to the remaining term. For example, if you have 70 years left on your lease, you will be given a new lease of 160 years.

Much will it cost?

The price depends on several variables, such as the value of the flat, the ground rent payments, and the length of the current lease. You will need a Chartered Surveyor to carry out a valuation of your property and determine the likely extension premium. The final sum is then negotiated between the leaseholder and the freeholder. Other costs to consider include legal fees, valuation fees, stamp duty, and the freeholder’s fees.

How should I pay for it?

The most common way of covering the costs is to extend your mortgage. Most lenders will be happy to do this if you have sufficient equity, as it increases the value of their security.

What is a Section 42 Notice?

A Section 42 Notice is the formal notice which triggers the statutory lease extension process. This is sent by your solicitor to your freeholder. This Notice should be served with proof of delivery, so the serving of the Notice cannot be disputed.

How long will it take to apply for a lease extension?

On average, the process could take between six to twelve months. If an informal agreement can be made with cooperation from the freeholder, this time can be reduced.

 
Need advice or services?
We have an experienced team of RICS registered valuers specialising in residential lease extension operating throughout London, Buckinghamshire, Surrey, Hampshire, Oxfordshire and Hertfordshire. Use our contact form to get in touch to discuss your individual needs. 
 
Want to hear more?
If you found this article helpful and would like to receive more posts like this directly to your inbox, subscribe to receive our promotions email and quarterly newsletter or follow us on twitter @KemptonCarr  and like us on facebook to see them first.

 

Next Steps