Niki Adkins is Partner in our expanding Leasehold Property Team. In this article, she answers the question: Is now a good time to extend my lease? Niki looks at factors such as reform legislation and cost; going on to describe the lease extension process.
What is a lease?
A lease is the ‘contract’ between a leaseholder (flat owner) and their freeholder, which governs what goes on in the building and, importantly, how long you can live in the property for; usually 99 or 125 years at the start of the lease.
Read more in our back to basics guide to leases here.
What is a lease extension?
In short, it is a process whereby the number of years remaining on a lease is increased; or another way of looking at it is that the lease is ‘refreshed’.
Read more in our back to basics guide to lease extensions here.
Why should I extend my lease?
As time goes on, that lease gets shorter, and therefore becomes less valuable as an asset to the leaseholder. If the lease ran all the way down to zero days, the leaseholder would have to move out and hand the flat back to the freeholder.
As such, a lease extension is required to ensure that the lease never gets that short. It also reinvigorates the value of a flat that was lost whilst it has been getting shorter.
Mortgage lenders don’t like leases that are short. As crazy as it sounds, 80 years can be considered ‘short’ by some mortgage lenders. As a result, 99 year leases often require extensions within the first 20 years of their lifetime!
As a result, a lease extension will ensure that your flat is attractive to any purchaser if you choose to sell; or to a mortgage lender should you need to re-mortgage or take finance out against the flat.
Selling a flat with a short lease devalues a property. My colleague Hannah Faith goes into further detail about this here.
When is the best time to extend my lease?
Today is always better than tomorrow….
As your lease gets shorter, it becomes more expensive to buy a lease extension. As a result, the sooner you acquire a lease extension, the cheaper it will be. Extending before the lease drops below 80 years will also save you a lot of money (if you can) as a compensation known as ‘marriage value’ is not payable.
Once a lease drops below 80 years (even by a day), the price payable for a lease extension increases as the ‘marriage value’ payment kicks in. For the avoidance of any confusion; ‘marriage value’ has nothing to do with vows or wedding ceremonies.
Government announcement – shall I wait?
In January 2021, the Government announced that they are planning to reform leasehold property law in favour of leaseholders. However, no further comment had been made as at April 2021 and no timetable for progress of such reforms has been issued. Estimates are that any reform legislation benefiting leaseholders who already own their flats is not likely until 2024/2025.
That is a long wait for a leaseholder who wants to sell and move on, but can’t due to their short lease (or unfavourable ground rent). In addition, waiting that length of time will only serve to increase the price payable for a lease extension under the current regime.
A further concern is that, whilst the Government may have the best intentions of issuing beneficial reforms, there is no guarantee that this will be the case. Whilst we would like to be proved wrong, Parliamentary debates may have a ‘watering-down’ effect on what reforms are actually implemented.
The proposed reforms aren’t helpful for anyone who may want or need to sell, re-mortgage or finance their flat before the reforms are actually passed. As a result, it may not be a sensible idea for leaseholders to wait for the Government’s next move.
How much does a lease extension cost?
The cost of a lease extension is dependent on numerous components such as how many years are left on the lease (shorter = more expensive), how much ground rent is payable under the lease and the value of the flat itself.
Our Leasehold Property Team can assist by putting you in contact with a specialist valuer local to your property, who will be able to provide you with an estimate of the price payable. The team here at Frettens, however, can provide you with estimates of the professional costs involved.
Will extending my lease add value?
Yes! As the number of years will be increased, therefore making the flat more attractive to purchasers and mortgage lenders, the value of the flat would increase. As a result, you should be able to recover some, if not all of, the expense incurred in the lease extension process.
In addition to the added value, the flat would generate more interest from buyers than a neighbouring flat without an extension; so the selling process should be made easier too!
How do I extend my lease?
There are usually two routes to obtaining a lease extension; the ‘informal’ route and the ‘statutory’ route.
Our Lease Extension Guide explains these routes in more detail.
The way in which a particular lease extension will proceed usually depends on who the freeholder of the building is and how co-operative or commercially-minded they are.
Our Leasehold Property Team are happy to arrange an initial free chat to discuss your individual circumstances and to advise you as to the most appropriate route for you.
A specialist lease extension lawyer's view
Niki Adkins, Partner and Leasehold Property Specialist says
“Whilst it is great news that the Government is looking to reform leasehold-law in the future, the lack of clarity and projected timescales means that we are still advising leaseholders to extend sooner rather than later in the way that we did before the announcement. Who knows what is around the corner for any of us, especially in today’s world, so having peace of mind with an extended lease is always recommended.
Unforeseen changes in someone’s circumstances may mean that a lease extension is a time- and money-saver if they find themselves having to un-expectedly sell or re-mortgage.”
Lease extension specialists
Our specialist Leasehold Property Team is one of the largest in the region, with vast knowledge of the lease extension process. We are happy to discuss any queries that this article may have raised.
Please call 01425 610100 and Niki or a member of the team will be happy to chat about your situation and your specific requirements.
We offer all new clients a free initial chat with one of our bright, knowledgeable lawyers.
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