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Why you need to extend your lease and how to go about it

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Why you need to extend your lease and how to go about it

The Building Safety Act has muddied the waters for some leaseholders who are looking to extend their lease.

But what about those leaseholders who aren’t affected by the act?

In this article, Leasehold Specialist Hannah Faith details why you might need to extend your lease, how the process works, the costs involved and more.

How does the Building safety Act affect leaseholders?

As part of the Building Safety Act 2022, properties that are 5 stories or 11 metres tall may need non-cladding remediation work carried out.

It is currently somewhat unclear whether leaseholders in these properties will or won’t have to pay some of the costs for this work.

With cladding remediation costs potentially looming over them, many leaseholders in this situation are reluctant to extend their lease (even when it becomes ‘short’) as it is an extra cost which they may not be able to afford.

This article will provide advice for leaseholders who aren’t affected by the Building Safety Act and wish to extend their lease.

What is a lease extension?

A lease extension is a legal agreement which effectively extends the term of a leaseholder’s lease.

For example, if a leaseholder’s lease term is 70 years (meaning they have 70 years left on their lease) they can extend their lease by 90 years and the new term will be 160 years.

Why would you extend a lease?

There are many reasons why a leaseholder may wish to extend their lease, even if it seems like they have a lot of years left, which we’ve outlined below.

Short Leases

A ‘short lease’ is usually considered as a lease with a term with 80 or less years left.

Once a lease falls below 80 years, there is an additional form of compensation payable to the freeholder known as ‘marriage value’

Because of this, mortgage lenders are more reluctant to lend on leases with around 80 years left and, as a result, a property with a short lease is worth less than a property with a long lease.

This issue can be resolved through a lease extension, which would add an additional 90 years to your lease making it more attractive to mortgage lenders.

Related: Selling a flat with a short lease

Ground Rent

Despite the Leasehold Reform (Ground Rent) Act coming into force last year and preventing landlords from charging ground rent in new leases, for the extended term, the payment is still payable for leaseholders in existing leases.

And, when ground rent exceeds £250 per annum, leaseholders become more vulnerable to eviction as in certain circumstances if they do not pay the ground rent, their landlord can repossess the property.

For this reason, lenders are unlikely to lend on properties with doubling ground rent or ground rent over £250.

As a leaseholder with high ground rent, extending your lease will reduce the ground rent to a peppercorn (nil) and add 90 years onto the lease term.

What about a Deed of Variation?

Alternatively, some leaseholders choose to get a Deed of Variation (DoV) to reduce the amount of ground payable.

This may be the preferred option for leaseholders who only want to reduce ground rent and don’t have a short lease.

Find out more about getting a Deed of Variation to reduce ground rent here.

Related: Contacting your freeholder for a Deed of Variation

How much value does a lease extension add?

Because a lease extension increases the lease term and makes the property more attractive to purchasers and lenders, the value will increase.

We can’t give an exact figure on how much value a lease extension will add to your property without knowing more about your specific circumstances.

For a better picture and more tailored advice, you can call us on 01202 499255 or fill out the form at the top of this page for a free initial chat.

What are the two types of lease extension?

There are two ‘types’ of lease extension.

Statutory Lease Extension

If you’ve owned your property for two years, then you have a legal entitlement to extend your lease via the statutory route.

If you own a flat, the entitlement is an addition of 90 to the existing term. If you own a house, you can add 50 years.

The statutory process begins with you exercising your right to extension by serving a notice on the landlord with an offer figure for the lease extension.

A counter-notice may be served by your landlord and negotiations can begin. If, after 6 months, no agreement is reached you can apply to the first-tier tribunal.

Non-Statutory Lease Extension

Also known as the ‘informal’ route, the non-statutory procedure involves imply agreeing terms with your landlord up front.

This will usually be subject to your landlord seeking valuation advice at your cost.

Unlike the statutory route, the terms of the lease extension agreement are not fixed at an additional 90 years and a peppercorn ground rent.

Find out more about the statutory route here.

Which is best statutory or non-statutory?

Non-statutory lease extensions are usually cheaper and take less time, however the landlord is not legally obliged to complete the lease extension (Like the statutory route) and may propose unreasonable terms.

Which route is best for you depends on your circumstances and your relationship with your landlord.

For more pros and cons of both types of lease extension, you can read our dedicated article here.

Who pays for a lease extension?

There are quite a few costs involved in lease extension, most of which you will have to pay as leaseholder (as you are the one who wishes to extend your lease).

Costs include the lease extension premium, which can vary in price depending on your circumstances, surveyor’s and solicitor’s fees.

In addition, you’ll have to pay for the freeholder’s ‘reasonable legal and valuation costs’.

At Frettens, we will always be up front with fees and there will never be any ‘hidden costs’.

You can download our estimated costs guide here.

Can a lease extension be refused?

We answer this question in a separate article, which can be read here.

How long is as typical lease extension?

This depends on a number of factors, including the type of lease extension and how long negotiations take between you and your landlord.

Normally, a lease extension can take anywhere between 3 and 12 months. We would be able to provide a more accurate timescale upon instruction.

What are the alternatives to lease extension?

One alternative to lease extension is to buy the freehold of your block.

This would not only allow you to extend your lease (usually at no extra cost) but would also allow you to control service charges and reduce your ground rent to nothing.

You can read all about buying the freehold, how to do it and the costs involved, here.

Specialist Lease Extension Solicitors

Our bright Leasehold Property department is one of the largest and most experienced in the region. They specialise in Lease Extensions, Deed of Variations, Buying the Freehold and more.

If you have any questions following this article, or would like to get in touch to discuss your specific circumstances with an expert, you can get in touch on 01202 499255.

We would be happy to assist you in your lease extension and a free initial consultation to all new clients.

The content of this article, blog or video is not intended as specific legal advice. For tailored assistance, please contact a member of our team.