If you own a leasehold property then at some point you may need to extend your lease. With there being 4.6 million leasehold homes in the UK, making up 19% of all housing stock, you aren’t alone.
But despite this being a fairly common process many homeowners get caught out when they need their lease extended, especially if they need it carried out in a hurry.
So, what do you need to know?
When should you extend your lease?
If your lease is getting short – anything between 80 and 90 years – you have a legal right to extend it as long as you have owned the property for two years.
The danger number is 80 years as if the term drops below that – even by just one day – then it becomes much more expensive to extend your lease.
This is because something called ‘marriage value’ kicks in. The marriage value is the increase in the value of the flat once the lease has been extended, which can run to tens of thousands of pounds.
You have the right to extend a lease by 90 years. If you follow the correct statutory procedure the freeholder can’t refuse.
How long does it take to extend your lease?
Longer than many people think. I have seen many times homeowners ask for a lease extension to be carried out, as they need to remortgage or sell their property, only for them to be shocked at how long it takes.
The statutory process takes anything between six months and a year or longer so if you need to extend your lease then it is best to plan in advance. However, there is another option.
Negotiating with the freeholder
The main thing homeowners don’t realise is that they are able to reach out to the freeholder and voluntarily negotiate a lease extension instead of going through the statutory process.
This is also a lot quicker as it can be carried out in as little as a month. A leaseholder simply has to ask the freeholder if they are open to them extending their lease and on what terms?
A lease extension through the statutory process must be for 90 years on the basis that the ground rent is nil, but under a voluntary negotiation you can change the terms.
For example, if you are looking to sell a property and do not want to pay for the full lease extension of 90 years then you could extend it for a shorter period, saving you money.
Agreeing terms before solicitors get involved will also save you money on legal fees. The leaseholder can of course refuse, but it is always worth asking before embarking on the statutory process.
Should I wait for the second stage of leasehold reform to kick in?
The Leasehold Reform (Ground Rent) Act 2022 came into force earlier this year and means there will be no ground rent on new properties in England and Wales.
However, this doesn’t apply for existing properties. If you are currently paying ground rent on your old property you will continue to do so unless you renew your lease.
That said, the government has indicated that it intends to bring in the second stage of leasehold reform which could allow leaseholders to extend their lease by 990 years without any ground rent.
Marriage values would be scrapped potentially wiping thousands from the cost of a lease extension.
Given the reforms, you may be wondering if it’s better to wait before starting your lease extension. The problem is, we don’t yet know when, or if, the new legislation will come in.
In the meantime, it will be difficult to sell or remortgage properties that are not extended while leases continue to run down and become more expensive to extend whilst you wait.
Another thing many have asked is if you have a lease of less than 80 years whether it is worth trying to get a better deal with your freeholder by asking to split the marriage value 50/50, arguing that the freeholder will get much less if you extend the lease once the reforms are brought in?
In my experience most freeholders are not budging on this, so you have a choice of extending your lease now or waiting in hope of reforms that may not happen.
Amber Krishnan-Bird is a solicitor at Osbornes Law
Loading ...