If you own a flat or apartment, you are likely to hold the leasehold title. This means that you have a lease, where you have agreed to comply with certain obligations to your landlord. A lease is granted for a specific period of time (known as the ‘term’), and is therefore technically a diminishing asset. It effectively loses value as the term decreases. In this article, we will look at lease extensions and how to get the most out of your lease.
What does this mean for you?
Typically, long leases are granted for a term of 80 to 999 years. At the end of the term, the property is returned to the freeholder. If the years left on the lease exceed a lifetime, you are unlikely to be affected.
However, the shorter the lease term, the less valuable your property will be. Once it reaches a certain level, you may struggle to sell the property. For example, most mortgage lenders will not lend money on leasehold properties where the remaining term is 70 years or lower. Although 70 years may seem like a long time, when it comes to lease terms it is actually rather short. Further, if you leave a property with a shorter lease your will to a family member, it could well be of little monetary value.
Can I extend my lease?
Tenants of leasehold property have a statutory right to extend their leases. This applies to most residential tenants once they have owned the leasehold property for two years or more. The statutory right gives tenant the ability to add 90 years onto the term remaining on the lease. So, if your present lease has 60 years left, the new, extended lease would be for 150 years.
The landlord is entitled to be paid money (‘premium’) for the extended term. The premium is calculated depending on the term remaining and ground rent. The fewer years remaining on the term, the higher the premium will be.
Premiums are usually several thousand pounds (depending on the length of your lease term). Both the landlord and the tenant will require valuation evidence from a surveyor to negotiate the premium.
What is the lease extension process?
You can informally negotiate a lease extension with your landlord. However, if you do use the informal route there are no rules. Therefore, your landlord may ask for a large premium and you will need to assess whether it is worth paying the sum demanded.
Alternatively, you can proceed down the statutory route. This begins by the tenant serving a notice on the landlord that he intends to extend the lease. There is a prescribed procedure for this route and the landlord can claim reasonable costs he has incurred.
What are my next steps?
Check the term of your lease. If the remaining term is 100 years or less, consider whether you are prepared to pay a premium to extend your lease.
Once you have decided that you wish to proceed with a lease extension, you will need to make contact with the landlord to advise him of your intentions. If you cannot agree terms, you will need to go down the statutory route.
We highly recommend that you seek legal advice before looking further into a lease extension. Further, you are likely to require specialist legal and valuation advice before proceeding. Our specialist property team can assist. Call us today on 0800 988 7756.