If you own a leasehold flat, the number of years remaining on your lease is something that can be easy to overlook.
However, as the length of a lease reduces, it can affect the value of the property, how attractive it is to potential buyers and, in some circumstances, the ability of a buyer to obtain a mortgage.
For that reason, it is worth understanding your position well before you are thinking about selling.
What is a lease extension?
When you purchase a leasehold property, you own the right to occupy the property for the period specified in the lease rather than owning it indefinitely.
A lease might originally have been granted for 99, 125 or considerably more years. As time passes, the remaining term becomes shorter.
A lease extension increases the number of years remaining on the lease.
Depending on your circumstances, this may be dealt with through the statutory lease extension process or through negotiations with the freeholder.
Why does the length of my lease matter?
A lease is a diminishing asset. As the remaining term gets shorter, the lease can become less valuable.
A shorter lease can also create difficulties when you want to sell. Some prospective buyers may be reluctant to purchase a property with a short lease, while mortgage lenders will generally have their own requirements regarding the minimum lease term they are prepared to accept.
This means that leaving a lease extension until you are ready to sell can potentially complicate a transaction.
If you know your lease is becoming shorter, it can therefore be sensible to consider your options early.
When should I think about extending my lease?
There is no single answer that applies to every leaseholder.
Your decision may depend on factors including the remaining term, the property’s value, your future plans for the property and the likely cost of extending the lease.
Historically, the 80-year point has been particularly important when considering lease extensions because of the way the premium payable for certain statutory extensions has been calculated.
However, leasehold law has been undergoing significant reform. Leaseholders should therefore obtain up-to-date advice on the rules applying at the time they intend to extend rather than relying on older information found online.
How much will a lease extension cost?
There can be several costs involved.
The most significant may be the premium payable for the extension itself. The amount can depend on factors including the property’s value, the remaining lease term and the particular legal route being used.
There may also be valuation costs and legal fees. Depending on the procedure being followed, you may also be responsible for certain reasonable costs incurred by the freeholder.
Before starting the process, it is helpful to understand the likely overall cost rather than focusing solely on the premium.
Statutory or informal lease extension?
Depending on the circumstances, a leaseholder may have the option of pursuing a statutory lease extension or negotiating an extension informally with the freeholder.
An informal agreement can sometimes appear quicker or simpler, but the terms offered need to be considered carefully.
For example, you should look not only at the number of additional years being offered but also at any proposed changes to ground rent or other provisions within the lease.
A solicitor can review the proposed terms and explain how they may affect you before you agree to them.
Why is legal advice important?
Lease extensions can involve strict procedures, notices, deadlines and negotiations.
Errors can cause delays and, depending on the circumstances, may have financial consequences.
A solicitor can review your existing lease, advise you on the appropriate procedure, deal with the relevant notices and correspondence and work alongside your valuer during negotiations.
It is particularly important to obtain advice if you are planning to sell the property, have already received an offer from your freeholder or are concerned about the remaining term of your lease.
Do not leave it until you want to sell
Many leaseholders only begin looking at their lease when an estate agent, buyer or mortgage lender raises the issue.
By that stage, the lease extension can become another matter that needs to be resolved during an already time-sensitive transaction.
Considering your lease position earlier can give you more time to understand the process, obtain valuation advice and decide on the most appropriate course of action.
Penerley can advise leaseholders on lease extensions and other residential property matters.
If you are considering extending your lease or are unsure about the number of years remaining, contact Penerley to discuss your options before taking the next step.
