Extending Your Lease
Why is the Length of Your Lease Significant?
If the length of the lease is shorter than 80 years, your property steadily becomes less valuable. If you are looking to sell your leasehold property, it will be much more difficult for a buyer to get a mortgage or even for you to re-mortgage with a lease of this length. It basically becomes more and more unsaleable.
The other thing to bear in mind is that when your lease has 80 years or less left, the freeholder starts “acquiring” a value in the property, which is called the ‘marriage value’. This is the freeholder’s share of the increase in the property’s value that the lease renewal has generated. This share will always be 50%.
Steve Williams, Leasehold specialist at Banner Jones says ‘The calculation of the marriage value can be complex as there are various factors to take into account, but in a nutshell, the marriage value is 50% of the increase in property value once lease is renewed. If the property value went up by £10,000 – you’d pay a premium of £5000 to the freeholder, on top of the lease renewal cost.”
What are Your Options?
We would always recommend that you consider purchasing your freehold, however, if this is not something you wish to consider then the other option is to extend your existing lease. This is a process sometimes known as Leasehold Enfranchisement.
Under the Leasehold Reform Housing and Urban Development Act 1993, a leaseholder has the right to add 90 years to what is left on an existing lease. Under this new arrangement, the leaseholder will pay no ground rent (also known as "peppercorn rent"). By increasing the length of the lease, you are also increasing the value of the property.
If the Lease is Under 90 Years
Sometimes freeholders are willing to give a longer extension and a different ground rent arrangement. We can advise on the “negotiations” with the freeholder or even do the negotiations for you on your behalf.
What Does the Leashold Extension Process Involve?
1) Ensure you have enough funds to pay for a lease extension and meet the following requirements:
- The original term of the lease must have been at least 21 years
- You must have owned the lease on your property for two years
2) Find out who owns the freehold.
3) If you can't find the freeholder we may be able to assist with the investigations. If we can’t find the freeholder (which would be unusual) you can apply for a Vesting Order, issued by the Court.
4) You will need to pay for a Lease Extension Valuation.
5) Instruct a solicitor to serve a Section 42 Tenant's Notice. This notice will allow you to acquire a new lease for your property. At this stage, you become legally liable to pay for the new lease extension, even though the price is not finalised.
6) If all goes smoothly, the freeholder will respond with a Counter-Notice. This is usually between 2 and 6 months after your Section 42 Tenant's Notice has been served.
7) The freeholder will either agree to a new lease with an additional 90 years added to the current lease terms (with no further ground rent) or disagree to your proposed price. You may then enter into negotiations to agree different terms. We can help you with the negotiations, should you wish.
8) If neither party can agree on valid terms, you or the freeholder can apply to the Leasehold Valuation Tribunal. At this stage the freeholder must pay their own legal costs.
9) The Tribunal will make the final decision on the new terms which become final after 28 days. Within 21 days after the decision from the Tribunal, the freeholder must produce a draft lease.
10) Within 2 months of the decision becoming final, both parties are obliged to start the new lease.
Why you Need a Specialist Leasehold Extension Solicitor
Most leasehold extensions can be complex, but without it, your property may become unsaleable. If your parents own a leasehold property it may also be worth getting the length of their lease checked too. We’ve seen instances where children are left with their parent’s leasehold property as part of their estate that they have little hope of selling.
When it comes to leasehold properties, it's essential to get the correct legal advice at an early stage. At Banner Jones, we have a wealth of experience in dealing with lease extensions and freeholder negotiations, so for more information on extending your leasehold property, speak to our Sheffield based leasehold conveyancing team on 0330 017 6309.