Solicitors Specialising in Leasehold Extensions
November 2023 King’s Speech Leasehold Reform Update – see below
Are you the owner of a residential flat on a long lease basis? If you are, you’re not alone. According to the UK Government, there are an estimated 4.5 million leasehold homes in England and Wales, of which 69% are flats and 31% are houses. And just like you, at some point the owners of all of those properties will have to either get around to extend their lease, or face seeing the lease expire.
Many people simply do not realise that if they have owned a residential flat for two years on a long lease (which means any lease originally granted for at least 21 years, most commonly a 99 or 125 year term), they are likely to qualify for the right to extend their lease by a further 90 years – provided they have owned the flat for at least two years – the statutory section 42 lease extension.
(NB Even if you haven’t only the lease for that long, you may still be able to negotiate an informal lease extension with your freeholder.)
As property prices are continuing to rise in most parts of the country, now is the right time for leaseholders of flats to think about extending their lease.
However, often there doesn’t seem to be any hurry to extend a lease, and it can be an expensive process. So what is the best time to extend the lease on your flat?
Want to know more about extending your lease? Call our highly specialist lease extension solicitors on FREEPHONE 0800 1404544 for FREE initial phone advice – with no strings attached.
Click here to read some reviews of our lease extension solicitors from satisfied clients
Making sure you arrange your lease extension at the right time is critical for anyone wishing to improve the value and saleability of their flat.
So if you’re asking yourself the question “when should I extend my lease?”, especially if you are thinking of selling in the near future, you should consider taking the following steps:
• Once the remaining term of the lease has dropped below 90 years, it’s worth considering a leasehold extension. However if the remaining term drops just one single day below 80 years, then the price increases significantly. That’s because as soon as the lease drops below 80 years, your freeholder is allowed to charge an additional premium to extend your lease – called “marriage value”. So if you have a lease term with between 80 and 85 years remaining, you would be well advised to extend your lease now, or at least as soon as possible.
• Extending a lease can make it much easier to sell. Buyers are becoming more concerned about the length of the lease and whether the block is well managed. In the current housing market, mortgage lenders are also tightening lending criteria and are proving increasingly reluctant to offer mortgages on any flat with a short lease. In addition purchasers are often willing to pay more for a longer lease.
Click here to find out more about the very real problems of getting a mortgage on a short lease flat.
• In addition to the fact that the lower your lease term gets, the more it’s going to cost to extend your lease, you also need to bear in mind that with rising property prices that will also increase the value of the premium. So putting off extend your lease, means the premium you’re eventually going to have to pay is being driven steadily higher by both of those 2 factors. That’s why getting a lease extension sooner rather than later once it dips below the magic 80 year stage, should be a good bet
• Unless you can reach agreement with your landlord on the price of your lease extension premium, our specialist team always advises our clients to get a formal valuation from a specialist surveyor early on. This can help increase your negotiating power and will make sure you don’t pay over the odds in extending your lease.
We regularly work with a number of highly specialist lease extension valuation surveyors nationwide – and we are happy to introduce you to them, and instruct them to prepare a valuation for you, as part of our one-stop shop lease extension service.
Click here to read more about the critical importance of instructing the right lease extension surveyor.
• If negotiations don’t succeed, then getting the right valuation from the right surveyor will also provide evidence in any subsequent application to the First Tier Property Tribunal [previously known as the Leasehold Valuation Tribunal or LVT] to set the right level of the premium payable to your freeholder.
Click here to read more about the First Tier Property Tribunal.
• The price of extending a lease with over 80 years left is often not great, and will be much cheaper than waiting until the term drops under 80 years. In addition to legal costs, any tenant must pay compensation to the freeholder for the loss their freeholder suffers as a result of a lease extension (i.e. the difference in the value of the flat before and after the 90 year lease extension is granted). and the leaseholder will also be responsible for the freeholder’s reasonable costs and any valuation expenses.
• Too many people leave extending their lease too late. Often they put it off because it doesn’t seem urgent and then become surprised at how much a lease extension will cost. Plus the fact that when you come to sell your flat, if your lease is getting short, it’s going to be tough to sell. In fact, many people find it incredibly frustrating to discover that going through the formal or such lease extension process can regularly take six months – in which case you may have to put off selling your current flat now and trading up to buy your dream home simply to have enough time to extend your lease. It’s much better to apply to renew your lease in advance
LEASEHOLD REFORM UPDATE – I’ve heard that the government say that they will make lease extension much cheaper. Should I delay extending my lease?
Despite hundreds of recommendations being made by the Law Commission in 2020 and despite a number of government announcements about the money their changes are going to save leaseholders, to date there has been only one single change in June 2022. Since that date, when agreeing INFORMAL lease extensions of FLATS OR HOUSES;
- the freeholder can only charge the current level of ground rent set out in the existing lease until the expiry of the existing lease, after which what is known as a peppercorn rent (i.e. effectively set at nil) reply for the remainder of the new lease term
- New leases granted AFTER the commencement date of the new legislation will be at a peppercorn rent
- Statutory lease extensions remain unchanged.
But further legislation is planned. On November 7th, 2023 the King’s Speech set out the UK Government’s intention to introduce the following changes during this parliament which include:
• scrapping the need for leaseholders to have owned the property for 2 years before a can apply for a lease extension and
• an increase in the automatic increase in the term of the lease using the statutory lease extension process – instead of adding an additional 90 years, under the new rules the lease will be extended to 990 years.
However, there was not a single mention of the government’s earlier promise to abolish “marriage value” in the King’s Speech. However, since then, Housing Minister Rachel Maclean has stated categorically that “marriage value will be abolished“. But we have no details – and it remains to be seen even if marriage value is abolished, whether that applies to all leases or, as with the earlier ground rent bank, just to new leases.
So if you’ve got more than 85 years left on your lease, it may well be worth waiting to see if the government brings in theses further changes. But if your lease is much less than that, it’s really up to you. You will have to make your own decision about whether to gamble on the government eventually making worthwhile changes, against the certainty that as your lease term drops and as the property gains in value, both of those factors are increasing the price you’re going to have to pay for your lease extension.
Click here to read more about “How much it will cost to extend my lease?“
Leasehold extension – are there any disadvantages?
Not really. It’s just really question of your time and the costs you will need to pay (i.e.the premium to extend your lease and your own leasehold and valuation costs, along with the reasonable legal and valuation costs of your freeholder)
Extending my lease on my flat – how long will it take?
Every case is different. Much depends on the speed and cooperation of your freeholder. But the route you take will also make a difference. In particular the statutory or formal route under the Leasehold Reform Act 1993, has certain built in deadlines. As a result of a formal lease extension will probably take on average between 8 months and a 1 year to complete.
How long an informal or voluntary lease extension will take is harder to estimate. Why? Because that really does depend on how quickly the freeholder moves. But to give you an example, one of our specialist leasehold team, when asked for the kind of range of timescales that an informal lease extension could take, provided the following statistics from 2 recent cases, setting out the shortest and longest she had come across recently:
• Opened file 1st December 2020 and completed on 24th March 2021 (4 months)
• Opened file 17th October 2019 and completed on 5th March 2021 (17 months)
Please note, if there is any dispute in a formal lease extension, and it needs to be referred to the First-Tier Property Tribunal, then that’s going to add extra time. And that could be as much as 6 months. Thankfully only a very small percentage of cases actually need to end up at the Tribunal.
I’m going to buy short lease flat – what’s the quickest way of extending my lease?
In terms of a statutory, or formal, lease extension, the standard procedure is to serve the Notice of Claim during the period of exchange and completion, and then complete a deed of assignment on the date of completion. The buyer will then take the lease extension through to completion from there but the lease itself will not complete for at least couple of months until such time as the statutory Claim is completed (i.e. counter notice received and terms agreed etc).
One alternative if you’re looking to speed the process up would be an informal lease extension. If the seller agrees with the landlord, then an informal lease extension could complete prior to exchange/on the date of exchange and an expedited application can then be made to the land registry to register that extended lease prior to completion of the sale. Failing that, another common route is for the seller to complete a lease extension during period of exchange and then for the buyer to register the lease extension on behalf of the seller alongside their application to become the owner of the property.
Is a 125 year lease long enough?
This is quite a common question, and the answer is – yes, probably.
Owning a freehold property, or alternatively owning the share of freehold in a leasehold block, is always preferable to just owning a lease. That’s simply because owning a freehold or a share in it, means that you have more control.
And yes a 999 year lease is better than a 125 year lease, but when it comes to the 2 biggest questions raised by short leases, 125 years should be enough. Those 2 issues relate firstly to lenders. The lower your lease is, especially if it’s below 70 years, the more problems you’re going to find with some lenders. And getting a mortgage on a flat with say below 50 years left is going to be extremely tricky. In contrast, lending on a 125 year lease is highly unlikely to be a problem for any sensible lender.
The 2nd real problem with short leases is that people don’t like buying them. But again, 125 years should not prove a problem here. Certainly it’s better than a 99 year lease – purely because it’s going to be 45 years, rather than 19 years, before you get down to the crucial 80 year stage.
Want to know more about the process involved in extending your lease?
Click here to read more about “How to extend my lease?“
Any tenants with concerns that their block is poorly managed or who thinks that their management charges are too high, might also want to consider exercising their right to manage.
Click here to read more about how our right to manage solicitors can help leaseholders like you to acquire the ability to manage your own block.