When you buy a flat, you probably want a lease lasting beyond your lifetime, so that when you move on you still have a substantial asset to sell on or leave to your children. 99 years will do nicely, but only if you catch the lease early in its life and don't stay too long.
Why extend the lease?
Many leaseholders are unaware of the negative implications of a shorter lease term until they come to sell their property, as buyers are being advised to avoid properties with shorter lease terms, primarily because mortgage lenders are reluctant to lend against them.
A leaseholder with a lower lease term will also typically have to pay a higher premium to extend their lease, particularly if the term has fallen below 80 years; at this point, an additional fee known as ‘marriage value’ becomes payable, which is the increase in the market value of the property following the completion of the lease extension. If this value is triggered, it can make it considerably more expensive for a leaseholder to extend their lease.
So you should look to extend your lease because;
- Increases the value
- A longer lease is more marketable
- It is easier to obtain a mortgage against a longer lease
Your flat has a market value, which is what someone would be willing to pay for it. With a longer lease it will be worth more. To extend the lease you will want to pay a price that is no more than the difference between these two values, and preferably a lot less.
The 'reversion' - the landlord's right to get the property back at the end of the lease, to receive the ground rent in the meantime, and perhaps to make money out of managing the property - also has a market value, as an investment. If the lease is extended the reversion will be worth less. The landlord will want a price for the extension which represents this drop in value, and if possible a lot more.
You may be able to agree the price of the extension with your landlord. Even if you do, it may still be worth getting a professional valuation from a surveyor, to make sure you are not paying over the odds. If you cannot agree, a surveyor's valuation can be ammunition for negotiations, or a surveyor can negotiate for you.
Valuation is not always a simple process, and we are not surveyors, but we can introduce you to surveyors we regularly work with and have found reliable. Once agreement has been reached, the lease extension itself is a conveyancing job and we shall be happy to deal with that for you.
When should the lease be extended?
A lease can be extended at any time, but we would always advise leaseholders to consider doing so when their lease term is approaching the 85 year mark, if not before. However, it is strongly advisable to do so before the term falls below 80 years, for the reasons outlined above.
How do I extend my lease?
There are two methods to extending your lease. They are;
The informal method:
This is a lease extension by way of an ‘informal’ agreement between leaseholder and landlord, i.e. progressed outside the relevant legislation.
Typically the leaseholder, or his/her legal representative, makes contact with the landlord to try and negotiate the terms of the lease extension, including the premium and ground rent, which will be whatever is agreed between the parties. If both parties can agree suitable terms, then this process could end up costing less and potentially complete more quickly than the statutory route.
The formal (statutory) method:
If eligible to do so, a leaseholder can progress a lease extension under the Leasehold Reform, Housing and Urban Development Act 1993 by serving a statutory (section 42) notice on the landlord. Unlike with an informal extension, the landlord is compelled to grant the applicant leaseholder a lease extension provided the notice is valid and served correctly in line with the legislative requirements.
This method provides greater certainty of terms for a leaseholder as the ground rent under the new lease must be set to a ‘peppercorn’ (essentially nil), and the new lease term must be for an additional 90 years in addition to the existing term. Protection is also afforded to the leaseholder in the event the landlord proposes an unreasonable premium and/or other lease terms, as the leaseholder has the option to apply to First-tier Tribunal (Property Chamber) to determine the issues in dispute.
Legal costs for this method are typically higher due to the volume of complex legal work involved, and due to timescales imposed by the legislation, completion of a statutory lease extension can feasibly take at least 6 months.
As a rule, though there are exceptions, you have a right to extend your lease by 90 years whether the landlord agrees or not, once you have owned your flat for two years. We can handle the whole process for you; talk to us about what it will cost and how long it will take.
The first step is to give the landlord notice about claiming a new lease and offering a price for it. After that:
The landlord has two months (sometimes more) to accept or reject your claim or propose a different price. If the landlord fails to respond, you are entitled to a lease on the terms you proposed. If the price cannot be agreed, you can apply to the Leasehold Valuation Tribunal to fix the price and you can apply to the court, if necessary, for a decision on whether you are entitled to a lease or an order to force the landlord to complete the lease.
If the landlord has disappeared and cannot be given a notice, you can apply to the court for a vesting order saying that you are entitled to a new lease. The tribunal then fixes the price, and a judge signs the lease on the landlord's behalf when you pay the price into court. The court holds the money until the landlord re-appears and claims it.
As part of our involvement in a lease extension, we not only assist extending the lease we also apply specialist knowledge, expertise and experience to review the terms of the existing lease in their entirety. We advise on how the lease can be improved and updated to help comply with current mortgage lender requirements, and avoid any issues selling the lease in future.
At QualitySolicitors Amphlett Lissimore, we understand that cost will be a concern. Therefore, we will give you a firm estimate of the costs involved at the outset so that you are fully aware of your position before you start the process.