When Should I Extend My Lease?
Unlike freehold buildings, leasehold properties have a certain number of years contained in their lease. The longer the lease the more valuable your property is.
If the term of your lease starts to drop towards 80 years, you need to consider extending it. Once the term of your lease dips below the 80 year threshold, the cost of extending your lease becomes markedly more expensive. This article explains why and tells you what else you need to know about extending your lease.
1. Can I extend my lease?
If you have owned your property for at least two years, subject to a few particular exceptions, you will be able to extend the term of your lease.
2. By how many years can I extend my lease?
Lease extensions can be agreed either informally or by going through the statutory process. If you agree an informal lease extension with your landlord, you are free to agree flexible ad-hoc terms.
However, if this is not possible, then you can start statutory proceedings and under the 1993 Leasehold Reform Act, you will be entitled to an additional 90 years to be added to your existing term at a reasonable price.
4. Why should I extend my lease?
The fewer years remaining on your lease, the lower the value of your property will be and the more expensive it will be to extend the term, especially if the term has gone below 80 years.
One of the reasons you may wish to extend your lease is if you are selling the property. A mortgage company will often require that the leasehold be extended before they agree to help their client to purchase the property.
This will not only increase the value of the property but also after completion, the buyer would then have to wait a further two years to request a lease extension, thus increasing the price of the lease extension further due to the reduced term of the lease.
5. When should I consider extending my lease?
If a lease term is below 80 years, the premium to extend the term of your lease will become a lot more expensive. This is because you will be required to pay 50% of the "marriage value" in addition to the premium.
“Marriage value” is the amount of additional value a lease extension would add to your property. It is made up of two interests:
Value of the property; and
Additional value gained by extending the length of the lease
It effectively acts as compensation to the freeholder for transferring potential value to another. The leaseholder is required to pay 50% of this cost in addition to their premium.
6. How much will it cost?
The cost to extend your lease will vary depending on a number of factors such as the length of the term of your lease, ground rent you pay and the value of your flat. You’ll also be required to pay the freeholder’s reasonable costs and valuation fees together with your own. In some extreme cases, you may also need to pay stamp duty but only if the cost to extend your lease is over £125,000.