A lease is a right to use the property for a period of time. As a lease gets shorter the value of the lease decreases and it becomes more expensive to extend the lease.
Your Lease has a certain term or length. At the end of which the property will revert to the freeholder. It is a totally unfair relic of feudal laws, which you avoid by adding extra years to the length of your lease – that is, extending your lease. You can do that either by entering into a mutual agreement with the freeholder, or exercising your legal right.
Sometimes it is difficult to sell a property with a short lease because mortgage lenders may be reluctant to lend money on such properties because should they have to take possession they will then have difficulty in selling.
New leases today are often granted for periods of 125 years. However, many leaseholds were granted for periods of between 99 and 999 years
Lease extensions are governed by Leasehold Reform Housing & Urban Development Act 1993
Can you extend your lease?
If you have owned the property for at least two years you are entitled to demand a 90 year extension to be added to your existing lease from your freeholder. You only have to have owned the property, so you can still apply if you’ve been living somewhere else.
If you have owned the property for less than two years then:
You can still enter a non-statutory agreement with the freeholder, if you can persuade them
Should you extend your lease?
Before you enter the legal minefield of a lease extension, you need to decide whether it is worth the effort and expense. As a general rule of thumb, if the lease is less than 90 years you should almost certainly try to extend it. This is because:
Properties with shorter leases are less valuable than ones with long leases (this is particularly true if leases are below 80 years)
Properties with shorter leases can be more difficult to get a mortgage on, because mortgage companies will worry that its value might decline and so won’t be good security
Properties with shorter leases can be more difficult to sell
Why would you not want to extend the lease?
Depending on your circumstances, it might not be worth getting involved in the expense and hassle of extending your lease if:
You have a long lease already (over 90 years), there is probably little benefit to extending it
The cost of doing so. Lease extensions can be very expensive (many thousands of pounds), so you need to work out first whether you can afford it. Some people can be trapped in short leases, unable to afford extending them.
You are only planning to be in the property a couple of years before moving on (unless you need to extend the lease to make it attractive to buyers)
You are not going to outlive the term of the lease. It can be quite rational just to let your heirs inherit the problem
If you do want to extend, please bear in mind:
As the lease gets shorter, the cost of extending the lease gets more expensive at a fairly high rate.
At about 60 years, the cost of extending the lease increases by about 1% of the value of the property each year – ie if the property is worth £250,000, the bill for extending the lease will go up about £2,500 a year. When the leasehold gets down to zero years, it is practically valueless as the whole property reverts to the freeholder (though for a certain period after expiry of the lease you may still have a right to extend the lease). This is called the Marriage Value. This is because after that you will pay 50% of the flat’s ‘marriage value’ on top of the usual lease extension price. Marriage value is the amount of extra value a lease extension would add to your property
If the person you bought your property from had started the lease extension process, they you might be able to continue it – but you will have had to ensure that the right was passed on to you when you bought the property
For more information on buying, selling or letting a property, please contact our property team at Stafford on 01785 211411 or Rugeley on 01889 583871.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances. (50587)