How to Extend a Lease
If you’re the owner of an Islington flat or apartment, it’s likely to be a leasehold property. It is essential to understand how long is left on your lease as the duration of the lease will significantly affect the value of your home.
New government reforms announced in January 2021 make it cheaper and more accessible for leaseholders to extend their lease. In this article, we take a look at how to extend the lease on your home.
What is a lease?
A leasehold property is only owned for a fixed period of time. The purchaser has a legal agreement with the landlord called a lease which specifies how many years they will own the property.
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A lease will typically have an initial term of 99 or 125 years, but some can be up to 999 years. As time goes on, the lease period reduces. Once the lease expires, ownership of the property will revert to the landlord.
Why should I extend my lease?
The duration of your lease can significantly affect the value of your property. This is because potential buyers will factor in the cost of extending the lease into the price they are willing to pay.
Mortgage companies generally require at least 85-90 year left on the lease. If you need to remortgage, for instance, when your fixed-rate period ends, you may end up paying a much higher interest rate until your lease extension is secured.
When should I extend my lease?
If you have 90 years or less remaining it is probably worth extending.
It used to be that leases with less than 80 years remaining were more expensive to renew because the freeholder was entitled to an increased premium (called a ‘marriage value’) that reflected the property’s increased market value following the lease extension. The recent government legislation removes marriage value from the cost of extending a lease.
What are the steps to extending my lease?
1. Check eligibility
At the moment, you only have the right to extend the lease if you have owned the leasehold for two years or more. If you have owned the property for less than two years, you can still request an extension from the landlord, but you cannot compel them to grant it.
2. Instruct a specialist solicitor
A solicitor will handle all the legal documents for extending your lease, mediate any disputes and ensure that the freeholder keeps to the prescribed time limits.
It is vital to appoint a solicitor with specialist knowledge of lease extensions. The Association of Leasehold Enfranchisement Practitioners is an excellent place to start. Prices can differ, so make sure you get quotes from a few different firms.
3. Valuation of the leasehold extension
Appoint a chartered surveyor who will put a value on the lease extension. Check that your surveyor specialises in lease extensions and is a member of a recognised professional body such as the Royal Institution of Chartered Surveyors (RICS) or the + (RPSA).
4. Reach an agreement with the freeholder
You will have to serve your landlord with a Section 42 notice, Under the 1993 Leasehold Reform, Housing & Urban Development Act, proposing your premium for extending the lease. Your solicitor will take care of this.
Your landlord has two months to respond to your offer. If they do not accept your terms, you will need to enter into negotiations until both parties agree.
The new government legislation promises to set the calculation rates ensuring that lease extensions are fairer, cheaper and more transparent.
5. Pay any deposit and sign the contracts
Generally, deposits are £250 or £10% of the lease cost – whichever is greater. Your solicitor will draw up the necessary contracts for both parties to sign and update the land registry.
What are the costs?
The cost of buying extra years on your lease will depend on the property’s value, the number of years left on the lease, the annual ground rent and the value of improvements paid for by the leaseholder. A surveyor specialising in leasehold extensions will be able to calculate the cost and stop you from paying over the odds for your extension.
The government has pledged to introduce a new online calculator to make it simpler for leaseholders to determine how much it will cost them to extend their lease. As previously mentioned, the government is abolishing the premium ‘marriage value’ payable to the landlord when extending a lease with less than 80 years remaining.
In addition to the price of buying extra years on your lease, you will also need to pay:
- Your solicitors fees
- Your surveyors fees
- Your landlords reasonable legal and surveyors fees
- Land registry fees
Stamp duty also applies to lease extensions. However, it is unlikely to affect most leaseholds as the threshold you begin paying is £125,000 (from 1st October). During the stamp duty holiday, the threshold is £500,000 until 30th June 2021 and £250,000 between 1st July and 30th September 2021.
Although it can be expensive to extend your lease, remember that you are adding to the value of your property, and you will no longer have to pay any ground rent.
How long will it take to extend my lease?
Generally, the entire process takes between 3 and 12 months but can be made quicker by hiring a good solicitor and surveyor, so make sure you choose these people carefully.
Is it better to buy the freehold instead of extending my lease?
Legislation called ‘collective enfranchisement’ gives you the right to get together with your fellow leaseholders and buy the freehold for a ‘fair market price’.
You will need at least 50% of leaseholders in your block to agree to participate. You would then jointly own the property outright. Whilst this is more expensive than simply extending your lease, you have much more control over the running of the apartment block. You may find your service charge, which covers things like insurance and maintenance, can be reduced as you can be more discerning about your choice of service providers.
If you are looking at leasehold properties in Islington, Newington Green or Hackney or have a leasehold property to sell, we’d be happy to advise you. Please contact us to find out more.