Lease extension – what is it and why extend…?
If you own a flat you probably own it as a leaseholder. As the word suggests, your ownership of the flat is through owning a lease. A lease is very much like an agreement to hire the flat for a number of years from the owner of the building who is usually called the freeholder.
When a lease is created for a home, the hire period – called the “term” is most frequently 99 or 125 years. When the leaseholder wants to move on to a new property, the lease can be sold, usually through an estate agent, and this is what is purchased when buying a flat.
When a lease is first created it has a long term, but over time the term remaining becomes progressively shorter. As the term becomes shorter, the value of the lease becomes less and the cost of extending the term increases and this can have a real effect on the marketability of the property.
If the term length goes below 80 years remaining the cost of extending the lease becomes much more expensive, due to something called “marriage value”. It is not really necessary to go into what that is, what is essential is that flat owners understand the need to extend their lease if at all possible before the lease term drops below 80 years, and preferably somewhat earlier.
Who has the right to extend?
As a general rule flat owners who have owned their flat for at least 2 years have the right to a lease extension. This can be done via the “statutory” route or frequently, by agreement with the landlord. It is advisable in most cases that a formal valuation of the cost of the lease extension is carried out.
What about “share of freehold” flats?
Many flat owners also own a share of the freehold, very frequently by owning a share in a company that owns the freehold. It is a common point of confusion that the flat lease still exists and is still relevant. The lease remains very relevant as it contains all the rules and regulations which govern the management of the building, such as responsibility for repairs and insurance. Also mortgage lenders tend to require a lease to be extended when it falls below a certain length whether or not the flat owners also own the freehold. Many of the lease extensions we do are for flat owners who also own a share of the freehold and want to extend their leases.
When to extend?
If your lease term is approaching 85 years you probably should be thinking seriously about an extension. Also if you are buying or selling a flat, and you have a short or shortish lease, a lease extension may be advisable or a requirement of the mortgage lender involved. Frequently freehold owning flat owners will extend their leases as a group as there can be a saving on legal fees, and in order to deal with the lease term so that it doesn’t cause problems in the future.
What can we do for you?
We are very skilled at the lease extension process from the pre-extension advice stage through to completion and registration at the Land Registry. We will consider your individual situation and give you clear guidance about your options and the timescales and costs involved. If instructed we will manage the process pro-actively to ensure that the extension proceeds as quickly and smoothly as it should.