In this article, Leasehold Property Partner Niki Adkins provides a ‘back to basics’ look at lease extensions.
Niki outlines what a lease extension is, when you might need one and how much one costs.
What is a lease extension?
A lease extension is a legal agreement which extends the term of a leaseholder’s existing lease.
For example, if a leaseholder’s lease has 80 years left on their lease and extends by 90 years; their new lease term will be 170 years.
When should I extend my lease?
Sooner is better than later; the shorter a lease becomes, the more expensive it is to buy a lease extension. Below I speak about the issues that short leases can cause in further detail:
The problem of short leases
‘Short leases’ are an issue as most mortgage lenders don’t lend on leases with around 80 years left on the term.
This is because of an additional form of compensation becomes payable to the freeholder when a lease drops below 80 years, known as ‘marriage value’.
As a result, a property with a short lease is worth less than a property with a long lease.
How can a lease extension help with a short lease?
A lease extension would allow you to acquire an additional 90 years on top of the existing lease term.
This would make the lease more attractive to the mortgage lender due to the higher number of years left.
Why is ground rent an issue for leaseholders?
High ground rents are an issue as, in some circumstances, freeholders can take possession of a flat relatively easily if ground rent isn’t paid.
This means that lending against flats with these types of ground rents are a risk for mortgage lenders. Lenders can refuse to lend, which is where the problem lies.
How can a lease extension help with ground rent?
Leaseholders can initiate a statutory lease extension which forces the freeholder to reduce the ground rent to a peppercorn (nil) and add an additional 90 years onto the unexpired lease term.
What types of lease extensions are there?
There are two different types of lease extension:
- Statutory lease extension
- Non-statutory/informal lease extension
My colleague Niki Adkins outlines the key differences between these types of extension as well as the processes involved in her dedicated article. That article can be read here.
How much does a lease extension cost?
The cost of a lease extension is dependent on numerous components such as:
- How many years are left on the lease (shorter = more expensive)
- How much ground rent is payable under the lease
- The value of the flat itself.
At Frettens, our Leasehold Property Team can assist by putting you in contact with a specialist valuer, who will be able to provide you with an estimate of the price payable.
The team can also provide you with estimates of the professional costs involved.
Will extending my lease add value?
Yes! As I’ve said before, a longer lease is more valuable than a short lease.
A lease extension will increase the term of the lease, which usually means the flat will be more attractive to purchasers and mortgage lenders. The value will therefore increase.
In addition to the added value, the flat generally generates more interest from buyers than a neighbouring flat without an extension.
How can Frettens help?
Our specialist Leasehold Property Team is one of the largest in the region and are happy to discuss any of the issues outlined in this article.
If you have any questions, please call 01202 499255 and we can discuss your specific circumstances.
We also offer all new clients a free initial chat with one of our bright, knowledgeable lawyers.
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