What is a leasehold property and how do I extend a lease?

by Lee Bradbury

Lots of people in England and Wales own a leasehold property, so we’ve compiled bite-sized answers to some frequently asked questions.

We’ll get to those further down in this blog article, but the first thing to note is that flats are commonly owned on a ‘long lease’ basis.

A lease is usually granted for anywhere between 99 and 999 years, with owners of long leases having certain rights, including around the extension of a lease.

Read on as we walk you through the basics about leasehold properties.

Can my lease expire?

Yes, like any tenancy, leasehold has a start and finish. Make sure you know how long is left before you buy, because as it gets shorter, it becomes more difficult to sell. If your lease expires, you have certain rights if you live in the property. But if you carry on living there you’re likely to have to pay a market rent. Therefore, it’s advisable to extend the lease well before it runs out.

What does ‘short lease’ mean and what can I do about it?

If you’re selling your flat and your estate agents tells you that you have a ‘short lease’, this means that the remaining length of your lease has reached a point where it may be a concern for a buyer’s mortgage lender. But the good news is that leases can be extended to overcome the short lease problem. You’ll need to contact your landlord to ask for an extension and this can be done formally or informally.

What is the formal method to get my lease extended?

You will have a right to extend the lease of a flat after two years of ownership, but you will have to pay the freeholder for this and the cost can be quite hefty, depending on the length left on the lease. The formal way of doing things means using the rights granted under the Leasehold Reform Housing and Urban Development Act 1993. Like we said before, subject to owning the flat for two years, you can force your landlord to extend the lease.

How do I formally get my lease extended?

Under the Leasehold Reform Housing and Urban Development Act 1993, you start by sending a legal notice to your landlord, called the ‘initial notice’. The law requires that certain information is included, crucially, the price you propose to pay to extend the lease. The initial notice also gives your landlord no less than two months to serve a ‘counter-notice’.

Your landlord’s counter-notice is likely to set out their preferred price, but if this is higher than you wish to pay, you’ve got two months to negotiate a deal. However, if the terms of the sale (including the price) can’t be agreed within that period, the First-tier Tribunal (Property Chamber), in England, and the Leasehold Valuation Tribunal, in Wales, can decide the price. Once the terms of the lease extension (including the price) have been agreed or decided by the tribunal, you and your landlord can then move to complete the lease extension.

If you’re pursuing the tribunal path, it’s advisable to get a knowledgeable solicitor to assist you. But before any work is done, you should ensure that you receive clear estimates of the likely professional fees. This is especially the case because you will also have to pay your landlord’s ‘reasonable’ costs.

What do I get if I extend my lease using the formal process?

You’re entitled to an extra 90 years on top of what is remaining and the ground rent on your new lease becomes a peppercorn (nil) rent. So, if 75 years are left to go, a new lease of 165 years (90 plus 75) can be granted in substitution for the existing lease, with no rent to pay throughout the 165 years.

What is the informal process to get my lease extended?

The informal method is essentially a negotiation with your landlord, but proceed with caution as this route takes place outside of the formal rights to extend under the law. Essentially, it’s a negotiation and landlords sometimes put forward excessive terms. As such, make sure you have the price and terms of the extended lease checked by a knowledgeable solicitor and valuer to ensure that the deal is a good one. But again, before any work is undertaken, you should ensure that you receive clear estimates of the likely professional fees.

 How is the price determined for a lease extension?

This is a very technical calculation, and so you should ask a specialist valuer to provide you with their view on the price of the lease extension. The price to be paid boils down to determining the following values:

  1. ‘The Term’: the value of ground rent over the remaining years of the lease;
  2. ‘The Reversion’: the value for your landlord of getting the property back at the end of the lease; and
  3. ‘Marriage Value: this is payable where there are 80 years or less left on the lease. It’s basically the increase in the value of the flat arising from the new lease. The law says it is to be shared equally between you and your landlord.

Is anything being done to make extending a lease easier?

The Law Commission has published a report setting out options for reducing prices to extend a lease and for simplifying the way in which the price is calculated.

Where can I get more advice on lease extensions ?

Contact the Leasehold Advisory Service (LEASE), who helped us compile this information. LEASE is a publicly funded service giving free advice online, by telephone, in writing and face-to-face.

Visit https://www.lease-advice.org/ for more details or check out our Advice Hub: https://www.rightmove.co.uk/advice/

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