How to Extend Your Lease Without Paying Over the Odds

If you have a leasehold property the law protects you in a certain way and allows you to extend that lease without paying an exorbitant price.

Along with other property changes the government has recently announced proposals to standardise the cost of a lease extension so leaseholders could save thousands on their lease extension and it won’t cost more to extend the lease when it drops below 80 years.

The new proposals include:

• Abolishing costs such as “marriage value” – a fee based on the increase in the value of the property once the lease has been extended.
• Setting more fair and transparent rates for calculating the costs of a lease extension or freehold purchase.
• Introducing an online calculator for leaseholders to easily work out how much it will cost to extend their lease or buy their freehold.

These measures are meant to make the current process more transparent, fair and ultimately cheaper.

“This is good news, but until then what do you do if you want or need to extend your lease?” said Paul McGladdery at Pearson solicitors.

“The costs still all depend on the term left, rent paid etc. but the big thing here is the removal of the marriage value which really hikes the premium to be paid to the landlord.”

What is a leasehold and how am I affected?

Basically with leasehold you own a long lease of property for a fixed period, usually somewhere between 125 years and 999 years. Your legal agreement with the landlord (sometimes known as the ‘freeholder’) is called a ‘lease’ and it will confirm how many years you’ll have use of the property.

Long leases are sometimes referred to as “virtual” freeholds given the time you have them for and in practice, day to day, it is unlikely you would notice much difference between the two. The main difference is when the lease is at an end the property returns to the landlord.

Most leases are for 99+ years but others are shorter and at some point will run out.  Extending a shorter lease is a good idea as not only are your resale prospects better, but many mortgage lenders will refuse to lend where there are less than 80 years remaining of the term of the lease. It is at this point usually when estate agents and mortgage lenders consider the length of a lease could adversely affect the value of a property and its 'mortgageability'.

Freehold and Leasehold

• Freehold - you own the property and the land it is built on totally and for an unlimited period.
• Leasehold - here you own the lease of the property for a set period of time but do not own the land it is built on, that is owned by the freeholder. If your lease expires ownership of your property technically passes to the freeholder.

Flats are almost always leasehold as this enables the landlord or a management company to look after the common parts of the block (such as the roof, landings, stairs/lifts and car parks) and recover the cost of this from all of the residents. It also enables the enforcement of covenants (what you can and cannot do) in a lease more easily.

“So if your neighbour is noisy and causing a nuisance to you, in simple terms, you can ask your landlord to enforce the covenant which is likely to be in you rand your neighbour’s lease not to cause a nuisance  - this process is more involved and if you need advice on this topic please contact us,” added Paul.

A flat that is freehold is unusual, but there are some. This is usually an issue as many lenders will not lend against them. It is also harder, should you need to, to enforce covenants on neighbouring flat owners.

Most houses are freehold, but many developers have sold the houses they’ve built on estates as leasehold. Whereas once upon a time the local council and water authority would adopt (agree to maintain at their cost) the roads and the water mains and sewers serving the properties on an estate this is often no longer the case. Developers are required to put in place measures for the maintenance and repair of these services and other common areas (such as play grounds or landscaped areas) and for the same reason this works with flats developers have chosen to make many houses leasehold.

Requesting an extension to my lease

There are two ways you can extend your lease:

1. The first is to speak to your landlord and agree terms to extend. With this method everything is up for negotiation. You may, or may not, be able to agree more favourable terms than using the “statutory” method, described below. If you do not qualify for the statutory method then this would be your only option, but should you qualify and not be able to agree on terms you are happy with then the statutory method can still be used.
2. The statutory method was introduced in the 1993 Leasehold Reform Act, which permits most leaseholders who have lived at the property for at least 2 years to add 90 years to their lease and reduce their rent to a peppercorn (which in practice means to nil). The freeholder (landlord) is paid a lump sum or a ‘premium’ for the granted extension.

How to extend a lease?

A solicitor can advise on the process, help get the appropriate valuations done and serve your notice to the freeholder and finalise the extension.

The 1993 Act only applies to residential properties.

Cost of a lease extension

The leaseholder has to pay the freeholders costs, and in addition other costs include; the cost of a surveyor for the valuation report, stamp duty land tax, land registry fees and of course legal fees.

The calculation on the costs and value of the lease will be based on a variety of things such as: property value and any improvements you have done, years left on the lease (and again do it before it goes below 80 years), and annual ground rent.

If you want to discuss extending your lease don’t delay.  Although reforms are said to be the pipeline they may still take a while and if you drop below 80 years you may be stuck with a lease that’s more expensive to extend.

For advice on all aspect of commercial property contact our commercial property solicitors on 0161 785 3500 or email enquiries@pearsonlegal.co.uk.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.