Posted on 3rd May, 2018
Why should I extend my lease?
Nearly all flats and even some houses are sold on a leasehold basis with lease durations ranging between 99 years and 999 years. The abuse of the leasehold system in the housing market has recently come under close scrutiny and more and more people are becoming concerned about the length of their leases. There are three separate pieces of legislation that are particularly important if you want to extend your lease: The Leasehold Reform Act of 1967, The Leasehold Reform Housing and Urban Development Act 1993 and The Commonhold and Leasehold Reform Act 2002.
Here are some really sensible reasons why you should consider extending your lease:
- A lease is a diminishing (or wasting) asset which means that as time goes by it becomes shorter and less valuable. In general terms, any lease with an unexpired term of less than 85 years is considered to be “short”. As the lease becomes shorter, it becomes more expensive to extend and once the lease drops below 80 years the cost of the lease extension tends to increase quite dramatically due to the inclusion of Marriage Value in the calculation of the cost. For flats, the 1993 Act gives leaseholders the statutory right to obtain a lease extension that adds 90 years to the lease term. At the same time it reduces the ground rent to zero (commonly referred to as peppercorn) and all the other terms of the lease remain unchanged. If you have owned your leasehold flat for two years or more then you can claim your right to a lease extension (as long as the original lease term was longer than 21 years). This applies to Buy To Let properties as well as you do not need to live at the property to exercise your right to extend the lease.
- In many cases, leasehold house or flat owners do not realise that they have a short lease until they come to put the property on to the market. In most cases an estate agent is likely to warn them that not only will the property be more difficult to sell than normal but also that the sale price likely to be achieved will be considerably below normal – usually to a cash buyer who will be looking for a “deal”. It is possible to sell the property with the benefit of a lease extension but both the estate agent and your solicitor will need the relevant experience to make sure that the transaction goes through smoothly. You will also need a buyer who is prepared and capable of enacting the lease extension once the sale has gone through.
- Obtaining a re-mortgage can also be challenging when you have a short lease. Some lenders have set lending criteria that include a minimum unexpired lease term which is often in excess of 80 years. It is very important that you know the length of your lease and that you do not allow it to fall below 80 years. Once the unexpired term falls below 80 years an element called Marriage Value must be taken into account which increases the premium for a lease extension quite dramatically.
- Much of the Media Commentary about “leasehold abuse” has been about increasing and extremely high ground rents. A ground rent is an annual amount paid by the leaseholder to the freeholder – sometimes as one payment or sometimes paid in half yearly amounts. In many recent cases the amount of ground rent payable (particularly in relation to the value of the property) and the speed at which it increases has left some leasehold property owners with flats and houses that are next to impossible to sell. A statutory lease extension gives you both the right to extend your lease and also reduces your ground rent to a peppercorn for the duration of the lease. This means a statutory lease extension can be used to remove an onerous ground rent and resolves the issue of a high ground rent.
- By extending your lease, you preserve and safeguard the value of the asset and maintain your financial security and that of your family for the future.
If you have a leasehold property then you should check the how many years are left to run. The longer the better, but there really is no time like the present as the premium payable for a lease extension will always cost more next year than it will today! If your lease has an unexpired term of just over 80 years then please contact us now so that we can ensure that you do not pay the extra Marriage Value.