All Leases run for defined term, this can be anything from 99 years, 125 years to 999 years. Even though this may seem like a long period of time you may need consider extending your Lease when the term reaches 85 years. The process usually takes between 3 to 12 months. It is important that you keep track of the term left on your Lease for many reasons for instance:
It can deter future buyers and reduce the number of potential offers. Lenders do not favour a Lease term less than 80 to 75 years.
Affect the future value of the property
The longer you leave it to extend your Lease the higher the cost. If the lease falls below 80 years the Freeholder is entitled to calculate and charge a higher amount which is know as the Marriage Value. This is a calculation based on the value of the property and the longer Lease. Extending the Lease where the term has not reached 80 years there is no marriage fee payable.
The 1993 Leasehold Reform Act gives you the right to extend your Lease for an additional 90 years, this is on top of the current term at a peppercorn ground rent. In order to qualify to extend your Lease you must have be a Leaseholder for 2 years and you must have a long lease.
The legislation does not formally require a full valuation for an application for a new lease but it is strongly recommended that you do not proceed without proper valuation advice. For a successful application you are recommended to appoint a Valuer and a Solicitor. The process is started by serving the initial notice know as a Section 42 Notice on the Landlord. Once this notice has been served there is a strict timeline that follows. The Landlord has 2 months to respond to the notice and any correspondence must be replied to in 21 days. The Landlord must respond to this notice by serving a counter notice. Should the landlord fail to respond then the extension will be granted on terms set out in your notice. The Landlord may serve a counter offer alongside the notice but you should seek advice on this before you agree to anything. Your legal advisor will be able to guide you through the process from this point.
In considering the likely premium you should also bear in mind the leaseholders’ liability for the landlord’s costs. The eventual cost of the new lease will be the premium plus both your own and the landlord’s “reasonable” legal and valuation costs. Once the Premium has either been agreed the solicitors would agree the form of the new lease and proceed to complete the lease extension. It is always a good idea to consider the costs before you proceed with the Lease Extension. The Lease Extension Calculator can give you a rough idea of the costs and it is easy to use – http://www.lease-advice.org/calculator/.
Once the premium is agreed and no changes to the terms of the lease are proposed, terms of acquisition are agreed at this point and you have four months to complete the lease extension. This is a strict deadline and failure to complete within this timescale would result in a deemed withdrawal from the transaction.
If you are looking to extend your Lease it is always worth speaking to the Landlord or Freeholder directly before you serve a Section 42 notice. You may be able to agree terms between yourselves which will make the process more smooth for all parties involved saving time and money!
The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.