Leasehold property piqued the interest of the Guardian newspaper at the close of 2016. Their string of articles on ground rent clauses might have got you thinking about the lease on your own flat, and particularly – how long it is.
Lease extensions can seem daunting to begin with. When you start researching, you find words like ‘statutory’ and ‘notice’ and ‘premium’. It seems like a specialist area, and it is. But complicated as it may seem, the right solicitor can de-mystify the jargon and guide you through the process.
Why do we leasehold property in the first place?
Leasing harks back to the Medieval age, where feudal lords wanted to keep their land whilst reaping the benefits of having serfs work it. Land owners received a chunk of the income in return for permitting serfs to work the land for a fixed period of time.
From the 1950’s onwards, blocks of flats became increasingly popular for developers as they could take best advantage of a plot by building upwards. To divide and sell these properties, individual flats were granted on long leases for a fixed number of years. Given that a block of flats all share the same plot of land, freehold ownership of a flat is very rare and often leads to problems in dealing with maintenance of the building. It is much more common for lessees to own a leasehold interest in relation to their flat and own a share of the freehold, which is of great benefit if you wish to extend.
What actually is a lease extension?
‘Lease extension’ is a rather misleading term. What actually happens is that your lease will be surrendered, and then re-granted on the same terms as your current lease with a term of more years. This is also a great opportunity to review the terms of your lease to see whether they are fit for purpose. Some older leases don’t live up to modern conveyancing standards and can cause you problems when you come to sell.
If you don’t own your freehold or have a share in it, there’s a limit to how much you can change as you’ll have to agree any amendments with your landlord. However, most will agree to amendments that are reasonable and necessary.
How do I extend my lease?
Fortunately, things have moved on since the Medieval times and there is legislation to protect the rights of leaseholders. The principle statute is the Leasehold Reform, Housing and Urban Development Act 1993. If you have owned your flat on a long lease for at least two years and fulfil the criteria, you can choose to exercise your statutory right. You will serve a notice upon your landlord with a proposed premium, and receive a counter notice in turn. What does this get you? An additional 90 years added to the unexpired term of your existing lease, and a peppercorn ground rent. In return you will have to pay a market premium to your landlord.
This isn’t the only way to go, and if you haven’t owned your flat for two years you can still approach your freeholder informally. Landlords are usually quite happy to sell lease extensions to tenants. That being said, they often require you to pay for them to receive specialist advice about the level of premium you should be paying. Be prepared for them to ask you to pay for their valuation report. Once undertaken, you’ll receive a letter stating the amount of premium they require from you, what length of term you will receive and the level of ground rent you will pay in the future. If you’re happy to agree those terms then your solicitor will advise you about next steps.
Regardless of which route you pursue, it’s always recommended that you have a qualified surveyor inspect the property and advise you of the premium you should pay to ensure you are paying the right price. This valuation is not the same as a market valuation for selling, but is specific to your lease extension and should be undertaken by a qualified surveyor.
It might be tempting to put off extending your lease, especially as you will have to pay your freeholder’s legal fees as well as a premium. Unfortunately, postponing your lease extension can be a costly mistake. As the remaining term gets shorter, your Landlord is entitled to demand a higher premium and you might end up paying out more than you intended. Not only that, but Stamp Duty Land Tax (SDLT) is payable if your premium exceeds a certain amount.
What’s more, if you are thinking of selling your property, buyers and their mortgage lenders might shy away from a lease with less than 80 years to run. This can restrict who you can sell your property to, as well as its value. Eventually, the term of the lease can lapse and if not extended, your property reverts to the ownership of the freeholder.
Spend time finding out when your lease term ends and you’ll be pleased you planned ahead. If you’d like help extending your lease, we’d like to offer you specialist legal advice. Mayo Wynne Baxter has a dedicated Leasehold Enfranchisement team to ensure you get the best guidance for your situation, and we would love to hear from you.