I’m a leaseholder and I need a lease extension – Should I wait?

Unfortunately, there is no black and white answer to this question as it depends on your personal circumstances.

The Leasehold and Freehold Reform Act 2024 is not currently implemented, and we do not know when the secondary legislation it requires will be completed by the government. The changes that the Act will bring may not kick in until 2025 or 2026.

In deciding what to do you should consider:

Will the Act make a lease extension cheaper for me?

It might do if your lease term has under 80 years left, or if your ground rent is more than 0.1% of the value of your property (i.e. over £200 on a property worth £200k). The Act was intended to help people by removing the requirement to pay ‘marriage value’ which kicks in when you drop below 80 years, and to help people who are bound to pay high ground rents in their lease by capping the sums for the purposes of computing the premium you will pay.

Will the Act make a lease extension more expensive for me?

The aim of the legislation is to make it cheaper to extend a lease or buy the freehold and the abolition of marriage value and having to pay landlord’s costs will likely achieve this – BUT at the current time it is impossible to say that ALL leaseholders will pay less.

There are some elements of the valuation of the premiums you will pay that are still uncertain  (i.e. the deferment and capitalisation rates) and it is possible that if they are set in legislation at a different rate to what is currently being used by surveyors then it could actually increase the cost of a lease extension premium.

It is thought currently that it is possible that the purchase price you would pay, where you have more than 80 years left on your lease, or a relatively low ground rent, may increase albeit that this is not what was originally envisaged.

What does this mean?

You may have your own reasons for pursuing the freehold of your flat, or a lease extension as soon as possible. For example, if you are considering selling the property imminently you may not want to wait, or if you want to obtain the freehold with your neighbours because taking over the management of your building is important to you as well as getting a lease extension. This means that there is no objective answer to whether you should extend now or wait.

However, it is anticipated that, if your lease has already fallen below 80 years or you have a high ground rent and you have no pressing need to extend your lease or purchase your freehold, then you would likely be better off waiting for the law to change before taking action. In these circumstances, the proposed removal of marriage value and the cap on ground rent in calculating the premium you will pay will be advantageous.

In what circumstances would it be prudent to extend my lease before the reforms?

• If you are looking to sell in the next year or so – lease extensions can hold up sales and cause chains to breakdown. If you know you need a lease extension and will be wanting to sell soon– you should extend now to avoid this.
• If you have 80-82 years left on your lease – the reforms are unlikely to be in before you drop to under 80 years left on your term when marriage value kicks in. You should extend now as there is no guarantee that it will be cheaper in future.
• If you are mortgaging or remortgaging and the current lease is an issue – probably better to deal with this issue now.
• If you own a share of the freehold – the changes will not impact you as in this situation you are unlikely to need to pay a premium to obtain a lease extension.

When will it benefit me to wait before extending my lease until the reforms are brought in?

• If your lease has more than 82 years left – you could extend now to take advantage of the certainty of the current legislation – or you could take your chances and hope that the legislation lowers the cost as it was intended to in due course.
• If your ground rent is above 0.1% of your property value (or will be) – it is worth waiting if you can because it many be cheaper under the amended regime.
• If your lease term has dropped under 80 years – the abolition of marriage value will likely make it cheaper if you wait.

Our specialist enfranchisement team would be happy to discuss this further with you if you’re still not sure what to do.

Jo Ironside – Partner