Frequently asked questions – extending a flat lease
Why should I extend the lease of my flat?
- If you own a leasehold property, you effectively own a right to occupy that property for a period of time i.e. 99, 125 or even 999 years. Once the term of your lease expires, your right to occupy the property is terminated and the ownership of the flat returns to the Landlord. Extending the term of your lease extends the amount of time that you are entitled to occupy your property for and the longer the term, the more valuable your lease is.
- As the number of years that you have left to occupy your property before it returns to the ownership of your Landlord get lower, the value of the property decreases and the premium you will pay to extend the lease increases. This means that the sooner you extend the better as the premium will be less expensive if you do it when you have more years left.
- Lenders are often reluctant to offer a mortgage on a property with a short lease of which can cause problems when selling or re-mortgaging your flat and buyers want to ensure that they are purchasing a leasehold property with the maximum number of years left to occupy it. In past years, a term of 99 years was the industry norm, but we are increasingly being asked to extend leases to 110 or 125 years by buyers who are now reluctant to accept anything lower.
- You should also be aware that when the term of a lease drops below 80 years the law prescribes that ‘marriage value’ becomes payable by the tenant to the landlord as well as the standard market value. This means that overnight your premium increases substantially so if you are getting close to the 80 year mark then you will save money if you extend your lease before your term drops below it.
- Essentially, the sooner you can extend your lease the better as it will be cheaper for you in the long term!
How can I extend the lease of my flat?
- You may be able to agree the terms of the lease extension with your landlord. If so, your landlord will provide a draft lease which details the terms of the lease extension and once approved by you and completed by both parties, the new lease is registered at the Land Registry.
- If you are unable to reach an agreement with your landlord and if you meet certain qualifying criteria, including the need to have owned your flat for a period of 2 years or more, you may be able to extend you lease under the Leasehold Reform, Housing and Urban Development Act 1993. This route can be more complex and often takes longer to complete, but you will be entitled to an extension of 90 years added to the existing term of your lease and your ground rent will be reduced to a peppercorn.
- Whichever route you choose, you do need to be aware that lease extensions are complicated and we would not recommend that you try to deal with the process without obtaining legal advice from a solicitor with experience in this niche area of property law.
How much will a lease extension cost me?
- You should obtain a lease extension valuation report from a qualified surveyor who will be able to advise you as to what the market price payable for a lease extension is for your property. The premium depends on several variables, including the flat's value, the lease length and the ground rent reserved under the lease.
- If you would like a ball park estimate, you can get an indication of the level of premium payable by you to your landlord by using the Leasehold Advisory Service online calculator. However, the results are not always suitable for your particular circumstances and so should not be relied upon.
- You will be responsible for your own costs for obtaining legal and valuation advice as well as your landlord’s reasonable legal and valuation fees.
Why should I have to pay my landlord to extend the lease of my flat?
- As a leaseholder, you own the right to occupy your property for a period of time. Once the term of years of the lease expires the ownership of the right to occupy the property returns to your landlord. By extending your lease you are extending the amount of time it will take before your landlord can take back possession of your flat. The premium is effectively compensation to your landlord for having to wait longer to regain possession of its asset.
How long will a lease extension take to complete?
- If you are able to reach an agreement with your landlord, the lease extension can often be completed within 2-3 months.
- If you exercise your statutory right to a lease extension, the process is more complex and takes longer. Completion can usually be reached in 6-9 months, but it can sometimes take 12-18 months depending on whether an application to the Tribunal is required to determine any outstanding issues between the parties.
If you are looking to extend your lease, please contact the specialist Leasehold Enfranchisement Team at Mayo Wynne Baxter, who will be happy to assist you.