If you own a flat in England or Wales, you will most likely own it on a leasehold basis, as around 99% of flats, and some houses (around 40% in Sheffield) are owned in this way. If you own a flat leasehold, you will only own the right to live in it (the right of occupation) for the period of the lease term, not the actual land or property. When the lease expires, ownership of the whole property and the right to occupy will revert to the freeholder unless you extend the lease.
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Why should I extend the lease on my property?
Properties with a short lease are simply not worth as much as those with a longer lease, so extending the lease will add value to your property.
Trying to sell a property with a lease of less than 60 years will be practically impossible as, unless the prospective buyers wish to pay cash, its very unlikely that they will be able to get a mortgage on the property. It’s also unlikely that you would be able to remortgage the property should you wish to. If the lease period left is less than 70 years, mortgage rates are likely to be higher.
If you have a lease of 90 years or more left on the property and are planning on staying put, extending it is not likely to be cost effective as it will not increase the value of the property very much. It is advisable to consider extending your lease as it reduces from 90 years. It becomes more expensive to extend a lease as the lease period declines. Conversely, the lower the number of years left on the lease, the more the initial increase in the value of the property if you extend it.
Can I extend my lease?
In general, if you have owned a long lease (a lease of at least 21 years when originally purchased) on your property for at least two years, legislation allows you to extend the lease by 90 years on a flat and 50 years on a house, with a nominal or very low rent payable (peppercorn rent). This statutory route is enabled by the Leasehold Reform Housing & Urban Development Act 1993. It’s important to note that you don’t have to live in the flat to apply to extend the lease – just own it. This entitlement is not valid if the property is provided as part of the functions of a charity and the landlord is a charitable trust, or if the lease is a commercial one.
Graysons can help you if you don’t wish to take the statutory route but wish to negotiate the lease extension with the freeholder yourself. You should note that if using this route, you are not protected by the Act and your freeholder can refuse to extend the lease, decide to charge a higher rent or change the terms of the lease. However, it can take less time and be more relaxed and flexible. If your negotiations fail, you can then go down the statutory route.
If you are planning to buy a property and then apply to purchase the freehold or extend the lease – remember you may have to wait for two years before you can do this via the statutory route, which may take you to the point where the extension becomes more expensive. You can make an informal request to the freehold title holder to extend the lease or purchase the freehold title, but you will not be guaranteed a response to your request until you have owned the leasehold title for in excess of two years.
What advice do I need to take to extend the lease on my property?
You will need to take advice from various professionals in order to ensure your lease extension goes smoothly.
If you wish to take the statutory route, the freehold title holder will need to instruct a valuer (surveyor), who will:
- advise on the expected value of the property once the lease extension has been applied, and the value of the lease extension or the freehold title to be purchased separately if it is a house (it is unusual to purchase the freehold title to a flat)
- advise how much the lease extension will cost. Although there is no ‘fixed cost’, if you are going down the statutory route, the cost will be based on provisions within the 1993 Act, so a valuer will usually offer best and worst case cost scenarios
If you do not follow the statutory route, it is unlikely that the freeholder will instruct a valuer. The freeholder will most likely come up with their own figure, and you must decide whether you wish to accept it.
You will need to instruct a lawyer who is experienced in leasehold law, which is extremely complex. If you are following the non-statutory route, a lawyer may:
- check and advise on the terms of the new lease
- check and approve the documents prepared by the freeholder or ask for amendments
- carry out the conveyancing on the new lease
You should ensure that you have the funds available to pay the lease extension cost and your professional fees. Depending on the length of your existing lease, you may be able to obtain a remortgage to cover these costs. You will usually also be required to pay for the surveyor (if used), the landlord’s legal fees and a document fee for the drafting of the lease extension by the landlord.
Whichever route you take, you will be asked for a deposit. If you follow the non-statutory route, this will usually be once the price for the extension has been given. The landlord will also ask for an undertaking from your lawyer, agreeing that all costs will be paid even if the extension does not go ahead. Once the undertaking has been provided and the deposit paid, the landlord will prepare the necessary documents.
Will the terms of my existing lease change?
If you extend your lease using the statutory process, the terms of your new lease must remain the same as your existing lease unless:
- property that is not included within the existing lease will be included in the new lease
- you have made alterations to the property since you purchased the existing lease
- original service charges were incorrectly drawn up and the landlord cannot recover the full cost of repairs or insurance
If you use the non-statutory route to extend your lease, you can negotiate with the landlord, but it is possible that the new lease could include additional requirements. Graysons lawyers would check the new lease carefully and advise you.
How much will it cost to extend my lease?
No matter which route you take to extend your lease, the cost will depend on several factors, including:
- the value of the property
- the amount of time left on the existing lease
- the ground rent payable
- the amount of negotiation required to secure the extension with your freeholder (where applicable). The longer the existing lease, the less the extension will cost
According to Money Saving Expert, the typical cost to extend the lease on a £200,000 flat by 90 years when the existing lease is 85 years is £6,000 plus professional fees. On a £200,000 flat with a 60-year existing lease, the cost is £24,000 plus professional fees. The increase in the value of the flat will be more in the 60-year lease scenario.
You can get an estimate of what it will cost to extend your lease on the Leasehold Advisory Service’s website.
What other costs are involved?
Graysons fees for the extension of a lease, with no complications, will be about £660 including VAT.
You will also have to pay the freeholder’s reasonable legal and valuation fees (if applicable).
You will need to pay the surveyor’s fees for the valuation of the cost of extending your lease if you take the statutory route.
Stamp duty land tax
Stamp duty is unlikely to affect you if you are extending the lease on a flat as you don’t have to pay anything if the cost of extending the lease is less than £125,000. If the cost of the lease extension is more than £125,000, you will need to pay stamp duty at the standard rate. It is important to note that if the property on which you are extending the lease is not your only property, you will pay enhanced stamp duty land tax, which is 3% above the standard rate.
What happens if the freeholder does not accept my offer?
If the freeholder does not accept the offer you make using the statutory route, they will probably make a counter offer and you will need to negotiate with the freeholder. If this doesn’t work and you are at an impasse with the freeholder, you will need to apply to a First-Tier Tribunal to settle the matter.
This does not apply to lease extensions made by the informal route, in which the freeholder will offer you a price and you may negotiate from there.
How long will it take to extend my lease?
Generally, using the statutory route, a lease extension can take two to three months. Using the non-statutory route, it can take from one to three months, depending on the size of the freeholder, the negotiations, the speed at which the freeholder prepares documents and how long it takes to agree terms.
What can Graysons do to help?
Graysons’ property lawyers are experts in dealing with leasehold properties and can help ensure that your leasehold extension goes smoothly if you are using the non-statutory route. Please contact us now to find out more or arrange to make an appointment with one of our property experts. You can also find out more about leasehold and freehold properties on our web pages.